On January 1, 2014, Parker, Inc., a U.S.-based firm, acquired 100 percent of Suffolk PLC located in Great Britain for consideration paid of 52,000,000 British pounds (L), which was equal to fair value. The excess of fair value over book value is attributable to land (part of property, plant, and equipment) and is not subject to depreciation. Parker accounts for its investment in Suffolk at cost. On January 1, 2014, Suffolk reported the following balance sheet: 2,000,000 3,000,000 14,000,000 Cash Accounts receivable Inventory. Property, plant, and equipment (net) Accounts payable ..... Long-term debt Common stock Retained earnings f 1,000,000 8,000,000 44,000,000 6,000,000 59,000,000 40,000,000 59,000,000 Suffolk's 2014 income was recorded at L2,000,000. It declared and paid no dividends in 2014. On December 31, 2015, two years after the date of acquisition, Suffolk submitted the following trial balance to Parker for consolidation: Cash .. Accounts Receivable Inventory . Property,Plant, and Equipment (net) Accounts Payable Long-Term Debt Common Stock f 1,500,000 5,200,000 18,000,000 36,000,000 (1,450,000) (5,000,000) (44,000,000) Retained Earnings (1/1/15).. Sales .... Cost of Goods Sold Depreciation Other Expenses Dividends (1/30/15) (8,000,000) (28,000,000) 16,000,000 2,000,000 6,000,000 1,750,000 -0- Other than paying dividends, no intra-entity transactions occurred between the two companies. Relevant exchange rates for the British pound follow: January 1 January 30 December 31 Average 2014 2015 $1.60 1.64 $1.61 1.65 $1.62 1.66 $1.64 1.68 The December 31, 2015, financial statements (before consolidation with Suffolk) follow. Dividend income is the U.S. dollar amount of dividends received from Suffolk translated at the $1.65/L exchange rate at January 30, 2015. The amounts listed for dividend income and ll affected accounts (i.e., net income, December 31 retained earnings, and cash) reflect the $1.65/L exchange rate at January 30, 2015. Credit balances are in parentheses. Tne December 31, 2015, inancial statements (Derore consOIlaauon witn sumOIk) TOlIOW. DiVIcend income is the U.S. dollar amount of dividends received from Suffolk translated at the $1.65/L exchange rate at January 30, 2015. The amounts listed for dividend income and all affected accounts (i.e., net income, December 31 retained earnings, and cash) reflect the $1.65/L exchange rate at January 30, 2015. Credit balances are in parentheses. Parker (70,000,000) 34,000,000 20,000,000 6,000,000 (2,887,500) $ (12,887,500) $ (48,000,000) (12,887,500) 4,500,000 $(56,387,500) $ 3,687,500 10,000,000 30,000,000 83,200,000 105,000,000 (25,500,000) (50,000,000) (100,000,000) (56,387,500) Sales Cost of goods sold Depreciation Other expenses Dividend income Net income Retained earnings, 1/1/15 Net income, 2015 Dividends, 1/30/15 Retained earnings, 12/31/15 Cash Accounts receivable Inventory. Investment in Suffolk Plant and equipment (net) Accounts payable Long-term debt Common stock Retained earnings, 12/31/15 ON Parker's chief financial officer (CFO) wishes to determine the effect that a change in the value of the British pound would have on consolidated net income and consolidated stockholders' equity. To help assess the foreign currency exposure associated with the investment in Suffolk, the CFO requests assistance in comparing consolidated results under actual exchange rate fluctuations with results that would have occurred had the dollar value of the pound remained constant or declined during the first two years of Parker's ownership. Required Use an electronic spreadsheet to complete the following four parts: Part I. Given the relevant exchange rates presented Translate Suffolk's December 31, 2015, trial balance from British pounds to U.S. dollars. The British pound is Suffolk's functional currency a. b. Prepare a schedule that details the change in Suffolk's cumulative translation adjustment (beginning net assets, income, dividends, etc.) for 2014 and 2015 Prepare the December 31, 2015, consolidation worksheet for Parker and Suffolk C. d. Prepare the 2015 consolidated income statement and the December 31, 2015, consolidated balance sheet. Note: Worksheets should possess the following qualities: Each spreadsheet should be programmed so that all relevant amounts adjust appropriately when different values of exchange rates (subsequent to January 1, 2014) are entered into it. S
