AND STOCKHOLDERS' EQUITY
On January 1, 20x5, Taft Company acquired all of the outstanding stock of Vikiz, Inc., a Norwegian
company, at a cost of $151,200. Vikix's net assets on the date of acquistion were 700,000 kroner (NKr).
On January 1, 20x5, the book and fair values of the Norwegian subsidairy's identifiable assets and
liabilities approximated their fair values except for property, plant, and equipment and patents
acquired. The fair value of Vikix's property, plant, and equipment exceeded its book value by $18,000.
The remaining useful life of Vikix's equipment at January 1, 20x5 was 10 years.
The remainder of the differential was attributable to a patent having an estimated useful life of 5 years.
Vikix's trial balance on December 31, 20x5, in kroner, follows:
Cash NKr 150,000
Accounts receivable (net) 200,000
Property, plant and equipment 600,000
Accumulated depreciation NKr 150,000
Accounts payable 90,000
Notes payable 190,000
Common stock 450,000
Retained earnings 250,000
Cost of goods sold 410,000
Operating expenses 100,000
Depreciation expense 50,000
Dividends paid 40,000
Total NKr 1,820,000 NKr 1,820,000
1. Vikix uses the FIFO method for its inventory. The beginning inventory was acquired on
December 31, 20x4, and ending inventory was acquired on December 15, 20x5. Purchases
of NKr420,000 were made evenly throughout 20x5.
2. Vikix acquired all of its property, plant, and equipment on July 1, 20x3, and uses straight-
3. Vikix's sales were made evenly throughout 20x5, and its operating expenses were incurred
evenly throughout 20x5
4. The dividends were declared and paid on July 1, 20x5
5. Taft's income from its own operations was $275,000 for 20x5, and its total stockholders'
equity on January 1, 20x5, was $3,500,000. Taft declared $100,000 of dividends during 20x5.
6. Exchange rates were as follows:
July 1, 20x3 NKr1 = $.15
December 30, 20x4 NKr1 = $.18
January 1, 20x5 NKr1 = $.18
July 1, 20x5 NKr1 = $.19
December 15, 20x5 NKr1 = $.205
December 31, 20x5 NKr1 = $.21
Average for 20x5 NKr1 = $.20
a. prepare a schedule translating the trial balance form Norwegian kroner into
US dollars. Assume the kroner is the functional currency
b. assume that Taft uses the basic equity method. Record all journal entries that relate
to its investment in the Norwegian subsidairy during 20x5. Provide the necessary documentation
and support for the amounts in the journal entries, including a schedule of the translation
adjustment related to the differential.
c. prepare a schedule that determines Taft's consolidated comprehensive income for 20x5
d. compute Taft's total consolidated stockholders' equity at December 31, 20x5
This question was asked on May 08, 2010.
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