a.
Translation, P12-17 Journal Entries, Consolidated Comprehensive Income, and Stockholders' Equity Vikix Inc. Trial Balance Translation December 31, 20X5 Item Balance Kroner NKr 150,000 200,000 270,000 600,000 410,000 100,000 50,000 40,000 NKr 1,820,000 NKr 150,000 90,000 190,000 450,000 250,000 690,000 NKr 1,820,000 Exchange Rate .21 .21 .21 .21 .20 .20 .20 .19 .21 .21 .21 .18 .18 .20 Balance Dollars $ 31,500 42,000 56,700 126,000 82,000 20,000 10,000 7,600 $375,800 $ 31,500 18,900 39,900 81,000 45,000 138,000 $354,300 21,500 $375,800
Cash Accounts Receivable (net) Inventory Property, Plant, and Equipment Cost of Goods Sold Operating Expenses Depreciation Expense Dividends Paid Total Debits Accumulated Depreciation Accounts Payable Notes Payable Common Stock Retained Earnings Sales Total Accumulated Other Comprehensive Income Translation Adjustment (credit) Total Credits
P12-17 b. Entries for 20X5: January 1 Investment in Vikix Company Common Cash Purchase of Vikix Inc. July 1 Cash Investment in Vikix Company Common Dividend received from foreign subsidiary: $7,600 = NKr40,000 x $.19 December 31 Investment in Vikix Company Common Income from Subsidiary Equity in net income of foreign subsidiary: $26,000 = Income of NKr130,000 x $.20 Investment in Vikix Company Common Other Comprehensive Income Translation Adjustment Parent's share of translation adjustment from translation of subsidiary's accounts: $21,500 x 1.00 Income from Subsidiary Investment in Vikix Company Common Amortization of differential: Property, plant, and equipment Patent Total see supporting schedule 2 Investment in Vikix Company Common Other Comprehensive Income Translation Adjustment Translation adjustment applicable to the differential: Property, plant, and equipment Patent Total see supporting schedule 2 7,600 7,600 151,200 151,200
26,000 26,000
21,500 21,500
3,600 3,600 $2,000 1,600 $3,600 4,020 4,020 $2,900 1,120 $4,020
P12-17 Schedule 1: Determining the differential for 20X5: Investment cost at January 1, 20X5 Less: Book value of net assets acquired on January 1, 20X5 (NKr700,000 x $.18) Differential Differential allocated to: Property, plant, and equipment Patent $ Total 151,200 (126,000) $ 25,200 $ 18,000 7,200 $ 25,200
Schedule 2: Determining the differential amortization for 20X5: Norwegian Kroner Property, plant, and equipment: Income statement: Difference at beginning of year Amortization for 20X5 (NKr100,000 / 10 years) Remaining balances Balance sheet: Remaining balance on December 31, 20X5, translated at year-end exchange rate Difference to other comprehensive income translation adjustment Patent: Income statement: Difference at beginning of year Amortization for 20X5 (NKr40,000 / 5 years) Remaining balances Balance sheet: Remaining balance on December 31, 20X5, translated at year-end exchange rate Difference to other comprehensive income translation adjustment NKr 100,000 (10,000) NKr 90,000 Translation Rate .18 .20 U.S. Dollars $18,000 (2,000) $16,000
NKr 90,000
.21
18,900 $ 2,900
NKr 40,000 (8,000) NKr 32,000
.18 .20
$ 7,200 (1,600) $ 5,600
NKr 32,000
.21
6,720 $ 1,120
Note that the property, plant, and equipment portion of the differential must be increased from $16,000 to $19,000, requiring a debit of $2,900 to the investment account. The portion of the differential attributable to patent must be increased from $5,600 to $6,720, requiring a debit of $1,120 to the investment account. The corresponding credit is to the Other Comprehensive Income Translation Adjustment account ($4,020 = $2,900 + $1,120).
P12-17 c. Tafts consolidated comprehensive income for 20X5: 1. 2. 3. 4. d. Income from Tafts operations for 20X5, exclusive of income from the Norwegian subsidiary Add: Income from the Norwegian subsidiary for 20X5 Deduct: Amortization of differential for 20X5 Equals Net Income Add: Translation Adjustment ($21,500 + $4,020) Equals Consolidated Comprehensive Income $ 257,000 26,000 (3,600) $ 279,400 25,520 $ 304,920
Tafts consolidated stockholders equity at December 31, 20X5 1. 2. 3. 4. Tafts stockholders equity at Jan. 1, 20X5 Add: Net income for 20X5 Deduct: Dividends declared by Taft during 20X5 Add: Accumulated other comprehensive income: Foreign currency translation adjustment Consolidated Stockholders Equity at Dec. 31, 20X5 $3,500,000 279,400 (100,000) 25,520 $3,704,920