SuperSpan Corporation is a foreign subsidiary of Port Corporation, a Canadian company. SuperSpan was acquired on January 1, 20X6. On this date, there was no purchase price discrepancy and the fair values of SuperSpans identifiable assets and liabilities were equal to their carrying values. SuperSpan manufactures furniture for sale based on sales prices determined by worldwide competition. The chief financial officer of SuperSpan emailed the following December 31, 20X7, stated in euros (¬), to you, the CFO of Port:
Additional Information
1. The following exchange rates were noted:
January 1, 20X1……………………………………………………………..¬1 = C$1.55
January 1, 20X6……………………………………………………………..¬1 = C$1.52
Average for October 1December 31, 20X6…………………..¬1 = C$1.48
Average for 20X6…………………………………………………………..¬1 = C$1.50
December 31, 20X6……………………………………………………….¬1 = C$1.45
July 1, 20X7……………………………………………………………………¬1 = C$1.44
Average for October 1December 31, 20X7…………………..¬1 = C$1.43
November 1, 20X7…………………………………………………………¬1 = C$1.41
Average for 20X7…………………………………………………………..¬1 = C$1.42
December 31, 20X7……………………………………………………….¬1 = C$1.40
2. On January 1, 20X1, SuperSpan acquired equipment for ¬900,000 with an expected useful life of nine years. On July 1, 20X7, it acquired ¬400,000 of new equipment with an expected useful life of eight years. SuperSpan amortizes its equipment on a straight-line basis, calculated monthly.
3. SuperSpan partly financed its acquisition of equipment on January 1, 20X1, by issuing ¬400,000, eight-year, 5% bonds payable. Similarly, SuperSpan financed its acquisition of equipment in 20X7 by issuing ¬400,000 of common shares on July 1, 20X7.
4. Inventory on hand on December 31, 20X6, and December 31, 20X7, includes a significant amount of wood imported from western Canadian timber firms. It was purchased evenly over the last three months of 20X6 and 20X7.
5. Dividends of ¬40,000 were declared and paid on November 1, 20X7. No dividends were paid in 20X6.
6. All other sales, purchases, and expenses occurred evenly each year.
Required
a. Should SuperSpans be translated into Canadian dollars using the temporal method or the current-rate method? Provide two facts from the question to support your answer.
b. Disregard your response to part a). Using the current-rate method, translate SuperSpans 20X7 into Canadian dollars.
c. Disregard your responses to parts a) and b). Using the temporal method, translate SuperSpans 20X7 into Canadian dollars. (The retained earnings of ¬200,000 on December 31, 20X6, should be translated as $288,750.)
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