Reference no: EM132588304

California, which was acquired January 1, 2017. US1 submitted its financial statements for 2017 to ABC.

US1 financial results for 2017 were as follows:

US1 Financial Statements at December 31, 2017

(in U.S. dollars)

Income Statement:

Sales                            $5,000,000

Cost of Sales                $3,000,000

Depreciation Expense       $150,000

Bond Interest Expense   $100,000

Other Expense            $750,000

Net Income                  $1,000,000

Statement of Retained Earnings:

January 1, 2017:               $400,000

Net Income                    $1,000,000

Dividends                        ($100,000)

December 31, 2017:             $1,300,000

Balance Sheet:

Cash                                       $1,200,000

Accounts Receivable                  $2,400,000

Inventory                                  $700,000 ($500,000 January 1, 2017)

Plant and Equipment (net)              $400,000

                                                 $4,700,000

Current Liabilities                         $400,000

Bonds Payable                            $2,000,000

Common Shares                            $1,000,000

Retained Earnings                            $1,300,000

                                                      $4,700,000

US1 is considered to be a self-sustaining subsidiary (i.e., the functional currency of the foreign operation is different than the parent).

Assume the following exchange rates were in effect during 2017:

January 1, 2017:

US $1 =CDN $0.715

December 31, 2017:

US $1 =CDN $0.7175

Average for 2017:

US $1 = CDN $0.725

Date of Purchase of Inventory on Hand:

US $1 = CDN $0.72

Date Dividends were declared and paid:

US $1 = CDN $0.7125

Problem 1: Using the table above, translate the value of retained earnings at the beginning of the year.

Problem 2: Using the table above, translate the value of Dividends paid at the end of the year. Now assuming US1 is an integrated foreign operation, translate the value of sales for the year.

Problem 3: Now assuming US1 is an integrated foreign operation, if there were no capital asset additions or disposals in 2017, calculate the depreciation expense for the year.

Problem 4:  Now assuming US1 is an integrated foreign operation, if the bonds were outstanding throughout the year, translate the company's bond interest expense for the year?

Problem 5: Now assuming US1 is an integrated foreign operation, and for the sake of simplicity, assume that US1's cost of sales was calculated to be CDN$3,000,000. What is the amount (in Canadian dollars) of US1's net income?