If Maker is considered to be a self-sustaining foreign subsidiary (i.e., the functional currency of the foreign operation is different than the parent), what amount will be shown for amortization expense on its translated Canadian dollar financial statements as at December 31, 2016?
A) $20,000.
B) $21,000.
C) $21,200.
D)$21,250.

Question

Quizplus · Accepted Answer

Since Maker is a self-sustaining foreign subsidiary, its functional currency is different from that of the parent. Therefore, its financial statements are first translated into the parent's currency (Canadian dollars) using the current exchange rate. The remaining balance in the deferred development costs account would need to be amortized over the remaining economic life of the product as of December 31, 2016. The total cost to be amortized is $212,500 CAD ($170,000 USD x 1.25 CAD/USD), which is then divided by the remaining economic life of two years to get an amortization expense of $106,250 CAD per year. Since one year has already passed as of December 31, 2016, the amount to be shown for amortization expense on the translated financial statements would be half of this, or $53,125 CAD.

If Maker Is Considered to Be a Self-Sustaining Foreign Subsidiary