Compile calculated translation adjustment amounts.

On January I, 20X3, before acquiring Coyote, Acme Corporation acquired 100% of Simbel Company for consideration transferred with a fair value of $126,000. Acme is a U.S.-based company headquartered in Fairfield, New Jersey, and Simbel is in Cairo, Egypt. Acme accounts for its investment in Simbel under the initial value method. Any excess of fair value of consideration transferred over book value is attributable to undervalued land on Simbel's books. Simbel had no retained earnings at the date of acquisition. The following are the 20X4 financial statements for the two operations. Information for Acme and for Simbel is in U.S. dollars ($) and Egyptian pounds (E), respectively.

Acme Corporation

Simbel Company

Sales

$200,000

E 800,000

Cost of goods sold

(93,800)

(420,000)

Salary expense

(19,000)

(74,000)

Rent expense

(7,000)

(46,000)

Other expenses

(21,000)

(59,000)

Dividend income - from Simbel

13,750

-0-

Gain on sale of building, 10/1/X3

-0-

30,000

Net income

$72,950

E 231,000

Retained earnings, 1/1/X3

$318,000

E 133,000

Net income

72,950

231,000

Dividends

(24,000)

(50,000)

Retained earnings, 12/31/X3

$366,950

E314,000

Cash and receivables

$110,750

E 146,000

Inventory

98,000

297,000

Prepaid expenses

30,000

-0-

Investment in Simbel (initial value)

126,000

-0-

Property, plant, and equipment (net)

398,000

455,000

Total assets

$762,750

E898,000

Accounts payable

$60,800

E 54,000

Notes payable - due in 20X7

132,000

140,000

Common stock

120,000

240,000

Additional paid - in capital

83,000

150,000

Retained earnings, 12/31/X4

366,950

314,000

Total liabilities and equities

$762,750

E898,000

Additional Information

During 20X3, the first year of joint operation, Simbel reported income of E 163,000 earned evenly throughout the year. Simbel declared a dividend of E 30,000 to Acme on June 1 of that year. Simbel also declared the 20X4 dividend on June 1.

On December 9, 20X4, Simbel classified a E 10,000 expenditure as a rent expense, although this payment related to prepayment of rent for the first few months of 20X5.

The exchange rates for 1 E are as follows:

January 1, 20X3

$0.30

June 1, 20X3

0.290

Weighted average rate for 20X3

0.288

December 31, 20X3

0.280

June 1, 202X

0.275

October 1, 20X4

0.273

Weighted average rate for 20X4

0.274

December 31, 20X4

0.270

Step One

Simbel's financial statements are first translated into U.S. dollars after reclassification of the E 10,000-pound expenditure for rent from rent expense to prepaid rent. Credit balances are in parentheses.

Translation Worksheet

Account

Egyptian Pounds

Exchange Rate

U.S. Dollars

Sales

Cost of goods sold

Salary expense

Rent expense (adjusted)

Other expenses

Gain on sale of building, 10/1/X3

Net income

0

0

R/E, 1/1/X3

Net income

Dividends

R/E,12/31/X3

Cash and receivables

Inventory

Prepaid rent (adjusted)

Property, plant, & equipment

Total

Accounts payable

Notes payable

Common stock

Add'l paid-in capital

Retained earnings, 12/31/X3

Subtotal

Cumulative translation

adjustment (negative)

Total

Egyptian Pounds

U.S. Dollars

Retained earnings, 1/1/X3

Net income, 20X3

Dividends, 6/1/X3

Retained earnings, 1/1/X4

Calculation of Cumulative Translation Adjustment at 12/31/X3

Egyptian Pounds

U.S. Dollars

Net assets, 1/1/X3

Net income, 20X3

Dividends, 6/1/X3

Net assets, 12/31/X3

Net assets, 12/31/X3 at current exchange rate

Translation adjustment, 20X3 (negative)

Net assets, 1/1/X3

Net income, 20X3

Dividends, 6/1/X3

Net assets, 12/31/X3

Net assets, 12/31/X3 at current exchange rate

Translation adjustment, 20X4 (negative)

Cumulative translation adjustment, 12/31/X3 (negative)

Step Two

Acme and Simbel's U.S. dollar accounts are then consolidated. Necessary consolidation entries are made in the consolidation worksheet.

Consolidation Worksheet

Consolidation Entries

Consolidated Balances

Account

Acme Dollars

Simbel Dollars

Debit

Credit

Dollars

Sales

Cost of goods sold

Salary expense

Rent expense

Other expenses

Dividend income

Gain, 10/1/X3

Net income

Ret earn, 1/1/X3

Net income

Dividends

Ret earn, 12/31/X3

Cash and receivables

Inventory

Prepaid rent

Investment

Property, plant, & equipment

Total

Accounts payable

Notes payable

Common stock

Additional PIC

Ret earn, 12/31/X3

Subtotal

Cumulative translation adjustment

Total