ABC Inc Has a Single Wholly-Owned American Subsidiary Called US1 Based

question 14

Multiple Choice

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: $\begin{array}{|l|r|r|}\hline \text { Tanuary } 1,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.815 \\\hline \text { December } 31,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.8175 \\\hline \text { Average for } 2020: & \text { US } \$ 1= & \text { CDN } \$ 0.825 \\\hline \begin{array}{l}\text { Date of Purchase of Inventory on } \\\text { Hand: }\end{array} & \text { US } \$ 1= & \text { CDN } \$ 0.83 \\\hline \text { Date Dividends were declared: } & \text { US } \$ 1= & \text { CDN } \$ 0.8125\\\hline\end{array}$ US1 financial results for 2020 were as follows:
US1 Financial Statements
At December 31, 2020
(in U.S. dollars)
$\begin{array}{|l|r|}\hline \text { Income Statement: } & \\\hline \text { Sales } & \$ 5,000,000 \\\hline \text { Cost of Sales } & \$ 3,500,000 \\\hline \text { Depreciation Expense } & \$ 150,000 \\\hline \text { Bond Interest Expense } & \$ 100,000 \\\hline \text { Other Expense } & \$ 750,000 \\\hline \text { Net Income } & \$ 500,000 \\\hline \text { Statement of Retained Earnings: } & \\\hline \text { January 1, 2020: } & \$ 400,000 \\\hline \text { Net Income } &\$ 500,000 \\\hline \text { Dividends } & \$ 100,000) \\\hline \text { December } 31,2020: & \$ 800,000 \\\hline \text { Balance Sheet } & \\\hline \text { Cash } &\$ 1,200,000 \\\hline \text { Accounts Receivable } & \$ 1,900,000 \\\hline \text { Inventory } & \$ 700,000(\$ 500,000 \text { January 1, 2020) } \\\hline \text { Plant and Equipment (net) } & \$ 400,000 \\\hline \text { Current Liabilities } & \$ 4,200,000 \\\hline \text { Bonds Payable } & \$ 2,000,000 \\\hline \text { Common Shares } & \$ 1,000,000 \\\hline \text { Retained Earnings } & \$ 800,000 \\\hline & \$ 4,200,000 \\\hline\end{array}$ Sales, purchases, bond interest, and other expenses occurred evenly throughout the year.
US1 is considered to be a foreign subsidiary that has the same functional currency as ABC Inc.'s functional currency.
Which of the following rates would be used to translate the company's other expenses?

• A) US$1 = CDN$0.815
• B) US$1 = CDN$0.8175
• C) US$1 = CDN$0.825
• D) US$1 = CDN$0.83

---

Definitions:

Slice of Pizza

A triangular portion of a pizza pie, often sold individually as a quick meal or snack option.

Marginal Decision Making

The process of evaluating the benefits and costs of small (or marginal) adjustments to an existing course of action.

Economic Concept

A theoretical construct that represents ideas or theories within economics to explain various aspects of the economy, such as supply and demand, inflation, or growth.

Marginal Analysis

A method used in economics and decision-making that examines the costs and benefits of making small (marginal) adjustments to the quantity of a good or service.