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On January 1, 20X5, Pirate Company acquired all of the outstanding stock of Ship Inc., a Norwegian company, at a cost of $152,800. Ships net

On January 1, 20X5, Pirate Company acquired all of the outstanding stock of Ship Inc., a Norwegian company, at a cost of $152,800. Ships net assets on the date of acquisition were 940,000 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 Ships property, plant, and equipment exceeded its book value by $19,800. The remaining useful life of Ships 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. Ships trial balance on December 31, 20X5, in kroner, follows:

Debits Credits
Cash NKr 270,000
Accounts Receivable (net) 380,000
Inventory 420,000
Property, Plant, & Equipment 780,000
Accumulated Depreciation NKr 270,000
Accounts Payable 97,000
Notes Payable 469,000
Common Stock 570,000
Retained Earnings 370,000
Sales 870,000
Cost of Goods Sold 390,000
Operating Expenses 280,000
Depreciation Expense 68,000
Dividends Paid 58,000
Total NKr 2,646,000 NKr 2,646,000

Additional Information:

  1. Ship 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 NKr400,000 were made evenly throughout 20X5.
  2. Ship acquired all of its property, plant, and equipment on July 1, 20X3, and uses straight-line depreciation.
  3. Ships 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. Pirates income from its own operations was $315,000 for 20X5, and its total stockholders equity on January 1, 20X5, was $4,700,000. Pirate declared $280,000 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

Assume the U.S. dollar is the functional currency, not the krone. Required: Prepare a schedule providing a proof of the remeasurement gain or loss. For this part of the problem, assume that the Norwegian subsidiary had the following monetary assets and liabilities at January 1, 20X5:

Monetary Assets
Cash NKr 28,000
Accounts Receivable (net) 320,000

Monetary Liabilities
Accounts Payable NKr 170,000
Notes Payable 260,000

On January 1, 20X5, the Norwegian subsidiary has a net monetary liability position of NKr82,000. (Amounts to be deducted should be indicated with a minus sign.)

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