Translated Statement

    Liverpool Company operates retail stores
    in Canada and an exporting business in London that specializes in buying and
    selling British tweeds. The London subsidiary provided the following financial
    statements in pounds sterling to the Canadian parent company.

    LIVERPOOL COMPANY,
    London Branch
    Statement of
    Comprehensive Income
    For the Year Ended
    December 31, 20X5

    Sales £ 2,300,000
    Cost of
    goods sold (1,200,000)
    Depreciation
    expense (300,000)
    Other
    expenses (300,000)

    Comprehensive
    income £500,000

    LIVERPOOL
    COMPANY, London Branch
    Statement of Changes in Equity—Partial—Retained Earnings section
    For
    the Year Ended December 31, 20X5

    Retained
    earnings- January 1 £ 850,000
    Comprehensive
    Income for the year 500,000
    Less:
    Dividends declared and paid,
    December
    31 (200,000)
    Retained
    earnings- December 31 £ 1,150,000

    LIVERPOOL
    COMPANY, London Branch
    Statement
    of Financial Position
    As
    at December 31, 20X5

    Cash and
    receivables £ 1,150,000
    Merchandise
    inventory 450,000
    Property,
    plant, and equipment 3,450,000
    Total £ 5,050,000

    Current
    liabilities £ 700,000
    Long-term notes payable, due 31 December, 20X9 1,200,000
    Capital
    stock 2,000,000
    Retained
    earnings 1,150,000
    Total £ 5,050,000

    Liverpool Company was incorporated on
    January 1, 1984, at which time an amount of property, plant, and equipment with
    a present (December 31, 20X5) Net Book Value of £3,000,000 was purchased.
    Additional equipment was purchased December 31, 20X4 (20% of depreciation
    expense relates to this new equipment). The long-term notes were issued, to replace financing provided by the parent,
    on January 1, 20X4.

    Direct exchange rates for the pound
    sterling (1 $C/£ ) are:

    January 1, 1984 $1C= $1.9180
    January 1, 1986 1.8365
    January 1, 20X4 1.6000
    Average for the
    fourth quarter 20X4 1.5612
    December 31,
    20X4 / January 1, 20X5 1.5426
    December 31,
    20X5 1.4730
    Average for 20X5 1.5093
    Average for the
    fourth quarter 20X5 1.4950

    The January 1, 20X5 retained earnings
    balance of the London Branch of the Liverpool Company correctly
    translated to Canadian dollars was $1,783,774. The beginning inventory
    of £380,000 was acquired during the last quarter of 20X4 and the ending
    inventory was acquired during the last quarter of 20X5. Sales and purchases
    were made, and other expenses were incurred, evenly throughout the year.

    Required:
    Compute the gain or loss on holding net
    monetary items for the Liverpool Company for the year ending December 31, 20X5.

    Translate the statement of comprehensive
    income of Liverpool Company for the year ending December 31, 20X5 into dollars,
    assuming that the temporal method is appropriate.

    Translate the December 31, 20X5 statement
    of financial position of Liverpool Company into dollars assuming that the
    temporal method is appropriate.

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