On December 31, 20X14, Pepper Company of Winnipeg acquired 100% of the outstanding shares of Salt Company of Switzerland. On this date, the fair values of Salt’s identifiable assets and liabilities were equal to their carrying value. Salt’s statements of financial position as at December 31, 20X14, and December 31, 20X15, and Salt’s 20X15 statement of comprehensive income and retained earnings follow:Salt Co.Statement of Financial PositionDecember 31Salt Co.Statement of Comprehensive Income and Retained EarningsYear ended December 31, 20X15Sales……………………………………………………………………………………………………… SF 850,000 Cost of sales…………………………………………………………………………………………… (500,000) Gross margin……………………………………………………………………………………………. 350,000 Amortization expense……………………………………………………………………………….. (30,000)Other expenses…………………………………………………………………………………………. (245,000) Net income……………………………………………………………………………………………… 75,000 Retained earnings, January 1, 20X15……………………………………………………………. 125,000……………………………………………………………………………………………………………….. 200,000 Dividends paid……………………………………………………………………………………………. (30,000)Retained earnings, December 31, 20X15……………………………………………………….SF 170,000Additional Information1. Inventory on hand as at December 31, 20X14, and December 31, 20X15, was purchased evenly over the final three months of 20X14 and 20X15, respectively, from suppliers in Switzerland. Sales and purchases occurred evenly throughout the year.2. The plant and equipment on hand at December 31, 20X14, was originally acquired for SF450,000 on January 1, 20X8, the date of Salt’s incorporation. No plant and equipment was acquired or sold during fiscal 20X15.3. Dividends were declared and paid on September 30, 20X15.4. The bonds were issued on January 1, 20X10, and mature on December 31, 20X19. The Swiss franc has changed over time relative to the Canadian dollar, but the foreign exchange trend has little effect on Salt’s sales prices, which are largely determined by local competition. Foreign exchange rates were as follows:January 1, 20X8…………………………………………………………………………………. SF1 = C$ 0.66 January 1, 20X10…………………………………………………………………………………. SF1 = C$ 0.76 December 31, 20X14/ January 1, 20X15…………………………………………………. SF1 = C$ 0.86July 1, 20X15……………………………………………………………………………………….. SF1 = C$ 0.92 September 30, 20X15……………………………………………………………………………. SF1 = C$ 0.94December 31, 20X15……………………………………………………………………………. SF1 = C$ 0.96Average for October–December 20X14…………………………………………………. SF1 = C$ 0.84 Average for October–December 20X15………………………………………………….. SF1 = C$ 0.95Average for 20X15……………………………………………………………………………….. SF1 = C$ 0.91 Required1. Determine Salt’s functional currency. State three facts from the problem to support your conclusion.2. Ignore your answer in part 1 and assume that Salt’s functional currency is the Canadian dollar. Translate the statement of comprehensive income and retained earnings for the year ended December 31, 20X15, to Canadian dollars. Include an independent calculation of any exchange gains/ losses.3. Ignore your answers to parts 1 and 2 and assume that Salt’s functional currency is the Swiss franc. Calculate the cumulative translation adjustment on its December 31, 20X15, translatedSFP.
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On December 31 20X14 Pepper Company of Winnipeg acquired 100