Reference no: EM132668952

Para Corp. purchased a controlling interest in Aurora Inc. on December 31, 20X5. Net identifiable assets were equal to their book values on this date. Aurora operates in Italy, where the currency is the euro. In preparation for the consolidation process, the financial statements of Aurora need to be translated into Canadian dollars, and the appropriate translation gain or loss calculated.

Below are Aurora's financial statements for the year ended December 31, 20X6:

Aurora Inc. Statement of financial position As at December 31         20X6                  20X5

Cash                                                                                       € 100,000           € 84,000

Accounts receivable                                                                    375,000               400,000

Inventory                                                                                    250,000            225,000

Property, plant, and equipment - net                                               1,102,000              945,000

Total assets                                                                               € 1,827,000            € 1,654,000

Accounts payable                                                                         € 309,000               € 288,000

Bank loan                                                                                    210,000                   190,000

Total liabilities                                                                               519,000                  478,000

Common shares                                                                               1,000,000             1,000,000

Retained earnings                                                                          308,000                      176,000

Total liabilities and equity                                                                € 1,827,000               € 1,654,000

Aurora Inc. Statement of comprehensive income Year ended December 31, 20X6

Sales € 4,125,000

Cost of goods sold 2,475,000

Gross margin 1,650,000

Selling, general, and administrative expenses 1,235,000

Net income before tax 415,000

Income tax expense 103,750

Net income € 311,250

Foreign exchange rates

Average last quarter of 20X5 €1 = C$1.39

December 31, 20X5 €1 = C$1.37

December 15, 20X6 €1 = C$1.33 December 31, 20X6 €1 = C$1.35

Average rate 20X6 €1 = C$1.36

Average last quarter of 20X6 €1 = C$1.34

Additional information:

Inventory purchases were made evenly throughout the year.

Ending/beginning inventories are purchased evenly throughout the last quarter of each year.

Depreciation of €143,000 is included in selling, general, and administrative expenses.

Equipment was purchased on December 31, 20X6, using €300,000 cash.

Dividends declared and paid (December 15) totalled €179,250.

Problem 1: Assuming that Aurora's functional currency is the euro, what is the amount of translation gain or loss that arises in 20X6?

a) $30,217 loss

b) $26,632 loss

c) $21,537 loss

d) $154,680 gain