| n January 1, 20X5, Taft Company acquired all of the outstanding stock of Vikix, Inc., a Norwegian company, at a cost of $153,000. Vikixs net assets on the date of acquisition were 700,000 kroner (NKr). On January 1, 20X5, the book and fair values of the Norwegian subsidiarys identifiable assets and liabilities approximated their fair values except for property, plant, and equipment and patents acquired. The fair value of Vikixs property, plant, and equipment exceeded its book value by $18,000. The remaining useful life of Vikixs equipment at January 1, 20X5, was 10 years. The remainder of the differential was attributable to a patent having an estimated useful life of 5 years. Vikixs trial balance on December 31, 20X5, in kroner, follows: | | | Debits | Credits | | Cash | NKr | 163,000 | | | | | | Accounts Receivable (net) | | 220,000 | | | | | | Inventory | | 289,000 | | | | | | Property, Plant & Equipment | | 617,000 | | | | | | Accumulated Depreciation | | | | NKr | 156,000 | | | Accounts Payable | | | | | 93,000 | | | Notes Payable | | | | | 209,000 | | | Common Stock | | | | | 450,000 | | | Retained Earnings | | | | | 250,000 | | | Sales | | | | | 785,000 | | | Cost of Goods Sold | | 422,000 | | | | | | Operating Expenses | | 114,000 | | | | | | Depreciation Expense | | 69,000 | | | | | | Dividends Paid | | 49,000 | | | | | | | | | | | | | | Total | NKr | 1,943,000 | | NKr | 1,943,000 | | | | | | | | | | | | | 1. | Vikix uses the FIFO method for its inventory. The beginning inventory was acquired on December 31, 20X4, and ending inventory was acquired on December 15, 20X5. Purchases of NKr430,000 were made evenly throughout 20X5. | | 2. | Vikix acquired all of its property, plant, and equipment on July 1, 20X3, and uses straight-line depreciation. | | 3. | Vikixs sales were made evenly throughout 20X5, and its operating expenses were incurred evenly throughout 20X5. | | 4. | The dividends were declared and paid on July 1, 20X5. | | 5. | Tafts income from its own operations was $240,000 for 20X5, and its total stockholders equity on January 1, 20X5, was $3,600,000. Taft declared $120,000 of dividends during 20X5. | | 6. | Exchange rates were as follows: | | | NKr | | $ | | | July 1, 20X3 | 1 | = | 0.15 | | | December 30, 20X4 | 1 | = | 0.18 | | | January 1, 20X5 | 1 | = | 0.18 | | | July 1, 20X5 | 1 | = | 0.19 | | | December 15, 20X5 | 1 | = | 0.205 | | | December 31, 20X5 | 1 | = | 0.21 | | | Average for 20X5 | 1 | = | 0.20 | | | | | a. | Prepare a schedule translating the trial balance from Norwegian kroner into U.S. dollars. Assume the krone is the functional currency. (If no adjustment is needed, select 'no entry necessary'.) | | | | | | | | VIKIX INC. | | | Trial Balance Translation | | | December 31, 20X5 | | | Item | Balance Dollars | | Cash | $34,230 | | Accounts Receivable (net) | 46,200 | | Inventory | 60,690 | | Property, Plant and Equipment | 129,570 | | Cost of Goods Sold | | | Operating Expenses | 22,800 | | Depreciation Expense | | | Dividends Paid | 9,310 | | Total | $302,800 | | No entry necessary | | | Total Debits | $302,800 | | Accumulated Depreciation | $32,760 | | Accounts Payable | 19,530 | | Notes Payable | 43,890 | | Common Stock | | | Retained Earnings | | | Sales | 157,000 | | Total | $253,180 | | Accumulated other comprehensive income - translation adjustment | | | Total Credits | $253,180 | | + | | b. | Assume that Taft uses the fully adjusted equity method. Record all journal entries that relate to its investment in the Norwegian subsidiary during 20X5. Provide the necessary documentation and support for the amounts in the journal entries, including a schedule of the translation adjustment related to the differential. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) | | | | | A | B | C | D | | | Date | General Journal | Debit | Credit | | 1 | January 01 | Investment in Vikix Company | 153,000 | | | 2 | | Cash | | 153,000 | | 3 | | | | | | 4 | July 01 | Cash | | | | 5 | | Investment in Vikix Company | | | | 6 | | | | | | 7 | December 31 | Investment in Vikix Company | | | | 8 | | Income from subsidiary | | | | 9 | | | | | | 10 | December 31 | Investment in Vikix Company | | | | 11 | | Other Comprehensive Income Translation adjustment | | | | 12 | | | | | | 13 | December 31 | Investment in Vikix Company | | | | 14 | | Income from Subsidiary | | | | 15 | December 31 | Investment in Vikix Company | | | | 16 | | Other Comprehensive Income Translation adjustment | | | | | c. | Prepare a schedule that determines Tafts consolidated comprehensive income for 20X5. (Amounts to be deducted should be indicated with a minus sign.) | | | | | Add: Income from the Norwegian subsidiary | | | | | | | | | | Income from Tafts operations for 20X5, exclusive of income from the Norwegian subsidiary | | | Add: Income from the Norwegian subsidiary | | | Deduct: Amortization of differential | | | Tafts Net Income | $0 | | Add: Translation adjustment | | | Tafts Consolidated Comprehensive Income | $0 | | + Add: Income from the Norwegian subsidiary Deduct: Income from the Norwegian subsidiary | | d. | Compute Tafts total consolidated stockholders equity at December 31, 20X5. | | | | |
