Crimson Lights Inc

question 1

Essay

Crimson Lights Inc. (CL)is a 100% wholly owned subsidiary with operations in France. CL was purchased by a Canadian parent on January 1, 2012. The financial records of CL are maintained in euros and provide the following information with respect to equipment, and goodwill.
Equipment - purchased on January 1, 2012 for €250,000 - depreciated over 5 years on a straight-line basis.
Equipment - purchased on January 1, 2013 for €175,000 - depreciated over 5 years on a straight-line basis.
Goodwill - € 375,000
Foreign exchange rates were as follows:
January 1, 2012 €1 = 1.50
Average for 2012 €1 = 1.48
January 1, 2013 €1 = 1.46
Average for 2013 €1 = 1.45
January 1, 2014 €1 = 1.51
Average for 2014 €1 = 1.58
December 31, 2014 €1 = 1.62
Required:
Assume that CL's functional currency is the euro. Calculate the translated Canadian dollar balances for the following accounts at December 31, 2014.
a. Equipment
b. Accumulated depreciation - equipment
c. Depreciation expense
d. Goodwill

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Definitions:

Reinvestment Risk

The risk of earning less interest or dividends from future investments when existing bonds, stocks, or other income-generating assets mature or are sold.

Macaulay Duration

A measure of the weighted average time until a bond's cash flows are repaid, used in assessing interest rate risk.

Future Value

The value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today, taking into account various factors like interest or returns.

Present Value

The current worth of a future sum of money or stream of cash flows given a specified rate of return.