Exercise 11-1
Translated trial balance
Accounts
Current Assets………
Long lived assets (net)
Other Assets
Cost of Sales……
Other expenses
Current Liabilities………….
Other liabilities
Net sales
Dividends declared
Common Stock
Retained earnings (beginning)
Cumulative translation adjustment
Total…………………………
Translation of Retained Earnings
Balance, December 31, 2014
2015 Income
2015 Dividends
Balance December 31, 2015
Part 2
Debit (Credit)
Balance in
FC
Exchange
12/31/2015 Rate
In FC
1 FC=
Cumulative Translation Adjustment Traceable to Years Prior to 2015
Year 2015 Translation Adjustment
Accounts
Current Assets………
Long lived assets (net)
Other Assets
Cost of Sales……
Other expenses
Current Liabilities………….
Other liabilities
Net sales
Dividends declared
Common Stock
Retained earnings (beginning)
Cumulative translation adjustment
Total…………………………
Part 4
Debit (Credit)
Balance in
FC
Exchange
12/31/2014 Rate
Reduction in 2015 Translation Adjustment due to Hedge
Translated
into US $
12/31/2015
in U S $
r to 2015
Debit (Credit)
in U S $
Translated
into US $
12/31/2014
Exercise 11-3
Entries
Debit
Credit
Calculation of Investor's Share of Adjusted Equity Income
Recomputation of Annual Translation Adjustment
Exercise 11-5
in FC
Cash
Accounts Receivable
Inventory
Equipment
Accumulated Depreciation
Patents
Accumulated Amortization
Accounts Payable
Notes Payable
Common Stock
Retained Earnings Beginning
Retained Earnings Dividends
Sales
Cost of Sales
Depreciation and Amortization Expense
All Other Expenses
Cumulative Translation Adjustment
Exchange
Rate
In US $
71,000
148,000
105,000
300,000
(50,000)
96,000
(20,000)
(80,000)
#########
#########
#########
50,000
#########
372,000
28,000
120,000
0
100,000
Total
Net Income
Calculation of cumulative translation as of year end 2015
in FC
Cash and Cash Equivalents
Accounts Receivable
Inventory
Equipment
Accumulated Depreciation
Patents
Accumulated Amortization
Accounts Payable
Notes Payable
Common Stock
Retained Earnings Beginning
Retained Earnings Dividends
Sales
Cost of Sales
Depreciation and Amortization Expense
All Other Expenses
Exchange
Rate
In US $
Cumulative Translation Adjustment
Total
Net Income
Analysis of Excess of cost over book value at acquisition expressed in FC
Company Parent
Value
Value
NCI Value
Fair value of subsidiary
Less book value of interest acquired:
Common stock
Retained earnings
Total equity
Excess acquired
Excess Allocated To
Allocation of income to NCI
2014
2015
Problem 11-1
-1 Entries to record transactions—Debit (Credit):
In FCA
Account Titles
Debit
Credit
Trial balance:
Trial Balance:
In FCA
Debit
Receivable…………………..
Inventory………………
Land…………………..
Common Stock…………
Sales……………………
Cost of Sales……………….
Exchange (Gain) or Loss………….
Remeasurement (Gain) or Loss………....
Translation Adjustment………………
Total……………..…………….
Net Income…………….
-2 Remeasurement and translation of trial balance:
Credit
DR (CR)
Trial Balance:
In FCA
Receivable…………………..
Inventory………………
Land…………………..
Common Stock…………
Sales……………………
Cost of Sales……………….
Exchange Gain………….
Remeasurement Loss……….….
Translation Adjustment…….
Total………………….
Net Income (Loss)…………….
-3 Translation adjustment traceable to the current year:
-4
Rate
DR (CR)
FCB/FCA
In FCB
In FCB
Debit
Credit
In FCB
Debit
Credit
Rate
DR (CR_
U.S.$/FCB
In U.S.$
Year
A
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
B
C
D
Problem 11-3
Sorenson Company
Trial Balance Translation
31-Dec-18
Account
Cash
Accounts Receivable
Inventory
Fixed Assets
Accumulated Depreciation
Accounts Payable
Long-Term Debt
Common Stock
Paid-In Capital in Excess of Par
Retained Earnings, January 1, 20X8
Sales
Cost of Goods Sold
Operating Expenses
Cumulative Translation Adjustment
Totals
Relevant
Exchange
Rate
Balance
in FC
2,840,000
3,990,000
5,800,000
15,000,000
(6,800,000)
(1,580,000)
(5,000,000)
(3,000,000)
(2,000,000)
(7,950,000)
(10,000,000)
7,500,000
1,200,000
Translate the balance of Retained Earnings below:
0
Balance
in Dollars
E
F
G
H
I
A
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
B
C
D
E
F
G
H
I
Pueblo Corporation and Sorenson Company
Worksheet for Consolidated Financial Statements (in dollars)
For Year Ended December 31, 2018
Consolidated
Cash
Accounts Receivable
Inventory
Investment in Sorenson
Fixed Assets
Accumulated Depreciation
Additional Equipment
Accounts Payable
Long-Term Debt
Common Stock - Parent
Common Stock - Subsidiary
Paid-In Capital in Excess of Par- Parent
Paid-In Capital in Excess of Par - Subsidiary
Retained Earnings, 1/1/18- Parent
Retained Earnings, 1/1/18 Subsidiary
Sales
Cost of Goods Sold
Operating Expenses
Subsidiary Income
Total
Consolidated Net Income
Trial Balance
Pueblo
Sorenson
4,050,000
5,270,000
5,540,000
20,969,000
Key
Eliminations and Adjustments
Dr.
Key
Consolidated
Income
Cr. Statement
Balance
Sheet
21,000,000
(12,560,000)
(3,450,000)
(10,000,000)
(4,000,000)
(6,500,000)
(12,180,000)
(26,000,000)
16,380,000
3,210,000
(1,729,000)
0
0
0
0
0
0
Eliminations and Adjustments:
A
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
B
C
D
E
F
G
H
I
Part 2 MULTINATIONAL ACCOUNTING
648
AND
OTHER REPORTING CONCERNS
PROBLEMS
Problem 11-1 (LO 6, 7) Remeasuring a trial balance and analyzing results. In order
to demonstrate the use of the remeasurement process, assume that at the beginning of the year a
U.S. parent company invested 100,000 foreign currency B (FCB) to form a 100% owned subsidiary. The subsidiary immediately invested the foreign currency in land at a cost of 50,000
FCB and inventory with a cost of 50,000 FCB. At midyear, 50% of the inventory was sold for
40,000 FCB. At year-end, assume that the sale is still uncollected. Although FCB is the subsidiary’s functional currency, the subsidiary maintains its books of record in foreign currency A
(FCA). Assume the following exchange rates:
1 FCB equals . . . . . .
1 FCA equals . . . . . .
1 FCA equals . . . . . .
1 FCB equals . . . . . .
Required
Beginning of Year
Mid Year
End of Year
12.5 FCA
0.08 FCB
$0.20
$2.50
8 FCA
0.125 FCB
$0.40
$3.20
10 FCA
0.10 FCB
$0.30
$3.00
1. Prepare the entries to record the above transactions: (a) as they would have been recorded on
the books of the subsidiary and (b) as they would have been recorded had they been recorded
in terms of FCB. Also, prepare the trial balance that would have resulted under each of the
recording models.
2. Prepare a schedule to remeasure the FCA trial balance into an FCB trial balance and then
translate into U.S. dollars.
3. Prepare a schedule to directly calculate the translation adjustment to be reported in other
comprehensive income.
4. Compare the remeasured FCB trial balance to the FCB trial balance in part (1) and comment regarding whether the objectives of translation have been achieved.
Problem 11-2 (LO 6) Remeasure equity accounts and determine noncontrolling
interest values. WTC Manufacturing, Inc., has an 80% interest in a foreign subsidiary,
Mofoco Manufacturing. Relevant details regarding WTC’s investment in Mofoco are as follows:
Date of acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 30, 2016
Price paid for an 80% interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,600,000
Mofoco credit balances as of June 30, 2016, in foreign currency (FC):
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200,000 FC
Contributed capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800,000 FC
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
800,000 FC
Excess of cost over book value traceable to: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment with a remaining useful life of 8 1/3 years . . . . . . . . . . . . . . . . . . . . .
100,000 FC
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The balance
Although Mofoco maintains its books of record in the foreign currency (FC), its functional
currency is the U.S. dollar. The partial preclosing trial balance for the year ended 2017 as it
relates to shareholders’ equity of Mofoco is as follows:
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contributed Capital in Excess of Par Value . . . . . . . . . . . . . . . . . . . . . . . .
Retained Earnings as of December 31, 2016 . . . . . . . . . . . . . . . . . . . . . .
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of Inventory Sold (excluding depreciation) . . . . . . . . . . . . . . . . . . . .
Depreciation Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patent Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on Disposal of Depreciable Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debit (Credit)
(1,200,000) FC
(1,800,000)
(1,000,000)*
(3,100,000)
2,200,000
179,500
20,000
294,500
1,500
*The remeasured value of retained earnings on December 31, 2016, was $1,390,000.
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
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Chapter 11 TRANSLATION
OF
FOREIGN FINANCIAL STATEMENTS
649
Mofoco employs the FIFO inventory method, and inventory available for sale during 2017
consisted of a beginning balance of 300,000 FC, acquired in the fourth quarter of 2016, and
purchases during quarters 1 through 4 of 2017 of 400,000 FC, 620,000 FC, 700,000 FC, and
380,000 FC, respectively. Depreciation expense is based on a 10-year useful life, no residual or
salvage values, and the straight-line method. The 2017 depreciation expense is traceable to
depreciable assets acquired as follows:
January 1, 2015, acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2016, acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 31, 2017, acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,060,000 FC
450,000
600,000
When the depreciable assets were acquired on March 31, 2017, Mofoco also disposed of
depreciable assets with historical costs as follows: 160,000 FC acquired on January 1, 2015, and
60,000 FC acquired on June 30, 2016. The sales proceeds from the disposition of assets were
120,000 FC for the assets acquired on January 1, 2015 and 58,000 FC for the assets acquired
on June 30, 2016. The patent amortization is traceable to a patent that was acquired on
June 30, 2016, and is being amortized over 12 years by the straight-line method.
Relevant exchange rates are as follows:
January 1, 2015 . . .
April 30, 2016 . . . .
June 30, 2016. . . . .
March 31, 2017 . . .
2016 Average. . . . .
2017 Average. . . . .
1 FC ¼ $1.40
1 FC ¼ 1.41
1 FC ¼ 1.38
1 FC ¼ 1.36
1 FC ¼ 1.42
1 FC ¼ 1.35
December 31, 2017 . . . . . . . . . . . .
Fourth quarter 2016 average . . . . .
First quarter 2017 average . . . . . . .
Second quarter 2017 average . . . .
Third quarter 2017 average . . . . . .
Fourth quarter 2017 average . . . . .
1 FC ¼ $1.32
1 FC ¼ 1.35
1 FC ¼ 1.34
1 FC ¼ 1.35
1 FC ¼ 1.32
1 FC ¼ 1.31
1. Given the preclosing trial balance for the year ended 2017 as it relates to shareholders’ equity
of Mofoco, calculate the remeasured U.S. dollar values.
2. Calculate the amount of 2017 consolidated net income that is traceable to the noncontrolling interest.
Required
Problem 11-3 (LO 3, 5) Translate a trial balance and prepare a consolidation
worksheet with excess of cost over book value traceable to equipment. Due to
increasing pressures to expand globally, Pueblo Corporation acquired a 100% interest in Sorenson Company, a foreign company, on January 1, 2016. Pueblo paid 12,000,000 FC, and Sorenson’s equity consisted of the following:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paid-in capital in excess of par . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,000,000 FC
2,000,000
4,200,000
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,200,000 FC
On the date of acquisition, equipment with a 10-year life was undervalued by 500,000 FC. Any
remaining excess of cost over book value is attributable to additional equipment with a 20-year life.
The trial balances for Pueblo and Sorenson as of December 31, 2018, are as follows:
Pueblo Corporation
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in Sorenson . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . .
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paid-In Capital in Excess of Par . . . . . . . . . . . . . . . . . . .
Retained Earnings, January 1, 2018. . . . . . . . . . . . . . .
4,050,000
5,270,000
5,540,000
20,969,000
21,000,000
(12,560,000)
(3,450,000)
(10,000,000)
(4,000,000)
(6,500,000)
(12,180,000)
Sorenson Company
2,840,000 FC
3,990,000
5,800,000
15,000,000
(6,800,000)
(1,580,000)
(5,000,000)
(3,000,000)
(2,000,000)
(7,950,000)
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
07/21/2018 - RS0000000000000000000001059680 (Jackie Cohen) - Advanced Accounting
Part 2 MULTINATIONAL ACCOUNTING
650
AND
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subsidiary Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(26,000,000)
16,380,000
3,210,000
(1,729,000)
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0
OTHER REPORTING CONCERNS
(10,000,000)
7,500,000
1,200,000
0 FC
The investment in Sorenson consists of the following:
Initial investment (12,000,000 FC $1.20) . . . . . . . . . . . . . . . .
2016 Income (1,750,000 FC $1.28) . . . . . . . . . . . . . . . . . . . .
2017 Income (2,000,000 FC $1.30) . . . . . . . . . . . . . . . . . . . .
2018 Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$14,400,000
2,240,000
2,600,000
1,729,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,969,000
Relevant exchange rates are as follows:
January 1, 2016 . . . . . . . . . . . . . . . . . . .
2016 Average. . . . . . . . . . . . . . . . . . . . .
January 1, 2017 . . . . . . . . . . . . . . . . . . .
2017 Average. . . . . . . . . . . . . . . . . . . . .
December 31, 2018 . . . . . . . . . . . . . . . .
2018 Average. . . . . . . . . . . . . . . . . . . . .
Required
1FC ¼
$1.20
1.28
1.25
1.30
1.31
1.33
Assuming the FC is Sorenson’s functional currency, prepare a consolidated worksheet.
Problem 11-4 (LO 3, 5) Translation and elimination entries. On October 1, 2013,
Kemper International acquired a 90% interest in the equity of Spruco Manufacturing when the
subsidiary’s equity was 8,000,000 foreign currency (FC), including retained earnings with a balance of 3,000,000 FC. Kemper paid 8,100,000 FC, when 1 FC ¼ $1.18, for its 90% interest.
The excess over book value was allocated to a patent in the amount of 360,000 FC with the balance being traceable to goodwill. It was estimated that the patent had a remaining useful life of
10 years and was to be amortized using the straight-line method.
Spruco’s functional currency is the FC, and Kemper records its investment in the subsidiary
under the simple equity method. Since its acquisition, relevant information regarding Spruco’s
net income and dividends is as follows:
Net income:
Amount in FC . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average exchange rate for period (1 FC ¼) . . . . .
Dividends declared:
Amount in FC . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange rate at date of declaration (1 FC ¼) . . .
Remainder of 2013
2014
2015
350,000
$1.20
920,000
$1.30
740,000
$1.25
500,000
$1.25
350,000
$1.32
300,000
$1.24
On December 31, 2015, when 1 FC ¼ $1.22, Spruco reported total assets of 13,890,000
FC and liabilities of 5,030,000 FC.
Required
Prepare the necessary entries to eliminate Kemper’s investment in Spruco account at year-end 2015
and to record the depreciation/amortization on the relevant items of cost in excess of book value.
Problem 11-5 (LO 4, 6) Remeasurement and subsequent translation of financial
statements and hedging against a translation adjustment. Moser International, a
U.S. corporation, acquired a 100% interest in Gilmore Enterprises, a foreign corporation,
which manufactures avionic components. Although Gilmore accounts for its activity using foreign currency A (FCA), it has been determined that its function currency is foreign currency B
(FCB). A forecasted condensed trial balance as of Gilmore’s year-end December 31, 2015,
expressed in FCA, is as follows:
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
07/21/2018 - RS0000000000000000000001059680 (Jackie Cohen) - Advanced Accounting
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