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

question 45

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 accounts receivable?

Gain insight into the special tax treatment and provisions applicable to corporations, including alternative minimum tax and specific deductions.

Recognize the requirements and tax implications of forming a corporation, including the tax-free exchange provision.

Acquire knowledge about the specific tax forms and schedules relevant to corporate taxation.

Understand the key concepts of Adjusted Gross Income calculations and tax implications for corporations.

Definitions:

Client Fatigue

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Time Sampling Error

An error that occurs in statistical analysis when the data collected or observed are not representative of the time period intended.

Practice Effect

A situation in which individuals improve their scores across test administrations as a result of increased familiarity and comfort with a test and the content that is being assessed.

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A situation where clients tire from multiple administrations of a test and their performance decreases as they grow weary of the testing process.