E12-12 Equity-Method Entries for a Foreign Subsidiary LO 12-4

Shames Company is located in London, England. The local currency is the British pound (). On January 1, 20X8, Pit Company purchased an 80 percent interest in Shames for $408,000, which resulted in an excess of cost-over-book value of $48,000 due solely to a trademark having a remaining life of 10 years. Pit uses the equity method to account for its investment. Shamess December 31, 20X8, trial balance has been translated into U.S. dollars, requiring a translation adjustment debit of $7,300. Shamess net income translated into U.S. dollars is $76,000. It declared and paid a 21,000 dividend on May 1, 20X8. Relevant exchange rates are as follows:

			$
January 1, 20X8	1	=	1.60
May 1, 20X8	1	=	1.64
December 31, 20X8	1	=	1.65
Average for 20X8	1	=	1.63

Required: a. Record the dividend received by Pit from Shames. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

b. Prepare the entries to record Pits equity in the net income of Shames and the parents share of the translation adjustment. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

c. Show a calculation of the differential reported on the consolidated balance sheet of December 31, 20X8, and the translation adjustment from differential. (Amounts to be deducted should be entered with a minus sign. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

d. Record the amortization of the trademark on Pits books. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

e. Calculate the amount of the translation adjustment reported on the statement of comprehensive income as an element of other comprehensive income.