Reference no: EM132661282

Jones Corporation established a wholly owned Canadian subsidiary on January 1, Year 1, by contributing US$500,000 for all of the subsidiary's common stock. The exchange rate on that date was C$1:US$0.90 (that is, one Canadian dollar equaled 90 U.S. cents). The Canadian subsidiary invested $500,000 in a building with an expected life of 20 years and rented it to various tenants for the year. The average exchange rate during Year 1 was C$1:US$0.85, and the exchange rate on December 31, Year 1, was C$1:US$0.80. The average exchange rate during Year 2 was C$1:US$0.82, and the exchange rate on December 31, Year 2, was C$1:US$0.84. The Canadian subsidiary declared and paid dividends on December 31, Year 1 and Year 2.

answer:

Problem 1. Generate the dollar basis financial statements for Jones Corporation's Canadian subsidiary using the All-Current Translation Method.

Problem 2. Using the spreadsheet template provided, generate the dollar basis financial statements for Jones Corporation's Canadian subsidiary using the Monetary/Nonmonetary Translation Method. Based upon the information provided above, type the correct exchange rates into the shaded cells using the information in Column H to understand which exchange rate goes on each row.

Problem 3. Explain how the income statements differ between the two methods.