Accounting Problems

Anonymous
timer Asked: Nov 26th, 2016

Question description

Problem 11-8 (LO 3, 5) Translate a trial balance and prepare a consolidation worksheet. Useful comparison with Problem 11-9.

Balfour Corporation acquired 100% of Tobac, Inc., a foreign corporation, for 33,000,000 FC. The acquisition, which was accounted for as a purchase, occurred on July 1, 2015, when Tobac’s equity, in FC, was as follows:

Common stock

19,000,000 FC

Paid-in capital in excess of par

8,480,000

Retained earnings

2,520,000

Any excess of cost over book value is traceable to equipment which is to be depreciated over 10 years. Balfour uses the simple equity method to account for its investment in Tobac.

On April 1, 2017, Tobac acquired additional equipment costing 4,000,000 FC. Equipment is depreciated by the straight-line method over 10 years. No other equipment had been acquired or disposed of since 2014. Tobac employs the LIFO inventory method. Ending inventory on December 31, 2017, consists of the following:

Acquired in the first quarter of 2014

1,000,000 FC

Acquired in the first quarter of 2015

500,000

Acquired in the first quarter of 2017

6,500,000

The cost of sales is traceable to goods purchased during 2017 as follows:

Acquired uniformly over the last 9 months

23,400,000 FC

Acquired in the first quarter

4,200,000

Other expenses were incurred evenly over the year.

On April 1, 2017, Tobac borrowed $1,280,000 from the parent company in order to help finance the purchase of equipment. The note is due in one year and bears interest at a rate of 8%. Principal and interest amounts are due to the parent in dollars.

Various spot rates are as follows:

1 FC=

1 FC=

First quarter, 2014 average

$0.46

December 31, 2016

$0.60

2014 Average

0.49

First quarter, 2017 average

0.62

January 1, 2015

0.51

April 1, 2017

0.64

First quarter, 2015 average

0.53

2017 Average

0.67

July 1, 2015

0.55

Last 9 months, 2017 average

0.66

December 31, 2015

0.58

December 31, 2017

0.65

Last 6 months, 2015 average

0.57

2016 Average

0.58

The December 31, 2017, trial balances for Tobac and Balfour are as follows:

Balfour Corporation

Tobac, Inc.

Cash

$ 4,463,200

3,087,385 FC

Net Accounts Receivable

15,350,000

12,000,000

Inventory

16,300,000

8,000,000

Due from Tobac

1,356,800

Investment in Tobac—See Note A

23,712,363

Depreciable Assets

68,000,000

34,000,000

Accumulated Depreciation

(42,000,000)

(12,300,000)

Due to Balfour

(2,087,385)

Other Liabilities

(27,000,000)

(3,700,000)

Common Stock

(35,000,000)

(19,000,000)

Paid-In Capital in Excess of Par Value

(2,000,000)

(8,480,000)

Retained Earnings, January 1, 2017

(4,500,000)

(7,520,000)

Sales

(98,000,000)

(40,000,000)

Cost of Sales

64,000,000

27,600,000

Depreciation Expense

8,076,800

3,300,000

Interest Expense on Balfour Loan (accrued on December 31, 2017)—See Note B

118,154

Exchange Gain on Balfour Loan—See Note B

(30,769)

Other Expenses

10,000,000

5,012,615

Interest Income

(76,800)

Subsidiary Income

(2,682,363)

Totals

$ 0

0 FC

Note A—Balfour’s investment in Tobac consists of the following:

Initial investment (33,000,000 FC × $0.55)

$18,150,000

Last 6 months, 2015 income (2,000,000 FC × $0.57)

1,140,000

2016 Income (3,000,000 FC × $0.58)

1,740,000

2017 Income

2,682,363

Balance

$23,712,363

Note B—The original loan from Balfour was 2,000,000 FC, or $1,280,000 (2,000,000 FC × $0.64). On December 31, 2017, it would require 1,969,231 FC ($1,280,000 ÷ $0.65) to settle the loan. This represents an exchange gain of 30,769 FC (2,000,000 FC − 1,969,231 FC).

The year-end balance due to Balfour is determined as follows:

Principal balance

1,969,231 FC

Accrued interest ($1,280,000 × 8% × 9/12 ÷ $0.65)

118,154

Balance

2,087,385 FC

The interest is accrued at year-end; therefore, interest expense should be translated at the year-end rate.

Required

Assuming the FC is Tobac’s functional currency, translate Tobac’s trial balance, and prepare a consolidating worksheet.

Please use attached Excel spreadsheet to finish Problem 11-8.

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