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Can you please explain why his is the answer? D. $88,000o 10. Detroit-based Auto Corporation acquired 100 percent of the common stock of a British
Can you please explain why his is the answer?
D. $88,000o 10. Detroit-based Auto Corporation acquired 100 percent of the common stock of a British company on January 1, 2008, for $900,000. The British subsidiary's net assets amounted to 400,000 pounds on the date of acquisition. On January 1, 2008, the book values of its identifiable assets and liabilities approximated their fair values. As a result of an analysis of functional currency indicators, Auto determined that the British pound was the functional currency. On December 31 2008, the British subsidiary's adjusted trial balance, translated into U.S. dollars, contained $15,000 more debits than credits. The British subsidiary reported income of 40,000 pounds for 2008 and paid a cash dividend of 10,000 pounds on October 25, 2008. Included on the British subsidiary's income statement was depreciation expense of 4,000 pounds. Auto uses the basic equity method of accounting for its investment in the British subsidiary and determined that goodwill in the first year had an impairment loss of 20 percent of its initial amount. Exchange rates at various dates during 2008 followStep by Step Solution
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