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How do I work out part 1, question #2 below? On January 1, 2016, Parker, Inc., a U.S.-based firm, acquired 100 percent of Suffolk PLC

How do I work out part 1, question #2 below?

On January 1, 2016, 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 (), 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, 2016, Suffolk reported the following balance sheet:

Cash

$ 2,000,000

Accounts payable

$ 1,000,000

Accounts receivable

3,000,000

Long-term debt

8,000,000

Inventory

14,000,000

Common stock

44,000,000

Property, plant, and equipment (net)

40,000,000

Retained earnings

6,000,000

$59,000,000

$59,000,000

Suffolks 2016 income was recorded at 2,000,000. It declared and paid no dividends in 2016.

On December 31, 2017, two years after the date of acquisition, Suffolk submitted the following trial balance to Parker for consolidation:

Cash

$1,500,000

Accounts Receivable

5,200,000

Inventory

18,000,000

Property, Plant, and Equipment (net)

36,000,000

Accounts Payable

(1,450,000)

Long-Term Debt

(5,000,000)

Common Stock

(44,000,000)

Retained Earnings, 1/1/17

(8,000,000)

Sales

(28,000,000)

Cost of Goods Sold

16,000,000

Depreciation

2,000,000

Other Expenses

6,000,000

Dividends (1/30/17)

1,750,000

0

Page 530Other than paying dividends, no intra-entity transactions occurred between the two companies. Relevant exchange rates for the British pound follow:

January 1

January 30

Average

December 31

2016

$1.60

$1.61

$1.62

$1.64

2017

1.64

1.65

1.66

1.68

The December 31, 2017, financial statements (before consolidation with Suffolk) follow. Dividend income is the U.S. dollar amount of dividends received from Suffolk translated at the $1.65/$ exchange rate at January 30, 2017. The amounts listed for dividend income and all affected accounts (i.e., net income, December 31 retained earnings, and cash) reflect the $1.65/$ exchange rate at January 30, 2017. Credit balances are in parentheses.

Parker

Sales

$(70,000,000)

Cost of goods sold

34,000,000

Depreciation

20,000,000

Other expenses

6,000,000

Dividend income

(2,887,500)

Net income

$(12,887,500)

Retained earnings, 1/1/17

$(48,000,000)

Net income, 2017

(12,887,500)

Dividends, 1/30/17

4,500,000

Retained earnings, 12/31/17

$(56,387,500)

Cash

$ 3,687,500

Accounts receivable

10,000,000

Inventory

30,000,000

Investment in Suffolk

83,200,000

Plant and equipment (net)

105,000,000

Accounts payable

(25,500,000)

Long-term debt

(50,000,000)

Common stock

(100,000,000)

Retained earnings, 12/31/17

(56,387,500)

0

  1. Parkers 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 Parkers ownership.

    Required

    Use an electronic spreadsheet to complete the following four parts:

    Part I. Given the relevant exchange rates presented,

    1. Translate Suffolks December 31, 2017, trial balance from British pounds to U.S. dollars. The British pound is Suffolks functional currency.

    2. Prepare a schedule that details the change in Suffolks cumulative translation adjustment (beginning net assets, income, dividends, etc.) for 2016 and 2017.

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