LO7 Exercise 7On January 1, 20X4, Pearl Corporation, a US firm, acquired a 70% interest in Segar Corporation, a foreign company, for $120,000, when Segar’s stockholders’ equity consisted of 300,000 local currency units (LCU) and retained earnings of 100,000 LCU. At the time of the acquisition, Segar’s assets and liabilities were fairly valued except for a patent that did not have any recorded book value. All excess purchase cost was attributed to the patent, which had an estimated economic life of 10 years at the date of acquisition. The exchange rate for LCUs on January 1, 20X4 was $.40.A summary of changes in Segar’s stockholders’ equity during 20X4 and the exchange rates for LCUs is as follows:LCURatesDollarsStockholders’ equity1/1/X4400,000$.40C$160,000Net income100,000.42A42,000Dividends 12/1/X4(50,000 ).43C(21,500 )Equity adjustment17,500Stockholders’ equity12/31/X4450,000.44C$198,000Required: Determine the following:1.Fair value of the patent from Pearl’s investment in Segar on January 1, 20X4.2.Patent amortization for 20X4.3.Unamortized patent at December 31, 20X4.4.Equity adjustment from the patent.5.Income from Segar for 20X4.6.Investment in Segar balance at December 31, 20X4.LO7Exercise 8Peatey Corporation, a US company, acquired a 30% interest in Selby Corporation of Switzerland on January 1, 20X3 for $3,300,000 when Selby’s stockholders’ equity in Swiss francs (SF) consisted of 7,000,000 SF Capital Stock and 3,000,000 SF Retained Earnings. The exchange rate for Swiss francs was $.66 on January 1. All excess purchase cost was attributed to a trademark that did not have a recorded book value. Peatey will amortize the trademark over 40 years.63
A summary of changes in Selby’s stockholders’ equity during 20X3 and relevant exchange rates are as follows:In FrancsExchangeRatesInDollarsStockholders’ equity1/1/X3£10,000,000$.660C$6,600,000Net income2,500,000.650A1,625,000Dividends 11/1/X3(1,000,000 ).645C(645,000 )Equity adjustment(220,000 )Stockholders’ equity12/31/X3£11,500,000.64C$7,360,000Required: Determine the following:1.Fair value of the trademark from Peatey’s investment in Selby on January 1, 20X3.2.Trademark amortization for 20X3.3.Unamortized trademark at December 31, 20X3.4.Equity adjustment from the trademark.5.Income from Selby for 20X3.6.Investment in Selby balance at December 31, 20X3.64
LO7 Exercise 9 Pelican Corporation, a US company, owns 100% of Swiftlet Corporation, an Australian company. Swiftlet's equipment was acquired on the following dates (amounts are stated in Australian dollars):Jan. 01, 20X1 Purchased equipment for A$40,000Jul. 01, 20X1 Purchased equipment for A$80,000Jan. 01, 20X2 Purchased equipment for A$50,000Jul. 01, 20X2 Sold equipment purchased on Jan. 01, 20X1 for A$35,000Exchange rates for the Australian dollar on various dates are: Jan. 01, 20X1 1A$ = $.500 Jan. 01, 20X2 1A$ = $.530Jul. 01, 20X1 1A$ = $.520 Jul. 01, 20X2 1A$ = $.505Dec. 31, 20X1 1A$ = $.530 Dec. 31, 20X2 1A$ = $.49020X1 avg. rate 1A$ = $.515 20X2 avg. rate 1A$ = $.510Swiftlet's equipment has an estimated 5-year life with no salvage value and is depreciated using the straight-line method. Swiftlet's functional currency is the US dollar, but the company uses the Australian dollar as its reporting currency.Required: 1.Determine the value of Swiftlet's equipment account on December 31, 20X2 in US dollars.2.Determine Swiftlet's depreciation expense for 20X2 in US dollars.3.Determine the gain or loss from the sale of equipment on July 1, 20X2 in US dollars.
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