Accounting Problem

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 file to complete Problem 11-8

Problem 11-8 TOBAC, INC. - TRIAL BALANCE TRANSLATION - DECEMBER 31, 2017 ACCOUNT BALANCE IN FC EXCHG. BALANCE RATE IN DOLLARS Cash Net Accounts Receivable Inventory Depreciable Assets Accumulated Depreciation Due to Balfour Other Liabilities Common Stock Paid-in Capital in Excess of Par 3,087,385 12,000,000 8,000,000 34,000,000 ### (2,087,385) (3,700,000) ### (8,480,000) 0 0 0 0 0 0 0 0 0 Retained Earnings, 1/1/X7 Sales Cost of Sales Depreciation Expense Int.Exp., Bal.Loan (accrued 12/31) Exchange Gain - Balfour Loan Other Expenses Cumulative Translation Adjustment (7,520,000) ### 27,600,000 3,300,000 118,154 (30,769) 5,012,615 0 0 0 0 0 0 0 0 Use this space to translate Retained Earnings Balance on 7/1/X5 Cash Net Accounts Receivable Inventory Due from Tobac Investment in Tobac Trial Balance in $ Balfour Tobac 4,463,200 15,350,000 16,300,000 1,356,800 23,712,363 Depreciable Assets 68,000,000 Eliminations & Adjustments Dr. Cr. Accumulated Depreciation ### Due to Balfour Other Liabilities ### Common Stock ### Paid-in Capital in Excess of Pa (2,000,000) Retained Earnings.,1/1/X7 (4,500,000) Sales ### Cost of Sales 64,000,000 Depreciation Expense 8,076,800 Interest Exp. on Balfour Loan Exch. on Gain on Balfour Loan Other Expenses 10,000,000 Interest Income (76,800) Subsidiary Income (2,682,363) Cumulative Translation Adjustment Totals 0 Consolidated Net Income Eliminations and Adjustments: 0 0 0 ConsolidateConsolidated I/S B/S