Consolidation Accounting Facts: Assume that on January 1, Parent Company ("Parent Co") acquires 100% of the common stock of Subsidiary Company ("Sub Co") for $700,000. On the acquisition date, Sub Co reports a book value of Stockholders' Equity of $220,000. Parent Co is willing to pay the purchase price because the subsidiary owns a customer list that has a fair value equal to $50,000. In addition, Sub Co owns property, plant and equipment that are worth $150,000 more than the amount at which they are reported on Sub Co's books. Both of these identifiable assets are depreciated or amortized over a 20 year period with no salvage value (and assume no tax effect, so no adjustment to income taxes). Any remaining excess purchase price is attributed to corporate synergies that Parent Co expects to realize following the combination of the two companies. Parent Co and Sub Co's financial statements at the end of the first year following the acquisition are detailed in the Excel file "Case 1 - Advanced accounting topics." Required: Using the Excel file "Case 1 - Advanced accounting topics," prepare the consolidating journal entries and the consolidated financial statements at the end of the first year following the acquisition. Part II Foreign Currency Accounting Facts: Parent Co, a U.S. firm, paid $525,000 cash to acquire all of the stock of the British firm Sub Co when the book value of Sub's net assets was equal to fair value. This business combination occurred on December 31, 2020, when the exchange rate for British pounds was $1.50. During 2021 the British pound weakened against the U.S. dollar, resulting in a year- end current exchange rate of $1.47. Average exchange rates for 2021 were $1.49. Sub Co paid a 20,000 dividend to Parent Co on December 1, 2021 when the exchange rate was $1.48 per British pound. The only intercompany transaction between the firms was an $84,000 (56,000) noninterest-bearing advance by Sub Co to Parent Co that occurred on January 4, 2021 when the exchange rate was still $1.50. The advance is denominated in U.S. dollars. Sub Co's functional currency is British pounds, so the advance to Parent Co is a foreign currency transaction from Sub Co's perspective, but not to Parent Co because it is denominated in U.S. dollars. Sub Co's assets, liabilities and stockholder's equity at acquisition were as follows: British Exchange U.S. Pounds Rate Dollars Assets Cash 140,000 $1.50 $210,000 Accounts receivable 40,000 1.50 60,000 Inventory 120,000 1.50 180,000 Plant assets, net 80,000 1.50 120,000 Total assets 380,000 $570,000 Liabilities & Stockholder's Equity Accounts payable 30,000 $1.50 $45,000 Bonds payable 100,000 1.50 150,000 Common stock 200,000 1.50 300,000 Retained earnings 50,000 1.50 75,000 Total liabilities & stockholder's equity 380,000 $570,000 Sub Co adjusted its advance to Parent Co at year-end 2021 to reflect the $1.47 current exchange rate. Sub Co recorded an exchange gain because there is no evidence that the advance is of a long-term investment nature. The entry recorded on Sub Co's books was: CR DR 1,143 Advance to parent Exchange gain To adjust receivable denominated in U.S. dollars (($84,000 / $1.47) - 56,000) 1,143 . Required: In the Excel file "Case 1 - Advanced accounting topics" and the worksheet "Foreign Currency" you will find Sub Co's adjusted trial balance at December 31, 2021 in British pounds. Please prepare the following: . Convert Sub Co's accounts to U.S. dollars showing the exchange rate and U.S. dollar amount for each account. Prepare Sub Co's December 31, 2021 financial statements in U.S. dollars: Balance Sheet (in classified format), Income Statement (in multiple-step format) and Statement of Retained Earnings. Prepare Sub Co's December 31, 2021 Statement of Cash Flows, assuming the following: No plant and equipment was sold during 2021 No bonds payable was issued (i.e., borrowed) during 2021 No common stock was issued during 2021 No common stock was purchased from stockholders (i.e., treasury stock) Any effects of foreign exchange rate changes are classified on the Statement of Cash Flows as "Effects of foreign exchange rate changes" (see the Discussion Case - FSA (Data) Excel file for an example of the format). E H13 xv fx B D 1 Consolidation Accounting 2 3 Parent Co Sub Co 4 Income Statement 5 Sales 5,700,000 480,000 6 Cost of goods sold 3,990,000 288,050 7 Gross profit 1,710,000 191,950 8 Operating expenses 903,800 106,950 9 Income from operations 806,200 85,000 10 Equity income 67. 150 0 11 Income before income tax 873,350 85,000 12 Income tax 179,200 17,850 13 Net Income 694150 67 150 14 15 Statement of Retained Earnings 16 Beginning retained earnings 2,863,680 148,000 17 Net income 694, 150 67,150 18 Dividends (134840) (10,080) 19 Ending retained earnings 3,422.990 205,070 20 21 Balance Sheet 22 Assets 23 Cash 454,870 129,390 24 Accounts receivable 729,600 111,360 25 Inventory 1,105,800 143,040 26 Total current assets 2,290,270 383,790 27 Property, plant and equipment, net 5,319,240 164,640 28 Investment in subsidiary 757,070 0 29 Total assets 8,366 580 548,430 30 Liabilities & Stockholders' Equity 31 Other liabilities 819,090 111,360 32 Total current liabilities 819,090 111,360 33 Notes payable 2,500,000 160,000 34 Common stock 931,950 32,000 35 Retained earnings 3,422,990 205,070 36 Additional paid in capital 692,550 40,000 37 Total stockholders' equity 5,047,490 277,070 38 Total liab & stockholders' eq 8,366 580 548,430 39 40 Consolidation Foreign Currency + Ready 1 Foreign Currency Accounting 2 Trial Balance 3 Sub Co Trial Balance in British Pounds Exchange Rate Trial Balance E $ 4 Debits 5 Cash 6 Accounts receivable 7 Inventory 8 Plant assets 9 Advance to parent 10 Cost of sales 11 Depreciation expense 12 Wages and salaries expense 13 Other expenses 14 Dividends declared 15 110,000 $ 47,250 113,000 100,000 57,143 340,000 14,285 78,545 57,460 20,000 937,683 16 Credits 17 Accounts payable 18 Bonds payable 19 Common stock 20 Retained earnings 21 Sales 22 Exchange gain (on the advance to parent) 23 24 25 26 46,540 100,000 200,000 50,000 540,000 1,143 937,683 E 27 A Consolidation Accounting Facts: Assume that on January 1, Parent Company ("Parent Co") acquires 100% of the common stock of Subsidiary Company ("Sub Co") for $700,000. On the acquisition date, Sub Co reports a book value of Stockholders' Equity of $220,000. Parent Co is willing to pay the purchase price because the subsidiary owns a customer list that has a fair value equal to $50,000. In addition, Sub Co owns property, plant and equipment that are worth $150,000 more than the amount at which they are reported on Sub Co's books. Both of these identifiable assets are depreciated or amortized over a 20 year period with no salvage value (and assume no tax effect, so no adjustment to income taxes). Any remaining excess purchase price is attributed to corporate synergies that Parent Co expects to realize following the combination of the two companies. Parent Co and Sub Co's financial statements at the end of the first year following the acquisition are detailed in the Excel file "Case 1 - Advanced accounting topics." Required: Using the Excel file "Case 1 - Advanced accounting topics," prepare the consolidating journal entries and the consolidated financial statements at the end of the first year following the acquisition. Part II Foreign Currency Accounting Facts: Parent Co, a U.S. firm, paid $525,000 cash to acquire all of the stock of the British firm Sub Co when the book value of Sub's net assets was equal to fair value. This business combination occurred on December 31, 2020, when the exchange rate for British pounds was $1.50. During 2021 the British pound weakened against the U.S. dollar, resulting in a year- end current exchange rate of $1.47. Average exchange rates for 2021 were $1.49. Sub Co paid a 20,000 dividend to Parent Co on December 1, 2021 when the exchange rate was $1.48 per British pound. The only intercompany transaction between the firms was an $84,000 (56,000) noninterest-bearing advance by Sub Co to Parent Co that occurred on January 4, 2021 when the exchange rate was still $1.50. The advance is denominated in U.S. dollars. Sub Co's functional currency is British pounds, so the advance to Parent Co is a foreign currency transaction from Sub Co's perspective, but not to Parent Co because it is denominated in U.S. dollars. Sub Co's assets, liabilities and stockholder's equity at acquisition were as follows: British Exchange U.S. Pounds Rate Dollars Assets Cash 140,000 $1.50 $210,000 Accounts receivable 40,000 1.50 60,000 Inventory 120,000 1.50 180,000 Plant assets, net 80,000 1.50 120,000 Total assets 380,000 $570,000 Liabilities & Stockholder's Equity Accounts payable 30,000 $1.50 $45,000 Bonds payable 100,000 1.50 150,000 Common stock 200,000 1.50 300,000 Retained earnings 50,000 1.50 75,000 Total liabilities & stockholder's equity 380,000 $570,000 Sub Co adjusted its advance to Parent Co at year-end 2021 to reflect the $1.47 current exchange rate. Sub Co recorded an exchange gain because there is no evidence that the advance is of a long-term investment nature. The entry recorded on Sub Co's books was: CR DR 1,143 Advance to parent Exchange gain To adjust receivable denominated in U.S. dollars (($84,000 / $1.47) - 56,000) 1,143 . Required: In the Excel file "Case 1 - Advanced accounting topics" and the worksheet "Foreign Currency" you will find Sub Co's adjusted trial balance at December 31, 2021 in British pounds. Please prepare the following: . Convert Sub Co's accounts to U.S. dollars showing the exchange rate and U.S. dollar amount for each account. Prepare Sub Co's December 31, 2021 financial statements in U.S. dollars: Balance Sheet (in classified format), Income Statement (in multiple-step format) and Statement of Retained Earnings. Prepare Sub Co's December 31, 2021 Statement of Cash Flows, assuming the following: No plant and equipment was sold during 2021 No bonds payable was issued (i.e., borrowed) during 2021 No common stock was issued during 2021 No common stock was purchased from stockholders (i.e., treasury stock) Any effects of foreign exchange rate changes are classified on the Statement of Cash Flows as "Effects of foreign exchange rate changes" (see the Discussion Case - FSA (Data) Excel file for an example of the format). E H13 xv fx B D 1 Consolidation Accounting 2 3 Parent Co Sub Co 4 Income Statement 5 Sales 5,700,000 480,000 6 Cost of goods sold 3,990,000 288,050 7 Gross profit 1,710,000 191,950 8 Operating expenses 903,800 106,950 9 Income from operations 806,200 85,000 10 Equity income 67. 150 0 11 Income before income tax 873,350 85,000 12 Income tax 179,200 17,850 13 Net Income 694150 67 150 14 15 Statement of Retained Earnings 16 Beginning retained earnings 2,863,680 148,000 17 Net income 694, 150 67,150 18 Dividends (134840) (10,080) 19 Ending retained earnings 3,422.990 205,070 20 21 Balance Sheet 22 Assets 23 Cash 454,870 129,390 24 Accounts receivable 729,600 111,360 25 Inventory 1,105,800 143,040 26 Total current assets 2,290,270 383,790 27 Property, plant and equipment, net 5,319,240 164,640 28 Investment in subsidiary 757,070 0 29 Total assets 8,366 580 548,430 30 Liabilities & Stockholders' Equity 31 Other liabilities 819,090 111,360 32 Total current liabilities 819,090 111,360 33 Notes payable 2,500,000 160,000 34 Common stock 931,950 32,000 35 Retained earnings 3,422,990 205,070 36 Additional paid in capital 692,550 40,000 37 Total stockholders' equity 5,047,490 277,070 38 Total liab & stockholders' eq 8,366 580 548,430 39 40 Consolidation Foreign Currency + Ready 1 Foreign Currency Accounting 2 Trial Balance 3 Sub Co Trial Balance in British Pounds Exchange Rate Trial Balance E $ 4 Debits 5 Cash 6 Accounts receivable 7 Inventory 8 Plant assets 9 Advance to parent 10 Cost of sales 11 Depreciation expense 12 Wages and salaries expense 13 Other expenses 14 Dividends declared 15 110,000 $ 47,250 113,000 100,000 57,143 340,000 14,285 78,545 57,460 20,000 937,683 16 Credits 17 Accounts payable 18 Bonds payable 19 Common stock 20 Retained earnings 21 Sales 22 Exchange gain (on the advance to parent) 23 24 25 26 46,540 100,000 200,000 50,000 540,000 1,143 937,683 E 27 A