13
FOREIGN Chapter CURRENCY FINANCIAL STATEMENTS
Answers to Questions
1 No. Translation of revenue and expense accounts at average exchange rates is an exception
because average rates are merely an approximation of the exchange rates in effect at the
transaction dates. In addition, paid-in capital accounts are translated at historical rates and
dividends are translated at the exchange rates in effect at the time of payment. In contrast to
translation, remeasurement into the currency of the reporting entity requires conversion of most
nonmonetary items at historical rates and intercompany balances at reciprocal amounts.
2 A change in the functional currency of a subsidiary that results from restructuring
manufacturing and distribution lines is not an accounting change because the change is
necessitated by transactions and events different in substance from those previously occurring.
[FASB Statement No. 52, paragraph 45]
3 A highly inflationary economy under Statement 52 is one that has cumulative inflation of
approximately 100 percent or more over a three-year period. Judgment must be exercised in
applying this rule to avoid changing functional currencies frequently due to minor differences in
the inflation rate.
4 In accounting for a 60 percent owned foreign investee that operates in a highly inflationary
economy, the financial statements of the foreign entity are remeasured using a U.S. dollar
functional currency. Subsequently, the investor records its income from the investee based on the
remeasured financial statements.
5 The functional currency of a foreign subsidiary does not affect the original recording of the
business combination. This is because all assets, liabilities, and equities of the foreign subsidiary
are converted into U.S. dollars at the current exchange rate in effect on the date of consummation
of the business combination.
6 Special care must be exercised in applying the lower-of-cost-or-market rule to inventories in
remeasured statements because remeasured amounts are affected both by changes in exchange
rates and changes in replacement costs. Write-downs to market may be appropriate for both
foreign currency statements and translated statements, foreign currency statements but not
translated statements, or translated statements but not foreign currency statements.
203
Foreign Currency Financial Statements
204
7 The amount of retained earnings is a combination of numerous revenue, expense, and dividend
translations and there is no single exchange rate applicable to its balance. Therefore, the dollar
amount of retained earnings is included in the year-end trial balance at its beginning-of-the-period
translated amount. Retained earnings at year end is equal to beginning retained earnings, plus net
income in U.S. dollars, less dividends in U.S. dollars.
8 In calculating goodwill from the acquisition of a Canadian subsidiary with a local functional
currency, the excess of cost over the fair value of identifiable net assets in U.S. dollars is divided
by the current exchange rate to get goodwill in Canadian dollars. Subsequently, unamortized
goodwill in Canadian dollars is multiplied by the current exchange rate at a balance sheet date to
get unamortized goodwill in U.S. dollars.
9 The equity adjustment on translation is eliminated when the subsidiary is sold, or completely
liquidated. Partial elimination is required for partial sales. All sales and complete liquidations
involve taking the equity adjustment account into income as an adjustment of the gain or loss on
sale or liquidation. [See FASB Statement No. 52, paragraph 14.]
10 In remeasuring expenses of a foreign subsidiary under the provisions of Statement 52, those
expenses related to monetary items are remeasured at appropriately weighted average exchange
rates for the period and those that relate to nonmonetary items are remeasured at historical
exchange rates. [See FASB Statement No. 52, paragraph 48, for examples of nonmonetary items.]
11 [Appendix] The translation adjustment of cash is presented on a separate line in the
consolidated statement of cash flows immediately below the "cash flows from financing
activities." [See FASB Statement No. 95, "Statement of Cash Flows," appendix C, paragraphs 144
and 146.]
204
205
Chapter 13
SOLUTIONS TO EXERCISES
Solution E13-1
1
2
3
4
5
6
b
d
c
a
b
c
7
8
9
10
11
12
aa
b
b
b
c
a
a
The computation of average exchange rates is a practical means of
approximating current exchange rates on the transaction dates but the average
must be weighted in order to reflect approximately the same results that
would be achieved by using the actual exchange rates for the translation.
Solution E13-2
1
2
3
[AICPA adapted]
c
d
d
4
5
6
7
d
b
a
b
Solution E13-3
Paily Company and Subsidiary
Consolidated Balance Sheet
at January 1, 2008
Current assets [$3,000,000 - $990,000 + (100,000 x $1.65)]
$2,175,000
Land [$800,000 + (200,000 x $1.65)]
1,130,000
Buildings-net [$1,200,000 + (250,000 x $1.65)]
1,612,500
Equipment-net [$1,000,000 + (100,000 x $1.65)]
1,165,000
Goodwill [$990,000 cost - (450,000 fair value x $1.65)]
247,500
$6,330,000
Current liabilities [$600,000 + (50,000 x $1.65)]
$
682,500
Notes payable [$1,000,000 + (150,000 x $1.65)]
1,247,500
Capital stock
3,000,000
Retained earnings
1,400,000
$6,330,000
205
206
Foreign Currency Financial Statements
Solution E13-4
Foreign currency statements
Inventory will be carried at the replacement cost of 9,000 euros.
Remeasured statements
Inventory will be carried at cost of $5,300.
Computations:
Cost (10,000 euros x $.53 historical rate) =
Replacement cost (9,000 euros x $.60 current rate) =
$5,300
$5,400
Solution E13-5
1
Patent at acquisition of Simenon
Cost of Simenon
Book value acquired: (35,000,000 Euros x $.030)
Patent in dollars
Patent in Euros
2
($150,000/$.030)
$1,200,000
1,050,000
$ 150,000
5,000,000 Eu
Patent amortization in dollars
Patent amortization in Euros (5,000,000/10 years) = 500,000 Euros
Patent amortization in $ (500,000 Euros x $.032 average rate)
$
3
16,000
Entry to record patent amortization
Income from Simenon
$16,000
Investment in Simenon
3,000
Equity adjustment from translation of patent
19,000
To record patent amortization and the equity adjustment from
translation of patent computed as follows:
Beginning patent 5,000,000 Euros
$.030
$150,000
Amortization
(500,000 )
.032
(16,000 )
4,500,000
134,000
Equity adjustment
19,000
Ending patent
4,500,000
.034
$153,000
206
207
Chapter 13
Solution E13-6
Preliminary computations
Cost of investment in Stanford
Book value acquired (90,000 x $1.66)
Excess in dollars
$163,800
149,400
$ 14,400
Excess allocated to equipment (6,000 x $1.66)
$
Patent
$ 4,440
$ 14,400
9,960
1. Equity adjustment from excess allocated to equipment on December 31, 2006
Depreciation of excess based on (6,000/3 years)
Undepreciated excess balance at year-end based
on (4,000 x $1.64 current rate)
Add: Depreciation on excess based on - 2006
2,000 x $1.65 average rate
Less:
$6,560
3,300
9,860
9,960
Beginning excess based on U.S. dollars
Equity adjustment from translation of excess
allocated to equipment (loss)
2.
2,000
$
100
Equity adjustment from excess allocated to patent on December 31, 2006.
Patent (must be carried in ) $4,440/$1.66 = 2,675 patent
Patent amortization is 2,675 / 10 years =
267
Unamortized excess balance at year-end based on
(2,408 x $1.64 current rate)
$3,949
Add: Amortization of patent based on
(267 x $1.65 average rate)
$4,390
Less: Beginning patent based on U.S. dollars
$4,440
Equity adjustment from translation of patent (loss)
50
441
$
Not required: The entry to record the decrease in the equity adjustment
related to equipment and patent would be as follows:
Income from Stanford Ltd.
$3,741
Equity adjustment from translation (equipment)
100
Equity adjustment from translation of patent
50
Investment in Stanford
$3,891
207
208
Foreign Currency Financial Statements
To adjust the income from Stanford for depreciation on the excess
allocated to equipment ($3,300) and amortization of patent
($441), and to record a decrease in the equity adjustment from
translation for the foreign exchange rate changes.
208
209
Chapter 13
Solution E13-7
Preliminary computations
Investment cost
Book value acquired (1,400,000 Eu x $.75 exchange rate)
Excess cost over book value acquired
$1,350,000
1,050,000
$ 300,000
Excess allocated to undervalued land (400,000 Eu x $.75)
$
300,000
$
300,000
$
308,000
8,000
Equity adjustment from translation on excess allocated to land
Excess on land at January 1, 2009
Less: Excess on land at December 31, 2009
(400,000 Eu x $.77 current rate at year-end)
Equity adjustment from translation - gain (credit)
Solution E13-8
[AICPA adapted]
1
a
Exchange loss of $15,000 less an exchange gain on the account
payable of $4,000 ($64,000 original payable - $60,000 year-end
adjusted balance) = $11,000 loss.
2
b
Translated at historical rate:
3
d
Depreciation on the property, plant, and equipment is computed as
follows:
Property, Plant
and Equipment
Depreciation
Exchange
Rate
25,000/2.2 = $11,364
Property, Plant
and Equipment
Amortization
Period
Annual
2003
2,400,000 LCU
1.6
=
$1,500,000
10 years
=
$150,000
2005
1,200,000 LCU
1.8
=
666,667
10 years
=
66,667
3,600,000 LCU
$2,166,667
$216,667
4
a
5.7 LCU to $1, the rate in effect when the dividend was paid.
5
d
Long-term receivables 1,500,000 LCU 1.5 =
Long-term debt 2,400,000 LCU 1.5 =
6
c
All three accounts are translated at current rates.
$1,000,000
$1,600,000
209
210
Foreign Currency Financial Statements
Solution E13-9
1
d
Net income of Kasan $1,500,000 x 70% interest
2
$1,050,000
c
Change in Kasan's stockholders' equity $2,000,000 x 70% interest $1,400,000
3
b
Loan balance measured in pesos on July 1
($19,000/$.0019)
Loan balance measured in pesos on December 31
($19,000/$.0016 current exchange rate)
10,000,000 pesos
11,875,000
Exchange loss
4
1,875,000 pesos
c
Loss in pesos 1,875,000 x $.0016 current
rate at December 31, 2009
Percentage owned
$3,000
90%
Equity adjustment from translation
$2,700
5
c
Cumulative inflation rate
=
(330 - 150)/150 =
120%
Solution E13-10
Shinhan's December 31, 2007 inventory
5,000,000 won ending inventory x $.00135 historical rate
$6,750
Shinhan's cost of sales for 2007
In Won
Exchange
Rate
In Dollars
Inventory January 1, 2007
Add: Purchases 2007
9,000,000
86,000,000
$.0012
$.0013
Goods available for sale
Less: Inventory December 31, 2007
95,000,000
(5,000,000 )
$.00135 H
Cost of sales
90,000,000
210
H
A
$ 10,800
111,800
122,600
(6,750 )
$115,850
211
Chapter 13
Solution E13-11
[AICPA adapted]
1 The objectives of translating the foreign currency financial statements of
a subsidiary are to
*
Provide information that is generally compatible with the expected
economic effects of a rate change on a subsidiary's cash flows and
equity
*
Reflect the subsidiary's financial results and relationships in the
consolidated financial statements, as measured in its functional
currency and in conformity with generally accepted accounting
principles.
2 Gain or loss resulting from remeasuring the financial statements of Jay A
is reported in the income statement for the period. Gain or loss resulting
from translating the financial statements of Jay F are called equity
adjustments from translation and reported in the stockholders' equity
section of the consolidated balance sheet.
3 Generally, the currency in which the enterprise generates and expends cash
will be the functional currency. Other indicators include
*
How the sales prices of the foreign entity's products are determined
*
The sales market for the foreign entity's products
*
The expenses of the foreign entity
*
How the entity's operations are financed
*
Intercompany transactions and arrangements
4 All accounts relating the Jay A's equipment are remeasured at historical
rates. Jay F's equipment and accumulated depreciation are translated at the
current rate on the balance sheet date. The depreciation expense is
translated at an appropriate weighted average exchange rate for the year (to
approximate translating the expense at the rate prevailing on the date the
depreciation expense was recognized).
211
212
Foreign Currency Financial Statements
SOLUTIONS TO PROBLEMS
Solution P13-1
1
Parkway's income from Scorpio for 2006
Investment cost of 40% interest in Scorpio
Less: Book value acquired ($2,400,000 x 40%)
Patent in dollars at acquisition
$1,080,000
(960,000 )
$ 120,000
Patent in euros at acquisition
$120,000/$.60 exchange rate =
200,000 euros
Equity in Scorpio's income ($310,000 x 40%)
Patent amortization for 2006
200,000 euros/10 years x $.62 average rate
$124,000
(12,400 )
Income from Scorpio for 2006
2
$111,600
Investment in Scorpio at December 31, 2006
Investment cost
Add:
Less:
Add:
Income from Scorpio
111,600
Dividends ($192,000 x 40%)
(76,800)
Equity adjustment from translation ($212,000 x 40%)
Add: Equity adjustment from patent computed as:
Beginning balance
Less: Patent amortization
Less: Unamortized patent at year end
Investment in Scorpio December 31, 2006
3
$1,080,000
$120,000
12,400
117,000
84,800
9,400
$1,209,000
Proof of investment balance
Net assets at December 31, 2006 of $2,730,000 x 40%
Add: Unamortized patent (180,000 euros x $.65)
$1,092,000
117,000
Investment balance
$1,209,000
212
213
Chapter 13
Solution P13-2
1
Excess Patent at January 1, 2003:
Cost
Book value of interest acquired
(4,000,000 LCUs x $.15) x 40%
Excess Patent
Excess Patent in LCUs $102,000/$.15 = 680,000 LCUs
2
$342,000
(240,000 )
$102,000
Excess Patent amortization - 2003:
Excess Patent in LCUs 680,000/10 years x $.14 average rate =
3
Alternatively,
68,000 LCUs x ($.15 - $.14) =
612,000 LCUs x ($.15 - $.13) =
$102,000
(9,520)
(79,560 )
$ 12,920
$
$
680
12,240
12,920
Income from Sorrier - 2003:
Equity in income ($112,000 x 40%)
Less: Excess Patent amortization
Income from Sorrier - 2003
6
$ 79,560
Equity adjustment from Excess Patent:
Beginning balance in U.S. dollars
Less: Amortization for 2003
Less: Ending balance
Equity adjustment from Excess Patent
5
9,520
Unamortized Excess Patent at December 31, 2003:
(680,000 - 68,000 LCUs amortization) x $.13 current rate
4
$
$ 44,800
(9,520 )
$ 35,280
Investment in Sorrier balance at December 31, 2003:
Cost January 1
Add: Income 2003
Less: Dividends ($56,000 x 40%)
Less: Equity adjustment ($84,000 x 40%)
Less: Equity adjustment from Excess Patent
Investment in Sorrier December 31, 2003
$342,000
35,280
(22,400)
(33,600)
(12,920 )
$308,360
check: Net assets $228,800 ($572,000 x 40%) plus $79,560 unamortized
Excess Patent = $308,360 investment in Sorrier at December 31, 2003.
213
214
Foreign Currency Financial Statements
Solution P13-3
1
Sooth Company, Ltd.
Translation Worksheet for 2005
British
Exchange
Pounds
Rate
Debits
Cash
Accounts receivable-net
Inventories
Equipment
Cost of sales
Depreciation expense
Operating expenses
Dividends
20,000
70,000
50,000
800,000
350,000
80,000
100,000
30,000
1,500,000
Credits
Accumulated depreciation
Accounts payable
Capital stock
Retained earnings
Sales
Equity adjustment from translation
330,000
70,000
400,000
100,000
600,000
1,500,000
2
$1.65
1.65
1.65
1.65
1.63
1.63
1.63
1.62
US Dollars
C
C
C
C
A
A
A
R
$
33,000
115,500
82,500
1,320,000
570,500
130,400
163,000
48,600
$2,463,500
$1.65 C
1.65 C
1.60 H
measured
1.63
$
544,500
115,500
640,000
160,000
978,000
25,500
$2,463,500
Journal entries - 2005
January 1, 2005
Investment in Sooth
$800,000
Cash
To record purchase of Sooth at book value.
During 2005
Cash
$ 48,600
Investment in Sooth
To record dividends from Sooth.
December 31, 2005
Investment in Sooth
$139,600
Income from Sooth
Equity adjustment from translation
To record income from Sooth and enter equity
adjustment for currency fluctuations.
Check:
Investment in Sooth 1/1
Dividends
Income from Sooth
Equity adjustment
Investment in Sooth 12/31
214
$800,000
$800,000
(48,600)
114,100
25,500
$891,000
Capital stock
Retained earnings 1/1
Add: Income
Less: Dividends
Stockholders' equity
Current rate
$ 48,600
$114,100
25,500
400,000
100,000
70,000
(30,000 )
540,000
$1.65
$891,000
215
Chapter 13
Solution P13-4
Preliminary computations
Investment cost
$3,200,000
Less: Book value of interest acquired
(7,000,000 euros x $.50 exchange rate x 80% interest)
2,800,000
Patent
$ 400,000
Patent in euros ($400,000/$.50 exchange rate) = 800,000 euros
Patent amortization based on euros 800,000 euros/10 years = 80,000 euros
1
Schultz Corporation
Translation Worksheet
at and for the year ended December 31, 2006
Euros
Debits
Cash
Accounts receivable
Inventories
Equipment
Cost of sales
Depreciation expense
Operating expenses
Dividends
1,000,000
2,000,000
4,000,000
8,000,000
4,000,000
800,000
2,700,000
500,000
23,000,000
Credits
Accumulated depreciation-equipment
2,400,000
Accounts payable
3,600,000
Capital stock
5,000,000
Retained earnings, January 1
2,000,000
Sales
10,000,000
Equity adjustment from translation
23,000,000
2
Exchange
Rate
U.S. Dollars
$.6000
.6000
.6000
.6000
.5500
.5500
.5500
.5400
C
C
C
C
A
A
A
H
$
600,000
1,200,000
2,400,000
4,800,000
2,200,000
440,000
1,485,000
270,000
$13,395,000
.6000
.6000
.5000
.5000
.5500
C
C
H
H
A
$ 1,440,000
2,160,000
2,500,000
1,000,000
5,500,000
795,000
$13,395,000
Peter's income from Schultz - 2006
Share of Schultz's net income ($5,500,000 sales - $2,200,000 cost of
sales - $440,000 depreciation - $1,485,000 operating expenses) $1,375,000
Percentage owned
80%
Equity in Schultz's net income
Less: Patent amortization (80,000 euros x $.55 average rate)
Income from Schultz
1,100,000
(44,000)
$1,056,000
215
216
Foreign Currency Financial Statements
Solution P13-4
3
(continued)
Investment in Schultz December 31, 2006
Investment January 1, 2006
Add: Income from Schultz
Add: Equity adjustment from translation ($795,000 x 80%)
Add: Equity adjustment from Patent
[$400,000 Patent at beginning of the period - $44,000 Patent
amortization - (720,000 euros unamortized Patent x
$.60 current rate)]
Less: Dividends ($270,000 x 80%)
Investment in Schultz December 31, 2006
Check:
Stockholders' equity of Schultz $5,400,000 x 80%
Add: Unamortized Patent (720,000 euros x $.60 current rate)
$3,200,000
1,056,000
636,000
76,000
(216,000 )
$4,752,000
$4,320,000
432,000
$4,752,000
Solution P13-5
Sari Company
Remeasurement Worksheet at December 31, 2006
Exchange
British
Rate
Cash
Accounts receivable
Short-term note receivable
Inventories
Land
Buildings-net
Equipment-net
Cost of sales
Depreciation expense
Other expenses
Dividends
Exchange loss on remeasurement
50,000
200,000
50,000
150,000
300,000
400,000
500,000
650,000
200,000
400,000
100,000
$1.70
1.70
1.70
1.68
1.60
1.60
1.60
*
1.60
1.65
1.64
C
C
C
H
H
H
H
H
H
A
85,000
340,000
85,000
252,000
480,000
640,000
800,000
1,058,000
320,000
660,000
164,000
61,000
$4,945,000
$1.70
1.70
1.70
1.60
C
C
C
H
M
A
$
3,000,000
Accounts payable
Bonds payable-10%
Bond interest payable
Capital stock
Retained earnings
Sales
180,000
500,000
20,000
500,000
300,000
1,500,000
3,000,000
U.S. Dollars
1.65
$
306,000
850,000
34,000
800,000
480,000
2,475,000
$4,945,000
*Cost of sales = Beginning inventory (200,000 x $1.60) + purchases (600,000
x $1.65) - ending inventory (150,000 x $1.68) = $1,058,000
216
Chapter 13
217
217
218
Foreign Currency Financial Statements
Solution P13-6
Translation Worksheets for Sevin Company
December 31, 2007
British Exchange U.S.
Pounds
Rate
Dollar
December 31, 2008
British Exchange
U.S.
Pounds
Rate
Dollar
Cash
30,000
$1.70
51,000
50,000
$1.80
90,000
Accounts receivable
60,000
1.70
102,000
90,000
1.80
162,000
Inventories
80,000
1.70
136,000
150,000
1.80
270,000
Equipment
900,000
1.70
1,530,000
1,000,000
1.80
1,800,000
Cost of sales
300,000
1.65
495,000
360,000
1.75
630,000
Depreciation expense
100,000
1.65
165,000
110,000
1.75
192,500
Operating expenses
80,000
1.65
132,000
90,000
1.75
157,500
Dividends
50,000
1.68
84,000
50,000
1.78
89,000
2,695,000
1,900,000
1,600,000
3,391,000
Accumulated depreciation-equipment
200,000
1.70
340,000
310,000
1.80
558,000
Accounts payable
200,000
1.70
340,000
220,000
1.80
396,000
20,000
1.70
34,000
20,000
1.80
36,000
Capital stock
400,000
1.60
640,000
400,000
1.60
640,000
Retained earnings
100,000
1.60
160,000
250,000
M
406,000
Sales
680,000
1.65
1,122,000
700,000
Advance from Pence
Equity adjustment
1.75
59,000
1,600,000
2,695,000
130,000
1,900,000
Income from Sevin
2007
Pence's equity of Sevin's net income:
2007 income $330,000 x 90%
2008 income $245,000 x 90%
Less: Patent amortization
$48,000/$1.60 = 30,000
2007: 30,000/10 years x $1.65
2008: 30,000/10 years x $1.75
Income from Sevin
218
2008
$297,000
$220,500
(4,950)
(5,250 )
$292,050
1,225,000
$215,250
3,391,000
219
Chapter 13
Solution P13-6
(continued)
Investment in Sevin account
Investment balance January 1, 2007
Add:
Less:
Add:
$
768,000
Income from Sevin for 2007
Dividends
292,050
($84,000 x 90%)
(75,600)
Equity adjustment from translation for 2007
$59,000 x 90%
Add:
53,100
Equity adjustment from Patent for 2007
$48,000 Patent - $4,950 amortization $45,900 ending balance
2,850
Investment in Sevin December 31, 2007
Add:
Income from Sevin for 2008
Less:
1,040,400
Dividends ($89,000 x 90%)
Add:
215,250
(80,100)
Equity adjustment from translation for 2008
$71,000 x 90%
Add:
63,900
Equity adjustment from Patent for 2008
$45,900 beginning balance - $5,250 amortization $43,200 ending balance
Investment in Sevin December 31, 2008
2,550
$1,242,000
Explanation of the investment in Sevin year-end balance:
2007
Stockholders' equity January 1
Add: Net income
Less: Dividends
Add: Equity adjustment
Stockholders' equity December 31
Underlying book value of interest
Add: Unamortized Patent
Investment in Sevin December 31
$
800,000
330,000
(84,000 )
1,046,000
59,000
1,105,000
x 90%
994,500
45,900
$1,040,400
2008
$1,046,000
245,000
(89,000 )
1,202,000
130,000
1,332,000
x 90%
1,198,800
43,200
$1,242,000
219
220
Foreign Currency Financial Statements
Solution P13-7
Stuart Corporation
Remeasurement Worksheet
December 31, 2008
New Zealand
Dollars
Dollars
Debits
Cash
Accounts receivable-net
Inventories
Prepaid expenses
Land
Equipment
Cost of sales
Depreciation expense
Other operating expenses
Dividends
Remeasurement loss
15,000
60,000
30,000
10,000
45,000
60,000
120,000
12,000
28,000
20,000
Exchange
Rate
$0.65
0.65
0.66
0.70
0.70
Note 1
Note 2
Note 3
Note 4
0.66
C
C
H
H
H
M
M
M
M
H
400,000
Credits
Accumulated depreciation
Accounts payable
Capital stock
Retained earnings
Sales
22,000
18,000
150,000
10,000
200,000
400,000
Note 5 M
$0.65 C
0.70 H
M
0.67 A
U.S.
$
9,750
39,000
19,800
7,000
31,500
41,800
82,200
8,360
19,000
13,200
1,450
$273,060
$ 15,360
11,700
105,000
7,000
134,000
$273,060
Note 1
Original equipment (50,000 NZ$ x $.70) + equipment purchased in
2008 (10,000 NZ$ x $.68)
Note 2
Beginning inventory (50,000 NZ$ x $.70) + purchases (100,000 NZ$
x $.67) - ending inventory (30,000 NZ$ x $.66)
Note 3
Depreciation on original equipment (50,000 NZ$ x 20% x $.70) +
depreciation on new equipment (10,000 NZ$ x 20% x $.68)
Note 4
Other operating expenses consist of the prepaid supplies used
(8,000 NZ$ x $.70) + current year outlays (20,000 NZ$ x $.67)
Note 5
Accumulated depreciation on the original equipment (20,000 NZ$ x
$.70) + accumulated depreciation on the equipment purchased
(2,000 NZ$ x $.68)
220
221
Chapter 13
Solution P13-8
1
Freeman Corporation
Trial Balance at December 31, 2008
Schedule to Remeasure Trial Balance into U.S. Dollars
Australian
Dollars
Dollars
Debits
Cash
Accounts receivable
Inventories (FIFO)
Land
Buildings
Equipment
Equipment
Cost of sales
Depreciation expense-buildings
Depreciation expense-equipment
Depreciation expense-equipment
Other operating expenses
Other operating expenses
Dividends
Remeasurement loss
50,000
85,000
170,000
200,000
700,000
170,000
60,000
800,000
50,000
20,000
10,000
318,000
2,000
200,000
Exchange
Rate
U.S.
$.80
.80
.79
.70
.70
.70
.75
*
.70
.70
.75
.78
.80
.75
C
C
H
H
H
H
H
5,000
$.80
C
$
200,000
70,000
10,000
150,000
300,000
400,000
200,000
1,500,000
2,835,000
.70
.70
.75
.80
.80
.70
H
H
H
C
C
H
R
A
140,000
49,000
7,500
120,000
240,000
280,000
144,000
1,170,000
$2,154,500
H
H
H
A
C
H
2,835,000
Credits
Allowance for bad debts
Accumulated depreciation:
Buildings
Equipment
Equipment
Accounts payable
Advance from Paragon
Capital stock
Retained earnings
Sales
*Computation of cost of sales:
Purchases (800,000 - 250,000 + 170,000)
$561,600
Add: Beginning inventory
Goods available
Less: Ending inventory
(134,300 )
Cost of sales
C
H
A
R
=
=
=
=
.78
$
40,000
68,000
134,300
140,000
490,000
119,000
45,000
612,300
35,000
14,000
7,500
248,040
1,600
150,000
49,760
$2,154,500
4,000
720,000 x $.78 A =
250,000 x $.74 H =
185,000
746,600
170,000 x $.79 H =
$612,300
current rate
historical rate
average rate
reciprocal amount from December 31, 2007
221
222
Foreign Currency Financial Statements
Solution P13-8
2
(continued)
Freeman Corporation
Combined Statement of Income and Changes in Retained Earnings
for the year ended December 31, 2008
Sales
Less: Cost of sales
Gross profit
Expenses:
Depreciation expense-buildings
Depreciation expense-equipment
Other operating expenses
Remeasurement loss
$1,170,000
612,300
557,700
$ 35,000
21,500
249,640
49,760
355,900
Net income
Add:
Less:
201,800
Retained earnings December 31, 2007
144,000
345,800
150,000
Dividends
Retained earnings December 31, 2008
$
195,800
Freeman Corporation
Balance Sheet
at December 31, 2008
Assets
Cash
$ 40,000
Accounts receivable (less allowance
for bad debts)
Inventories (FIFO)
Total current assets
Land
Buildings (less allowance for
depreciation of $140,000)
Equipment (less allowance for
depreciation of $56,500)
Total plant assets
64,000
134,300
$238,300
$140,000
350,000
107,500
597,500
Total assets
$835,800
Liabilities and Stockholders' Equity
Accounts payable
Advance from Paragon
Total liabilities
$120,000
240,000
Capital stock
$280,000
Retained earnings
Total stockholders' equity
Total equities
222
$360,000
195,800
475,800
$835,800
223
Chapter 13
Solution P13-9
Preliminary computations
Cost of 80% interest in Saussure
Book value of interest acquired
(5,000,000 Kronas x $.55 exchange rate x 80%)
$2,255,000
Patent in U.S. dollars at acquisition
$
Patent in Kronas ($55,000/$.55 exchange rate)
(2,200,000 )
100,000 Kronas
Patent amortization for 2003:
Patent in Kronas 100,000/10 years x $.60 average rate
1
55,000
$6,000
Investment in Saussure at December 31, 2003
Investment cost January 1, 2003
Less: Dividends November 1 ($252,000 x 80%)
Add: Equity in Saussure's income for 2003 ($360,000 x 80%)
Add: Equity adjustment from translation ($522,000 x 80%)
Less: Patent amortization (100,000 Kronas/10 years
x $.60 average rate)
Equity adjustment from Patent computed as follows:
Ending balance based on Kronas
$58,500
Add: Amortization based on Kronas
6,000
64,500
Less: Beginning Patent based on dollars
(55,000 )
$2,255,000
(201,600)
288,000
417,600
Investment in Saussure December 31, 2003
$2,762,500
2
(6,000)
9,500
Unamortized Patent at December 31, 2003
Unamortized Patent in Kronas (90,000) x current
exchange rate ($.65)
Equity adjustment from translation
($417,600 + $9,500)
$ 58,500
$427,100
223
224
Foreign Currency Financial Statements
Solution P13-10
1
Patent computations
Cost of 80% interest January 1, 2003
Book value acquired (600,000 LCU x 80% x $.15)
Patent
Patent in LCU ($3,000/$.15 rate) = 20,000 LCU
Patent amortization in LCU (20,000 LCU/10 years) = 2,000 LCU
$75,000
72,000
$ 3,000
Patent January 1, 2003
Less: Patent amortization2003 (2,000 LCU x $.155)
Less: Unamortized Patent December 31, 2003
(18,000 LCU x $.16)
Equity adjustment from Patent-2003
$ 3,000
310
Patent January 1, 2004
Less: Patent amortization-2004 (2,000 LCU x $.165)
Less: Unamortized Patent balance December 31, 2002
(16,000 LCU x $.17)
Equity adjustment from Patent-2004
$ 2,880
330
2
2,880
190
$
2,720
170
$
Equity adjustment calculations
2003
Equity adjustment from translation ($6,900 x 80% interest)
Add: Equity adjustment from Patent
Equity adjustment December 31, 2003
$ 5,520
190
$ 5,710
2004
Beginning balance
Equity adjustment from translation ($15,000 - $6,900) x 80%
Add: Equity adjustment from Patent
Equity adjustment December 31, 2004
$ 5,710
6,480
170
$12,360
3
Minority interest calculations
2003
Capital stock
Retained earnings:
Beginning retained earnings
Add: Net income less dividends
Equity adjustment from translation
Stockholders equity December 31, 2003
Minority interest percentage
Minority interest December 31, 2003
2004
Capital stock
Retained earnings:
Beginning retained earnings
Add: Net income less dividends
Equity adjustment from translation
224
$75,000
$15,000
23,100
38,100
6,900
120,000
20 %
$24,000
$75,000
$38,100
14,700
52,800
15,000
225
Chapter 13
Stockholders equity December 31, 2004
Minority interest percentage
Minority interest December 31, 2004
Solution P13-11
1
Sapir Company
Translation Worksheet
at and for the year ended December 31, 2005
Translation
Shekels
Rate
Debits
Cash
Trade receivables
Inventories
Land
Equipment-net
Buildings-net
Expenses
Exchange loss (advance)*
Dividends
Equity adjustment
Total
Credits
Accounts payable
Other liabilities
Advance from Pella
Common stock
Retained earnings January 1
Sales
Total
*
142,800
20 %
$28,560
40,000
50,000
150,000
160,000
300,000
500,000
400,000
20,000
100,000
$.30
.30
.30
.30
.30
.30
.32
.32
.33
C
C
C
C
C
C
A
A
R
$ 12,000
15,000
45,000
48,000
90,000
150,000
128,000
6,400
33,000
40,600
$568,000
$.30
.30
.30
.35
.35
.32
C
C
C
H
H
A
$ 36,000
18,000
42,000
175,000
105,000
192,000
$568,000
1,720,000
120,000
60,000
140,000
500,000
300,000
600,000
1,720,000
U.S. $
Sapir increased its advance by 20,000 shekels and recognized a 20,000
shekel loss.
2
Journal entries to account for the investment in Sapir:
January 1, 2005
Investment in Sapir
$308,000
Cash
To record the investment in Sapir Co.
$308,000
January 2, 2005
Advance to Sapir
$ 42,000
Cash
$ 42,000
To record advance to Sapir denominated in U.S. dollars.
June 2005
Cash
$ 33,000
Investment in Sapir
$ 33,000
To record receipt of dividends (100,000 shekels x $.33).
December 31, 2005
Investment in Sapir
Equity adjustment from translation
Income from Sapir
$ 17,000
40,600
$ 57,600
225
226
Foreign Currency Financial Statements
To record equity in Sapir.
Income from Sapir
$ 2,560
Equity adjustment from translation
3,840
Investment in Sapir
$ 6,400
To record equity adjustment from Patent amortization as
follows:
Patent computed amortization 80,000 shekels/10 years x $.32 rate = $2,560
Ending balance 72,000 shekels x $.30 rate = $21,600
$28,000 beginning balance - $21,600 ending balance = $6,400
226
227
Chapter 13
Solution P13-12
Preliminary computations
Investment cost of SAA
Book value acquired (8,000,000 LCU x $.190)
Patent
$1,710,000
(1,520,000 )
$ 190,000
Patent based on LCU ($190,000/$.190)
Amortization of Patent (1,000,000 LCU/10 years)
1,000,000 LCU
100,000 LCU
Patent amortization for 2003 (100,000 LCU x $.185)
Unamortized Patent at December 31, 2003
(900,000 LCU x $.180)
Equity adjustment for Patent for 2003:
Beginning balance
Less: Amortization
Less: Ending balance
$18,500
$162,000
$190,000
(18,500)
(162,000 )
Reconciliation of investment account:
Investment in SAA January 1, 2003
Add: Income from SAA for 2003
($360,750 - $18,500 Patent amortization)
Equity adjustment from translation ($84,750 x 100%)
Equity adjustment from Patent
Dividends from SAA
Investment in SAA December 31, 2003
$9,500
$1,710,000
342,250
(84,750)
(9,500)
(185,000 )
$1,773,000
227
228
Foreign Currency Financial Statements
Solution P13-12
1
(continued)
Journal entries to account for the investment in SAA
January 1, 2003
Investment in SAA
Cash
$1,710,000
$1,710,000
To record purchase of SAA stock for cash.
July 1, 2003
Advance to SAA
Cash
$
333,000
$
333,000
$
185,000
$
360,750
$
28,000
To record short-term advance to SAA
denominated in dollars.
September 1, 2003
Cash
$
185,000
Investment in SAA
To record receipt of dividends when
exchange rate is $.185.
December 31, 2003
Investment in SAA
Equity adjustment from translation
Income from SAA
$
276,000
84,750
To record equity in income of SAA.
Income from SAA
Equity adjustment from translation
Investment in SAA
$
18,500
9,500
To record Patent amortization and equity
adjustment from Patent computed as follows:
Patent amortization: 100,000 LCU x $.185 average rate = $18,500
Equity adjustment: $190,000 beginning Patent balance - $18,500
amortization - (900,000 LCU unamortized Patent at year end x
$.180 current rate) = $9,500
228
229
Chapter 13
Solution P13-12
(continued)
PWA Corporation and Subsidiary
Consolidation Working Papers
for the year ended December 31, 2003
|
|
|
Adjustments and
|Consolidated
|
PWA
|
SAA
|
Eliminations
| Statements
|
|
|
|
Income Statement
|
|
|
|
Sales
|$ 569,500 |$1,110,000 |
|$1,679,500
Income from SAA
|
342,250 |
|a
342,250
|
Expenses
| (400,000)| (740,000)|c
18,500
|(1,158,500)
Exchange loss
|
|
(9,250)|
|
(9,250)
Net income
|$ 511,750 |$ 360,750 |
| $ 511,750
|
|
|
|
Retained Earnings
|
|
|
|
Retained earnings-PWA|$ 856,500 |
|
|$ 856,500
Retained earnings-SAA|
|$ 570,000 |b
570,000
|
Net income
|
511,750 |
360,750|
|
511,750
Dividends
| (300,000)| (185,000)|
a
185,000| (300,000)
Retained earnings
|
|
|
|
December 31, 2003
|$1,068,250 |$ 745,750 |
| $1,068,250
|
|
|
|
Balance Sheet
|
|
|
|
Cash
|$
90,720 |$
99,000 |
|$ 189,720
Accounts receivable |
128,500 |
90,000 |
|
218,500
Advance to SAA
|
333,000 |
|
d
333,000|
Inventories
|
120,000 |
270,000 |
|
390,000
Land
|
100,000 |
288,000 |
|
388,000
Equipment-net
|
600,000 |
540,000 |
| 1,140,000
Buildings-net
|
300,000 |
900,000 |
| 1,200,000
Investment in SAA
| 1,773,000 |
|
a
157,250|
|
|
|
b 1,615,750|
Patent
|
|
|b
180,500 c
18,500|
162,000
| $3,445,220 |$2,187,000 |
| $3,688,220
|
|
|
|
Accounts payable
|$ 162,720 |$ 135,000 |
|$ 297,720
Advance from PWA
|
|
333,000 |d
333,000
|
Other liabilities
|
308,500 |
108,000 |
|
416,500
Capital stock
| 2,000,000 |
950,000 |b
950,000
| 2,000,000
Retained earnings
| 1,068,250 |
745,750 |
| 1,068,250
Equity adjustment-PWA|
(94,250)|
|
|
(94,250)
Equity adjustment-SAA|
|
(84,750)|
b
84,750|
| $3,445,220 |$2,187,000 |
| $3,688,220
|
|
|
|
229
230
Foreign Currency Financial Statements
Solution P13-13
1
San Corporation
Adjusted Trial Balance Translation Worksheet
at December 31, 2008
LCUs
Debits
Cash
Accounts receivable
Inventories
Land
Buildings
Equipment
Cost of sales
Depreciation expense
Other expenses
Exchange loss
Dividends
Equity adjustment
Credits
Accumulated depreciation-buildings
Accumulated depreciation-equipment
Accounts payable
Short-term loan from Par
Capital stock
Retained earnings January 1
Sales
2
150,000
180,000
230,000
250,000
600,000
800,000
200,000
100,000
120,000
30,000
100,000
--2,760,000
300,000
400,000
130,000
230,000
800,000
200,000
700,000
2,760,000
Rate
$.20
.20
.20
.20
.20
.20
.22
.22
.22
.22
.21
U.S. Dollars
C
C
C
C
C
C
A
A
A
A
R
$ 30,000
36,000
46,000
50,000
120,000
160,000
44,000
22,000
26,400
6,600
21,000
44,000
$606,000
$.20 C
.20 C
.20 C
.20 C
.24 H
.24 H
.22 A
$ 60,000
80,000
26,000
46,000
192,000
48,000
154,000
$606,000
Journal entries for 2008 [Par's books]
January 1, 2008
Investment in San
Cash
$216,000
$216,000
To record purchase of 90% interest in San:
1,000,000 LCU x $.24 exchange rate x 90%
interest.
May 1, 2008
Advance to San
Cash
$ 46,000
To record short-term loan to San denominated
in U.S. dollars: 200,000 LCU x $.23 exchange
rate.
230
$ 46,000
Chapter 13
231
231
232
Foreign Currency Financial Statements
Solution P13-13
(continued)
September 2008
Cash
$ 18,900
Investment in San
$ 18,900
To record receipt of dividends from San
(100,000 LCU x $.21 exchange rate x 90%
interest)
December 31, 2008
Investment in San
Equity adjustment from translation
Income from San
$
9,900
39,600
$ 49,500
To record investment income from San of
$49,500 computed as [$154,000 revenue
($44,000 cost of sales + $22,000 depreciation
expense + $26,400 other expenses + $6,600
exchange loss)] x 90% and to record equity
adjustment from translation of $39,600
computed as $44,000 x 90%.
Supporting computations
Investment balance January 1, 2008
Less: Dividends
(18,900)
Add: Income from San
Less: Equity adjustment from translation
(39,600 )
Investment balance December 31, 2008
Minority interest at January 1, 2008 date of acquisition
1,000,000 LCU x $.24 x 10%
Less: Minority interest's share of the equity adjustment
from translation for 2008 ($44,000 x 10%)
(4,400 )
Beginning minority interest in consolidation working papers
232
$216,000
49,500
$207,000
$ 24,000
$ 19,600
233
Chapter 13
Solution P13-13
3
(continued)
Par Corporation and Subsidiary
Consolidation Working Papers
for the year ended December 31, 2008
|
|
| Adjustments and |Minority|Consolidated
|
Par
| San 90% |
Eliminations
|Interest| Statements
|
|
|
|
|
Income Statement
|
|
|
|
|
Sales
|$800,000 |$154,000 |
|
| $ 954,000
Income from San
| 49,500 |
|a 49,500
|
|
Cost of sales
|(400,000)| (44,000)|
|
|
(444,000)
Depreciation expense | (81,000)| (22,000)|
|
|
(103,000)
Other expenses
|(200,000)| (26,400)|
|
|
(226,400)
Exchange loss
|
| (6,600)|
|
|
(6,600)
Minority income
|
|
|
|$ 5,500 |
(5,500)
Net income
|$168,500 |$ 55,000 |
|
| $ 168,500
|
|
|
|
|
Retained Earnings
|
|
|
|
|
Retained earnings-Par|$220,000 |
|
|
| $ 220,000
Retained earnings-San|
|$ 48,000 |b 48,000
|
|
Net income
| 168,500| 55,000|
|
|
168,500
Dividends
|(100,000)| (21,000)|
a 18,900| (2,100)|
(100,000)
Retained earnings
|
|
|
|
|
December 31, 2008
| $288,500 |$ 82,000 |
|
| $ 288,500
|
|
|
|
|
Balance Sheet
|
|
|
|
|
Cash
|$ 47,000 |$ 30,000 |
|
|$
77,000
Accounts receivable | 90,000 | 36,000 |
|
|
126,000
Loan to San
| 46,000 |
|
c 46,000|
|
Inventories
| 110,000 | 46,000 |
|
|
156,000
Land
| 150,000 | 50,000 |
|
|
200,000
Buildings-net
| 180,000 | 60,000 |
|
|
240,000
Equipment-net
| 160,000 | 80,000 |
|
|
240,000
Investment in San
| 207,000 |
|
a 30,600|
|
|
|
|
b 176,400|
|
| $990,000 |$302,000 |
|
| $1,039,000
|
|
|
|
|
Accounts payable
|$241,100 |$ 26,000 |
|
| $ 267,100
Loan from Par
|
| 46,000 |c 46,000
|
|
Capital stock
| 500,000 | 192,000 |b 192,000
|
|
500,000
Retained earnings
| 288,500| 82,000|
|
|
288,500
Equity adjustment-Par| (39,600)|
|
|
|
(39,600)
Equity adjustment-San|
| (44,000)|
b 44,000|
|
| $990,000 |$302,000 |
|
|
|
|
|
Minority interest January 1, 2008
|
b 19,600| 19,600 |
Minority interest December 31, 2008
|
| $23,000 |
23,000
|
|
| $1,039,000
233
234
Foreign Currency Financial Statements
Solution P13-14
1
Remeasurement Worksheet
Foreign Branch
at December 31, 2006
Exchange
LCU
Rates
Debits
Cash
Accounts receivable
Operating supplies
Equipment
Operating expenses
Depreciation expense
Credits
Accumulated depreciation
Accounts payable
Home office
Sales
Remeasurement gain
50,000
500,000
800,000
5,000,000
1,000,000
5,000,000
500,000
100,000
12,950,000
$.085
.085
.087
.105
.095
.087
.105
.095
C
C
A
H
H
A
H
H
4,250
42,500
69,600
525,000
95,000
435,000
52,500
9,500
1,233,350
1,000,000
100,000
50,000
3,800,000
8,000,000
.105
.095
.085
H
H
C
R
A
105,000
9,500
4,250
375,000
696,000
43,600
1,233,350
.087
12,950,000
2
Translation Working Papers
LCU
Debits
Cash
Accounts receivable
Operating supplies
Equipment
Operating expenses
Depreciation expense
Equity adjustment
50,000
500,000
800,000
6,000,000
5,000,000
600,000
Exchange
Rates
1,100,000
50,000
3,800,000
8,000,000
12,950,000
C - current rate; H - historical rate;
A - average rate; R - reciprocal
Translation
in U.S. $
$.085
.085
.085
.085
.087
.087
C
C
C
C
A
A
4,250
42,500
68,000
510,000
435,000
52,200
56,800
1,168,750
.085
.085
C
C
R
A
93,500
4,250
375,000
696,000
1,168,750
12,950,000
Credits
Accumulated depreciation
Accounts payable
Home office
Sales
234
Remeasurement
in U.S. $
.087
235
Chapter 13
Solution P13-15
APPENDIX
Preliminary computations
Cost of 75% interest in Smithe on January 1, 2007
Book value acquired (1,300,000 LCU x $1.40 x 75%)
Patent in dollars
Patent in LCU:
$1,421,000
(1,365,000 )
$
56,000
$56,000/$1.40 rate = 40,000 LCU
Patent amortization for 2007
40,000 LCU/10 years x $1.43 average rate
Equity adjustment from Patent translation for 2007
Beginning balance
Less: Amortization for 2007
Less: Unamortized Patent at December 31
36,000 LCU x $1.45 current rate
Equity adjustment from Patent translation
$5,720
$56,000
(5,720)
(52,200 )
$1,920
Patent amortization for 2008
40,000 LCU/10 years x $1.48 average rate
Equity adjustment from Patent translation for 2008
Beginning balance
Less: Amortization for 2008
Less: Unamortized Patent at December 31
32,000 LCU x $1.50 current rate
Equity adjustment from Patent translation
$5,920
$52,200
(5,920)
(48,000 )
$1,720
Investment in Smithe account
Investment in Smithe January 1, 2007
Income from Smithe ($100,100 x 75% - $5,720 Patent)
Equity adjustment from translation ($64,900 x 75%)
Equity adjustment from Patent
Dividends ($71,000 x 75%)
$1,421,000
69,355
48,675
1,920
(53,250 )
Investment in Smithe December 31, 2007
Income from Smithe ($222,000 x 75% - $5,920 Patent)
Equity adjustment from translation ($67,500 x 75%)
Equity adjustment from Patent
Dividends ($73,500 x 75%)
1,487,700
160,580
50,625
1,720
(55,125 )
Investment in Smithe December 31, 2008*
$1,645,500
*Stockholders' equity of Smithe at December 31, 2008 of $2,130,000 x 75% =
Perry's interest of $1,597,500 + $48,000 unamortized Patent = $1,645,500 .
235
236
Solution P13-15
Foreign Currency Financial Statements
(continued)
Perry Corporation and Subsidiary
Consolidation Working Papers
for the year ended December 31, 2007
|
|
|
Adjustments and
| Minority|
Eliminations
| Interest|
Consolidated
|
Perry
| Smithe 75%|
Statements
|
|
|
Income Statement |
|
|
Sales
|$2,000,000 |$1,430,000 |
Income from Smithe|
69,355 |
|a
69,355
Cost of sales
| (900,000)| (858,000)|
(1,758,000)
Depreciation
|
|
|
expense
| (200,000)| (214,500)|
(414,500)
Operating expense | (669,355)| (257,400)|c
5,720
(932,475)
Minority income
|
|
|
(25,025)
Net income
|$ 300,000 |$ 100,100 |
|
|
|
Retained Earnings |
|
|
Retained earnings |$ 450,000 |$ 420,000 |b 420,000
Net income
|
300,000|
100,100|
Dividends
| (250,000)|
(71,000)|
(250,000)
Retained earnings |
|
|
December 31, 2007| $ 500,000 |$ 449,100 |
|
|
|
Balance Sheet
|
|
|
Cash
|$ 112,300 |$ 101,500 |
Accounts
|
|
|
receivable
|
150,000 |
87,000 |
Advance to Perry |
|
58,000 |
Inventories
|
250,000 |
217,500 |
Equipment-net
| 2,000,000 | 1,740,000 |
Investment in
| 1,487,700 |
|
Smithe
|
|
|
Patent
|
|
|b
57,920 c
| $4,000,000 |$2,204,000 |
|
|
|
Accounts payable |$ 393,405 |$ 290,000 |
Advance from
|
|
|
Smithe
|
58,000 |
|d
58,000
Capital stock
| 3,000,000 | 1,400,000 |b1,400,000
Retained earnings |
500,000|
449,100|
Equity adjustment +|
48,595 |
64,900 |b
64,900
| $4,000,000 |$2,204,000 |
|
Minority interest $1,884,900 x 25%
|
Minority interest December 31, 2007
|
|
|
236
|
|
|
|
|
|
|
|$3,430,000
|
|
|
|
|
|
|
|
|$ 25,025 |
a
d
a
b
b
|
|$
|
|
|
|
|
|$
|
|
53,250| (17,750)|
300,000
450,000
300,000
|
|
|
| $ 500,000
|
|
|
|
|
|$ 213,800
|
|
|
|
237,000
58,000|
|
|
|
467,500
|
| 3,740,000
16,105|
|
1,471,595|
|
5,720|
|
52,200
|
| $4,710,500
|
|
|
|$ 683,405
|
|
|
|
|
| 3,000,000
|
|
500,000
|
|
48,595
|
|
|
|
471,225| 471,225 |
| $478,500 |
478,500
|
| $4,710,500
|
|
Chapter 13
237
+Equity adjustment iscomputed as75%x$64,900from translation, plus $1,920from translation of
Patent, less$2,000from translation ofthe long term advance.
237
238
Solution P13-15
Foreign Currency Financial Statements
(continued)
Perry Corporation and Subsidiary
Consolidation Working Papers
for the year ended December 31, 2008
|
|
|
Adjustments and
| Minority|
Eliminations
| Interest|
Consolidated
|
Perry
| Smithe 75%|
Statements
|
|
|
|
|
Income Statement |
|
|
|
|
Sales
|$2,100,000 |$1,776,000 |
|
|$3,876,000
Income from Smithe|
160,580 |
|a
160,580
|
|
Cost of sales
|
900,000*| 1,036,000*|
|
| 1,936,000*
Depreciation
|
|
|
|
|
expense
|
250,000*|
222,000*|
|
|
472,000*
Operating expense |
710,580*|
296,000*|c
5,920
|
|
1,012,500*
Minority income
|
|
|
|$ 55,500 |
55,500*
Net income
|$ 400,000 |$ 222,000 |
|
| $ 400,000
|
|
|
|
|
Retained Earnings |
|
|
|
|
Retained earnings |$ 500,000 |$ 449,100 |b
449,100
|
|$ 500,000
Net income
|
400,000|
222,000|
|
|
400,000
Dividends
|
250,000*|
73,500*|
a
55,125| 18,375*|
250,000*
Retained earnings |
|
|
|
|
December 31, 2008| $ 650,000 |$ 597,600 |
|
| $ 650,000
|
|
|
|
|
Balance Sheet
|
|
|
|
|
Cash
|$
59,500 |$ 120,000 |
|
|$ 179,500
Accounts
|
|
|
|
|
receivable
|
195,000 |
270,000 |
|
|
465,000
Advance to Perry |
|
60,000 |
d
60,000|
|
Inventories
|
200,000 |
300,000 |
|
|
500,000
Equipment-net
| 2,100,000 | 1,575,000 |
|
| 3,675,000
Investment in
| 1,645,500 |
|
a
105,455|
|
Smithe
|
|
|
b 1,540,045|
|
Patent
|
|
|b
53,920 c
5,920|
|
48,000
| $4,200,000 |$2,325,000 |
|
| $4,867,500
|
|
|
|
|
Accounts payable |$ 391,060 |$ 195,000 |
|
|$ 586,060
Advance from
|
|
|
|
|
Smithe
|
60,000 |
|d
60,000
|
|
Capital stock
| 3,000,000 | 1,400,000 |b 1,400,000
|
| 3,000,000
Retained earnings |
650,000|
597,600|
|
|
650,000
Equity Adjustment +|
98,940 |
132,400 |b
132,400
|
|
98,940
| $4,200,000 |$2,325,000 |
|
|
|
|
|
Minority interest $1,981,500 x 25%
|
b
495,375| 495,375 |
Minority interest December 31, 2008
|
| $532,500 |
532,500
|
|
| $4,867,500
|
|
|
+ Equity adjustment is computed as 75% x $132,400 from translation, plus $3,640 from
translation of Patent, less $4,000 from translation of the long-term advance.
238
Chapter 13
239
239
240
Solution P13-15
Foreign Currency Financial Statements
(continued)
Perry Corporation and Subsidiary
Comparative Consolidated Financial Statements
Year 2008
Income Statement
Sales
Cost of sales
Depreciation expense
Operating expenses
Minority interest income
Consolidated net income
Retained Earnings Statement
Retained earnings-beginning
Consolidated net income
Dividends
Retained earnings December 31
Balance Sheet
Cash
Accounts receivable
Inventories
Equipment-net
Patent
Total assets
Accounts payable
Capital stock
Retained earnings
Equity translation adjustment
Minority interest 25%
Total equities
240
Year 2007
Change
2008 - 2007
$3,876,000
(1,936,000)
(472,000)
(1,012,500)
(55,500 )
$3,430,000
(1,758,000)
(414,500)
(932,475)
(25,025 )
$446,000
(178,000)
(57,500)
(80,025)
(30,475 )
$
400,000
$
300,000
$100,000
$
500,000
400,000
(250,000 )
$
450,000
300,000
(250,000 )
$ 50,000
100,000
0
$
650,000
$
500,000
$150,000
$
179,500
465,000
500,000
3,675,000
48,000
$
213,800
237,000
467,500
3,740,000
52,200
$(34,300)
228,000
32,500
(65,000)
(4,200 )
$4,867,500
$4,710,500
$157,000
$
$
$(97,345)
0
150,000
50,345
54,000
$4,867,500
$4,710,500
586,060
3,000,000
650,000
98,940
532,500
683,405
3,000,000
500,000
48,595
478,500
$157,000
241
Chapter 13
Solution P13-15
(continued)
Perry Corporation and Subsidiary
Individual Asset and Liabilities Translation Adjustments and Reconciliation
at and for the year ended December 31, 2008
| Balance | Rate |$ Change| Balance | Rate |$ Change|
| Dec. 31 |Change| 1st
| Dec. 31 |Change|
2nd |Consolidated
|
2007 | 1st | Half
| 2008
| 2nd |
Half | Translation
| in LCU | Half*|of 2008 | in LCU | Half +|of 2008 |
Changes
|
A
|
B|
C
|
D
|E
|
F
|
C+F
|
|
|
|
|
|
|
Cash
|
70,000|$0.030|$ 2,100 |
80,000|$0.020|$ 1,600 | $ 3,700
Cash (adjustment) |
50,000| 0.010|
(500)|
| 0.020|
0|
(500)
Accounts receivable|
60,000| 0.030| 1,800 | 180,000| 0.020| 3,600 |
5,400
Inventories
| 150,000| 0.030| 4,500 | 200,000| 0.020| 4,000 |
8,500
Equipment-net
|1,200,000| 0.030| 36,000 |1,050,000| 0.020| 21,000 |
57,000
Patent
|
36,000| 0.030| 1,080 |
32,000| 0.020|
640 |
1,720
|
|
| 44,980 |
|
| 30,840 |
75,820
|
|
|
|
|
|
|
Accounts payable
| 200,000| 0.030| 6,000 | 130,000| 0.020| 2,600 |
(8,600)
Effect of translation changes on consolidated net assets
| $67,220
Reconciliation
Minority interest translation adjustment
($67,500change x25%)
Equity adjustment ofPerry
($67,500x75%)+$1,720$2,000
Effectoftranslation changes onconsolidated
stockholders' equity
$16,875
50,345
$67,220
*Average exchange rateof$1.48current exchange rate of$1.45atyear end 2007.
+Current exchange rateof$1.50atyearend 2008average exchange rate of$1.48
fortheyear 2008
241
242
Foreign Currency Financial Statements
Solution P13-15
Indirect method
(continued)
Perry Corporation and Subsidiary
Consolidated Statement of Cash Flows
for the year ended December 31, 2008
Cash Flow from Operating Activities
Consolidated net income
Add: Minority interest income
$ 400,000
55,500
$455,500
Noncash expenses, revenues, losses, and
gains included in income:
Depreciation expense
Patent amortization
Increase in accounts receivable
Decrease in accounts payable
Increase in inventories
$ 472,000
5,920
(222,600)
(105,945)
(24,000 )
125,375
Cash flow from operating activities
Cash Flow from Investing Activities
Purchase of equipment
580,875
$(350,000 )
Net cash used in investing activities
(350,000)
Cash Flow from Financing Activities
Dividends paid to Perry's stockholders
Dividends paid to minority stockholders
$(250,000)
(18,375 )
Net cash provided by financing activities
(268,375)
Effect of exchange rate changes on cash
3,200
Decrease in cash for 2008
(34,300)
Cash and cash equivalents at December 31, 2007
213,800
Cash and cash equivalents at December 31, 2008
$179,500
Direct Method
[Cash Flow from Operating Activities Section]
Cash Flow from Operating Activities
Cash received from customers
Less: Cash paid to suppliers
Cash paid for operating expenses
Cash flow from operating activities
$3,653,400
$2,065,945
1,006,580
(3,072,525 )
$
[Cash flows from investing activities and cash flows from operating
activities are the same as under the indirect method.]
242
580,875
243
Chapter 13
Solution P13-16
APPENDIX
Preliminary computations
Cost of 90% interest January 1, 2003
Book value acquired (5,000,000 LCU x $.45 x 90%)
Patent (10 year amortization period)
Patent in LCU: $45,000/$.45 = 100,000 LCU
Patent amortization for 2003: 100,000 LCU/10 years x $.42 =
Unamortized Patent December 31, 2003:
90,000 LCU x $.40 =
$2,070,000
(2,025,000 )
$
45,000
$4,200
$36,000
Equity adjustment from Patent for 2003: $45,000 Patent balance
January 1, 2003 - $4,200 amortization - $36,000 unamortized
balance December 31, 2003
Debit
$4,800
Patent amortization for 2004:
$3,800
100,000 LCU/10 years x $.38 =
Unamortized Patent December 31, 2004:
80,000 LCU x $.375 =
Equity adjustment from Patent for 2003: $36,000 Patent balance
January 1, 2004 - $3,800 amortization - $30,000 unamortized
balance at December 31, 2004
Debit
$30,000
$2,200
Investment in Scheele account:
Investment in Scheele January 1, 2003
Income from Scheele ($420,000 x 90% - $4,200 Patent)
Equity adjustment from translation ($270,000 x 90%)
Equity adjustment from Patent
$2,070,000
373,800
(243,000)
(4,800 )
Investment in Scheele December 31, 2003
Income from Scheele ($418,000 x 90% - $3,800 Patent)
Equity adjustment from translation ($155,500 x 90%)
Equity adjustment from Patent
2,196,000
372,400
(139,950)
(2,200 )
Investment in Scheele December 31, 2004
$2,426,250
Check: Stockholders' equity of Scheele at December 31, 2004 of
$2,662,500 x 90% interest + $30,000 unamortized Patent =
$2,426,250
243
244
Solution P13-16
Foreign Currency Financial Statements
(continued)
Scheele Corporation
Translation Worksheet for 2003
LCU
Debits
Cash
Accounts receivable
Inventories
Equipment
Cost of sales
Depreciation expense
Operating expenses
Exchange loss
Equity adjustment-2003
100,000
400,000
500,000
9,000,000
3,000,000
900,000
975,000
125,000
Rate
$.4000
.4000
.4000
.4000
.4200
.4200
.4200
.4200
U.S. Dollars
C
C
C
C
A
A
A
A
15,000,000
Credits
Accumulated depreciation
Accounts payable
Advance from Progress
Capital stock
Retained earnings January 1, 2003
Sales
1,800,000
1,075,000
1,125,000
4,000,000
1,000,000
6,000,000
15,000,000
.4000
.4000
.4000
.4500
C
C
C
H
M
.4200 A
$
40,000
160,000
200,000
3,600,000
1,260,000
378,000
409,500
52,500
270,000
$6,370,000
$
720,000
430,000
450,000
1,800,000
450,000
2,520,000
$6,370,000
Translation Worksheet for 2004
Debits
Cash
Accounts receivable
Inventories
Equipment
Cost of sales
Depreciation expense
Operating expenses
Exchange loss
Equity adjustment January 1
Equity adjustment 2004
600,000
1,000,000
1,500,000
9,000,000
3,600,000
900,000
1,325,000
75,000
$.3750
.3750
.3750
.3750
.3800
.3800
.3800
.3800
C
C
C
C
A
A
A
A
M
225,000
375,000
562,500
3,375,000
1,368,000
342,000
503,500
28,500
270,000
155,500
$7,205,000
.3750
.3750
.3750
.4500
C
C
C
H
M
$1,012,500
412,500
450,000
1,800,000
870,000
2,660,000
$7,205,000
18,000,000
Credits
Accumulated depreciation
Accounts payable
Advance from Progress
Capital stock
Retained earnings January 1, 2004
Sales
244
2,700,000
1,100,000
1,200,000
4,000,000
2,000,000
7,000,000
18,000,000
$
245
Chapter 13
Solution P13-16
(continued)
Progress Corporation and Subsidiary
Consolidation Working Papers
for the year ended December 31, 2003
_____
|
|
|
Adjustments and
|Minority
_
| Progress |Scheele 90%| __
Eliminations
|Interest
|
|
|
|
|
Income Statement
|
|
|
|
|
Sales
|$7,526,200 |$2,520,000 |
|
|
Income from Scheele |
373,800 |
|a
373,800|
|
Exchange loss
|
|
(52,500)|
|
|
Cost of sales
|(4,300,000)|(1,260,000)|
|
|
Depreciation expense | (600,000)| (378,000)|
|
|
Other expenses
|(2,000,000)| (409,500)|c
4,200|
|
Minority income
|
|
|
|
| 42,000
Net income
|$1,000,000 |$ 420,000 |
|
|
|
|
|
|
|
Retained Earnings
|
|
|
|
|
Retained earnings|
|
|
|
|
Progress
|$1,200,000 |
|
|
|
Retained earnings|
|
|
|
|
Scheele
|
|$ 450,000 |b
450,000|
|
Net income
| 1,000,000|
420,000|
|
|
Dividends
|
|
|
|
|
Retained earnings
|
|
|
|
|
December 31, 2003
|$2,200,000 | $ 870,000 |
|
|
|
|
|
|
|
Balance Sheet
|
|
|
|
|
Cash
|$ 406,200 |$
40,000 |
|
|
Accounts receivable | 1,200,000 |
160,000 |
|
|
Advance to Scheele
|
450,000 |
|
|d
450,000|
Inventories
| 1,100,000 |
200,000 |
|
|
Equipment-net
| 1,300,000 | 2,880,000 |
|
|
Investment in Scheele| 2,196,000 |
|
|a
373,800|
|
|
|
|b 1,822,200|
Patent
|
|
|b
40,200|c
4,200|
|
| $6,652,200 | $3,280,000 |
|
|
|
|
|
|
|
Accounts payable
|$1,700,000 |$ 430,000 |
|
|
Advance from Progress|
|
450,000 |d
450,000|
|
Capital stock
| 3,000,000 | 1,800,000 |b 1,800,000|
|
Retained earnings
| 2,200,000| 870,000|
|
|
Equity adjustment|
|
|
|
|
Progress
|
247,800*|
|
|
|
Equity adjustment|
|
|
|
|
Scheele
|
|
270,000*|
|b
270,000|
| $6,652,200 | $3,280,000 |
|
|
|
|
|
Minority interest January 1, 2003 10%
|
|b
198,000| 198,000
|
|
|
Minority interest December 31, 2003
|
|
| $240,000
|
|
|
|
|
|
*Deduct
|Consolidated
| Statements
|
|
|$10,046,200
|
|
(52,500)
| (5,560,000)
|
(978,000)
| (2,413,700)
|
(42,000)
|$ 1,000,000
|
|
|
|$ 1,200,000
|
|
| 1,000,000
|
|
|$ 2,200,000
|
|
|$
446,200
| 1,360,000
|
| 1,300,000
| 4,180,000
|
|
36,000
|$ 7,322,200
|
|$ 2,130,000
|
| 3,000,000
| 2,200,000
|
|
247,800*
|
|
|
|
|
|
|
240,000
| $ 7,322,200
|
245
246
Foreign Currency Financial Statements
Solution P13-16
(continued)
Progress Corporation and Subsidiary
Consolidation Working Papers
for the year ended December 31, 2004
|
|
|
Adjustments and
|Minority
| Progress |Scheele 90%|
Eliminations
|Interest
|
|
|
|
|
Income Statement
|
|
|
|
|
Sales
|$8,527,600 |$2,660,000 |
|
|
Income from Scheele |
372,400 |
|a
372,400|
|
Exchange loss
|
|
(28,500)|
|
|
Cost of sales
|(4,800,000)|(1,368,000)|
|
|
Depreciation expense | (700,000)| (342,000)|
|
|
Other expenses
|(2,200,000)| (503,500)|c
3,800|
|
Minority income
|
|
|
|
|$ 41,800
Net income
|$1,200,000 | $ 418,000 |
|
|
|
|
|
|
|
Retained Earnings
|
|
|
|
|
Retained earnings|
|
|
|
|
Progress
|$2,200,000 |
|
|
|
Retained earnings|
|
|
|
|
Scheele
|
|$ 870,000 |b
870,000|
|
Net income
| 1,200,000| 418,000|
|
|
Retained earnings
|
|
|
|
|
December 31, 2004
|$3,400,000 | $1,288,000 |
|
|
|
|
|
|
|
Balance Sheet
|
|
|
|
|
Cash
|$ 183,800 |$ 225,000 |
|
|
Accounts receivable | 1,400,000 |
375,000 |
|
|
Advance to Scheele
|
450,000 |
|
|d
450,000|
Inventories
| 1,950,000 |
562,500 |
|
|
Equipment-net
| 1,100,000 | 2,362,500 |
|
|
Investment in Scheele| 2,426,250 |
|
|a
372,400|
|
|
|
|b 2,053,850|
Patent
|
|
|b
33,800|c
3,800|
|
| $7,510,050 |$3,525,000 |
|
|
|
|
|
|
|
Accounts payable
|$1,500,000 |$ 412,500 |
|
|
Advance from Progress|
|
450,000 |d
450,000|
|
Capital stock
| 3,000,000 | 1,800,000 |b 1,800,000|
|
Retained earnings
| 3,400,000|1,288,000|
|
|
Equity adjustment|
|
|
|
|
Progress
| (389,950)|
|
|
|
Equity adjustment|
|
|
|
|
Scheele
|
| (425,500)|
|b
425,500|
| $7,510,050 |$3,525,000 |
|
|
|
|
|
Minority interest January 1, 2004 10%
|
|b
224,450| 224,450
Minority interest December 31, 2004
|
|
| $266,250
|
|
|
|
|
|
246
|Consolidated
| Statements
|
|
|$11,187,600
|
|
(28,500)
| (6,168,000)
| (1,042,000)
| (2,707,300)
|
(41,800)
|$ 1,200,000
|
|
|
|$ 2,200,000
|
|
| 1,200,000
|
|$ 3,400,000
|
|
|$
408,800
| 1,775,000
|
| 2,512,500
| 3,462,500
|
|
30,000
|$ 8,188,800
|
|$ 1,912,500
|
| 3,000,000
| 3,400,000
|
|
(389,950)
|
|
|
|
|
|
266,250
| $ 8,188,800
|
247
Chapter 13
Solution P13-16
(continued)
Progress Corporation and Subsidiary
Comparative Consolidated Financial Statements
at and for the years ended December 31, 2003 and 2004
2004
2003
Change
2004 - 2003
Income Statement
Sales
Cost of sales
Depreciation
Other operating expenses
Exchange loss
Minority interest income
$11,187,600
(6,168,000)
(1,042,000)
(2,707,300)
(28,500)
(41,800 )
$10,046,200
(5,560,000)
(978,000)
(2,413,700)
(52,500)
(42,000 )
$1,141,400
(608,000)
(64,000)
(293,600)
24,000
200
Consolidated net income
$ 1,200,000
$ 1,000,000
$
Retained Earnings Statement
Retained earnings January 1
Add: Consolidated net income
$ 2,200,000
1,200,000
$ 1,200,000
1,000,000
$1,000,000
200,000
Retained earnings December 31
$ 3,400,000
$ 2,200,000
$1,200,000
$
$
446,200
1,360,000
1,300,000
4,180,000
36,000
$
Balance Sheet
Cash
Accounts receivable
Inventories
Equipment-net
Patent
408,800
1,775,000
2,512,500
3,462,500
30,000
200,000
(37,400)
415,000
1,212,500
(717,500)
(6,000 )
Total assets
$ 8,188,800
$ 7,322,200
$
866,600
Accounts payable
Capital stock
Retained earnings
Equity translation adjustment
Minority interest (10%)
$ 1,912,500
3,000,000
3,400,000
(389,950)
266,250
$ 2,130,000
3,000,000
2,200,000
(247,800)
240,000
$ (217,500)
0
1,200,000
(142,150)
26,250
Total equities
$ 8,188,800
$ 7,322,200
$
866,600
247
248
Solution P13-16
Foreign Currency Financial Statements
(continued)
Progress Corporation and Subsidiary
Individual Asset and Liability Translation Adjustments and Reconciliation
at and for the year ended December 31, 2004
| Balance | Rate | $ Change| Balance | Rate | $ Change|Consolidated
|12/31/2003| Change*| 1st Half|12/31/2004| Change+| 2nd Half| Translation
| in LCU |1st Half| of 2004 | in LCU |2nd Half| of 2004 |
Changes
|
A
|
B
|
C
|
D
|
E
|
F
|
C+F
|
|
|
|
|
|
|
Cash
|
100,000| $0.020 |$ (2,000)|
600,000| $0.005 |$ (3,000)| $ (5,000)
Accounts receivable|
400,000| $0.020 | (8,000)| 1,000,000| 0.005 | (5,000)|
(13,000)
Inventories
|
500,000| $0.020 | (10,000)| 1,500,000| 0.005 | (7,500)|
(17,500)
Equipment net
| 7,200,000| $0.020 |(144,000)| 6,300,000| 0.005 | (31,500)| (175,500)
Patent
|
90,000| $0.020 | (1,800)|
80,000| 0.005 |
(400)|
(2,200)
|
|
|(165,800)|
|
| (47,400)| (213,200)
|
|
|
|
|
|
|
Accounts payable
| 1,075,000| $0.020 | 21,500 | 1,100,000| 0.005 |
5,500 |
27,000
Effect of translation changes on consolidated net assets
$(186,200)
Reconciliation
Minority interest translation adjustment
($155,500 change x 10%)
Equity adjustment of Progress ($155,500 x 90% + $2,200)
Exchange loss on advance to Scheele
Effect of translation changes on consolidated net assets
* Average exchange rate of $.42 - current exchange rate of $.40 at
year end 2003.
+ Current exchange rate of $.375 at year end 2004 - average exchange
rate of $.38 for year 2004.
248
$ (15,550)
(142,150)
(28,500)
$(186,200)
249
Chapter 13
Solution P13-16
Indirect Method
(continued)
Progress Corporation and Subsidiary
Consolidated Statement of Cash Flows
for the year ended December 31, 2004
Cash Flows from Operating Activities
Consolidated net income
Add: Minority interest income
Noncash expenses, revenues, losses, and
gains included in income:
Depreciation expense
Patent amortization
Exchange loss
Increase in accounts receivable
Decrease in accounts payable
Increase in inventories
(774,200 )
$ 1,200,000
41,800
$ 1,241,800
$ 1,042,000
3,800
28,500
(428,000)
(190,500)
(1,230,000 )
Net cash flows from operating activities
Cash Flows from Investing Activities
Purchase of equipment
467,600
$
(500,000 )
Net cash used in investing activities
(500,000)
Cash Flows from Financing Activities
---
Effect of exchange rate changes on cash
(5,000 )
Decrease in cash for 2004
(37,400)
Add:
Cash and cash equivalents at beginning of year
Cash and cash equivalents at December 31, 2004
Direct Method
446,200
$
408,800
[Cash Flows from Operating Activities Section]
Cash Flows from Operating Activities
Cash received from customers
Less: Cash paid to suppliers
Cash paid for operating expenses
(10,292,000 )
Net cash flows from operating activities
$10,759,600
$ 7,588,500
2,703,500
467,600
249