Advanced Accounting

journal entry for question nr. 2

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Antonina Morari Advanced Accounting 311 Professor Jeffrey Satenstein FASB Codification Project Facts of the case. Since 2005, Roberts has owned 100% of Simmons, a British manufacturer of toys and has a carrying value for the investment of $5,000,000. Roberts has chosen to use the pound sterling as the functional currency for Simmons operations. There is a $1,000,000 cumulative translation adjustment credit balance reported in Stockholders Equity of Roberts related to this investment. On October 31, 2016, due to a change in Simmons strategies, Roberts has decided to sell 70% of its investment and receives $4,000,000 in cash. Roberts will no longer consolidate Simmons. Roberts initially records the following entry on that date: Dr, Cash 4,000,000 Cr, Investment Cr. Gain on Sale 3,500,000 (70% x 5,000,000) 500,000 Answer a. and b. below: a. research the FASB codification section that deals with the question of what happens to the cumulative translation adjustment when a sale takes place and consolidation is no longer applicable. Write down the full codification citation , e.g. ###-##-##-## that is applicable. \"Cut and paste\" the applicable section(s) into your answer. ( 3 points ) ASC 830- 30-40-1 Upon sale or upon complete or substantially complete liquidation of an investment in a foreign entity, the amount attributable to that entity and accumulated in the translation adjustment component of equity shall be both: a. Removed from the separate component of equity b. Reported as part of the gain or loss on sale or liquidation of the investment for the period during which the sale or liquidation occurs. b. Indicate what happens with the $1,000,000 cumulative translations adjustment credit that is on the books of Roberts once the sale has been completed. If you believe a journal entry is necessary, indicate what the journal entry is showing account titles and amounts for the debits and credits. ( 2 points ) Based on the above analysis, the $1,000,000 CTA shall be therefore removed from the separate component of equity and shall be reported as part of the gain or liquidation of the investment for the period during which the sale or liquidation occurs. The $1,000,000 CTA will also not require any reclassification which therefore means that this amount will therefore be part of the $500,000 gain that Robert recognized and journalized as per the entries he made as of October 31, 2016 above