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Golden Bells Inc. is a foreign subsidiary of Northern Bells Ltd., a Canadian company.

Golden Bells Inc. is a foreign subsidiary of Northern Bells Ltd., a Canadian company. Northern Bells had purchased 90% of the outstanding shares of Golden Bells at the beginning of 20X9 for 20,160 foreign currency (FC) units. At the acquisition date, Golden Bells’ balance sheet in FC units is as follows:


DR CR
Current monetary assets 14,000
Inventory 11,200
Equipment (net) 28,000
Current liabilities 12,600
Long term debt 22,400
Common shares 14,000
Retained earnings ______ 4,200
53,200 53,200


At the acquisition date, the only acquisition differential was in regard to the equipment, which had a fair value of 30,800 FC and an estimated remaining useful life of 10 years.

The relevant exchange rates for 20X9 are as follows:

January 1 FC 1 = $1.10
September 15 FC 1 = $1.20
December 31 FC 1 = $1.25
Average rate for 20X9 FC 1 = $1.18

Balance Sheets
December 31, 20X9

Northern
Bells Ltd.
$ Golden
Bells Inc.
FC
Assets:
Current monetary assets 44,173 23,800
Inventory 42,000 15,400
Investment in Golden Bells 22,176 -
Equipment (net) 84,000 25,200
Total assets 192,349 64,400
Liabilities:
Current monetary liabilities 36,400 16,800
Long-term debt 56,000 22,400
Total liabilities 92,400 39,200
Shareholders’ equity:
Common shares 42,000 14,000
Retained earnings 57,949 11,200
Total shareholders’ equity 99,949 25,200
Total liabilities and shareholders’ equity 192,349 64,400

Income Statements
Year Ended December 31, 20X9

Northern
Bells Ltd.
$ Golden
Bells Inc.
FC
Sales 503,849 140,000
Dividend income 6,300 ____-___
Total revenue 510,149 140,000
Cost of goods sold 252,000 82,600
Operating expenses 217,000 44,800
Total expenses 469,000 127,400
Net income 41,149 12,600

At the end of 20X9, Northern Bells and Golden Bells declared dividends of $30,800 and 5,600 FC, respectively.

Golden Bells’ goods in inventory at the end of 20X9 were from a special purchase made September 15, 20X9.

Golden Bells had a goodwill impairment loss of 140 FC that occurred evenly throughout 20X9.

Northern Bell uses the entity theory method to consolidate its subsidiary.

Required:

Prepare Northern Bell’s consolidated financial statements for December 31, 20X9, assuming that Golden Bell’s functional currency is

a) the Canadian dollar, and (18 marks)
b) the foreign currency unit. (16 marks)

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This question was asked on Dec 31, 2012.

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