PWA Corporation paid $1,710,000 for 100 percent of the stock of SAA Corporation on January 1, 2016, when the stockholders' equity of SAA consisted of 5,000,000 LCU capital stock and 3,000,000 LCU-retained earnings. SAA's functional currency is the local currency unit, and any cost/book value differential is attributable to a patent with a 10-year amortization period.

On July 1, 2016, PWA advanced $333,000 (1,800,000 LCU) to SAA when the exchange rate was $0.185. The advance is short-term and denominated in U.S. dollars.

Relevant exchange rates for LCUs for 2016 are as follows:

Rate at acquisition on January 1 ....................$0.190

Rate applicable to the advance on July 1 .......... 0.185

Rate applicable to dividends on September 1 ...... 0.185

Average rate for the year .............................. 0.185

Current rate at December 31 .......................... 0.180

A translation worksheet for SAA's adjusted trial balance at December 31, 2016, is as follows:

Financial statements for PWA and SAA at and for the year ended December 31, 2016, are summarized as follows:

REQUIRED
1. Prepare journal entries on PWA's books to account for its investment in SAA for 2016.
2. Prepare consolidation working papers for PWA Corporation and Subsidiary for the year ended December 31, 2016.

Transcribed Image Text:

Exchange Rate LCUs U.S. Dollars Debits Cash Accounts receivable-net Inventories Land Equipment-net Buildings-net Expenses Exchange loss (advance) Dividends Equity adjustment from translation 550,000 500,000 1,500,000 1,600,000 3,000,000 5,000,000 4,000,000 50,000 1,000,000 S0.180 C 0.180 C 0.180 C 0.180 C 0.180 C 0.180 C 0.185 A 0.185 A 0.185 R S99,000 90,000 270,000 288,000 540,000 900,000 740,000 9,250 185,000 84,750 17,200,000 $3,206,000 Credits Accounts payable Other liabilities Advance from PWA (short-term) Capital stock Retained earnings January 1 Sales 750,000 600,000 1,850,000 S0.180 C 0.180 C 0.180 C $135,000 108,000 333,000 5,000,000 3,000,000 6,000,000 17,200,000 0.190 H 0.190 H 0.185 A 950,000 570,000 1,110,000 $3,206,000 PWA SAA Combined Income and Retained Earnings Statement for the Year Ended December 31, 2016 Sales Income from SAA Expenses Exchange loss Net income Add: Beginning retained earnings Less: Dividends $ 569,500$1,110,000 342,250 (400,000) (740,000) 511,750 856,500 (300,000) $1,068.250 (9,250) 360,750 570,000 (185,000) 745,750 Retained earnings December 31 Balance Sheet at December 31, 2016 Cash Accounts receivable-net Advance to SAA Inventories Land Equipment-net Buildings-net Investment in SAA $ 90,720 99,000 90,000 128,500 333,000 120,000 100,000 600,000 300,000 1,773,000 270,000 288,000 540,000 900,000 Accounts payable Advance from PWA Other liabilities Common stock Retained earnings Equity adjustment from translation $3,445,220 $2,187,000 $ 162,720 135,000 333,000 108,000 950,000 745,750 (84,750) $3,445,220 $2,187,000 308,500 2,000,000 1,068,250 (94,250)