Equity Method for Foreign Investments

On January 1, 20X4, Placid Corporation acquired a 40% interest in Superior Industries, a Canadian Corporation, for $811,900 when Superior's stockholders' equity consisted of 1,000,000 Canadian dollars (C$) capital stock and C$500,000 retained earnings. Superior's functional currency is the Canadian dollar and the books are kept in the same currency. The exchange rate at the time of the purchase was $1.15 per Canadian dollar. Any excess allocated to patents is to be amortized over 10 years. A summary of changes in the stockholders' equity of Superior during 20X4 and related exchange rates follows: Exchange Canadian $ Rate U.S. $ Stockholders' equity - 1/1/X4 1,500,000 $1.15 C $1,725,000 Net income 300,000 $1.14 A 342,000 Dividends (200,000) $1.14 C (228,000 Equity adjustment (31,000 Stockholders' equity - 12/31/X4 1,600,000 $1. 13 C $1,808,000