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.