On January 1, 2020, Earl Corporation, a US firm, acquired a 70% interest in Mega Corporation, a foreign company, for $120,000, when Mega's stockholders' equity consisted of 300,000 local currency units (LCU) and retained earnings of 100,000 LCU. At the time of the acquisition, Mega's assets and liabilities were fairly valued except for a patent that did not have any recorded book value. All excess purchase cost was attributed to the patent, which had an estimated economic life of 10 years at the date of acquisition. The exchange rate for LCUs on January 1, 2020 was $.40. A summary of changes in Mega's stockholders' equity during 2020 and the exchange rates for LCUs is as follows: LOU Rates Dollars Stockholders' equity 1/1/20 400,000 S 40C S 160,000 Net income 100,000 42A 42,000 Dividends 12/1/20 50,000) 430 21,500) Equity adjustment 17,500 Stockholders' equity 12/31/20 450,000 44C S 198,000On January 1, 2020, Earl Corporation, a US firm, acquired a 70% interest in Mega Corporation, a foreign company, for $120,000, when Mega's stockholders' equity consisted of 300,000 local currency units (LCU) and retained earnings of 100,000 LCU. At the time of the acquisition, Mega's assets and liabilities were fairly valued except for a patent that did not have any recorded book value. All excess purchase cost was attributed to the patent, which had an estimated economic life of 10 years at the date of acquisition. The exchange rate for LCUs on January 1, 2020 was $.40. A summary of changes in Mega's stockholders' equity during 2020 and the exchange rates for LOUs is as follows: LOU Rates Dollars Stockholders' equity 1/1/20 400,000 S 40C S 160,000 Net income 100,000 42A 42,000 Dividends 12/1/20 50,000) 430 21,500) Equity adjustment 17,500 Stockholders' equity 12/31/20 450,000 44C S 198,000Certain balance sheet accounts of a foreign subsidiary of RR Company have been stated in pesos as follows: Stated at Current Rates Historical Rates Accounts receivable, current . .. ... P200,000 P220,000 Accounts receivable, long term . ... 100,000 110,000 Prepaid Insurance . . . .. . 50,000 55,000 Goodwill 80,000 85,000 P430,000 P470,000 This subsidiary's functional currency is the peso. What total should RR's balance sheet include for the preceding items? O a. 430,000 O b. 440,000 O c. 450,000 O d. 470,000Rex owned 100% of Store Inc., a foreign subsidiary, Store had stockholders' equity of 900,000 LCUs (local currency units) on January 1, 2020. For 2020, Store reported net income of 300,000 LCUs. On August 1, 2020 Store declared and paid a cash dividend of 100,000 LCUs. The LCU is the functional currency. Direct exchange rate information follows: 1/1/20 P.62 8/1/20 P.60 12/31/20 P.55 Average rate during 2020 P.50 Assuming that the current/closing rate methods is used and the revenue and expenses were incurred evely during the year, what is the effect of the 2020 retained earnings? O a. 165,000 O b. none in the choices O c. 140,000 increase O d. 145,000
