On January 1, 20X5, Pirate Company acquired all of the outstanding stock of Ship Inc., a Norwegian company, at a cost of $154,800 Ship's net assets on the date of acquisition were 700,000 kroner (NKr). On January 1, 20X5, the book and fair values of the Norwegian subsidiary's identifiable assets and liabilities approximated their fair values except for property, plant, and equipment and patents acquired. The fair value of Ship's property, plant, and equipment exceeded its book value by $18,000. The remaining useful life of Ship's 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. Ship's trial balance on December 31, 20X5, in kroner, follows: Debits Credits Cash 164,000 205,000 275,000 NKr Accounts Receivable (net) Inventory Property, Plant & Equipment Accumulated Depreciation Accounts Payable Notes Payable 629,000 153,000 95,000 191,000 430,000 270,000 NKr Common Stock Retained Earnings Sales 775,000 Cost of Goods Sold 422,000 124,000 55,000 Operating Expenses Depreciation Expense 40,000 Dividends Paid NKrl,914,000 NKr1,914,000 Total 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 NKr420,000 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. Ship's sales were made evenly throughout 20X5, and its operating expenses were incurred evenly throughout 2OX5 4. The dividends were declared and paid on July 1, 20X5 5. Pirate's income from its own operations was $3,500,000. Pirate declared $180,000 of dividends during 20X5. 6. Exchange rates were as follows: $238,000 for 20X5, and its total stockholders' equity on January 1, 20X5, was $ NKr July 1, 20X3 December 30, 20X4 1 0.15 1 0.18 January 1, 20X5 July 1, 20X5 December 15, 20X5 December 31, 20X5 0.18 1 1 0.19 1 = 0.205 0.21 1 0.20 Average for 20x5 1 = III||||L| b. Assume that Pirate 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.) View transaction list Journal entry worksheet 3 6 1 2 4 Record the equity in the net income of the foreign subsidiary. Note: Enter debits before credits. Credit Date General Journal Debit Investment in Ship Company December 31 Income from subsidiary b. Assume that Pirate 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.) View transaction list Journal entry worksheet 6 1 2 3 4 5 Record the translation adjustment applicable to the differential. Note: Enter debits before credits. Date General Journal Debit Credit December 31 c. Prepare a schedule that determines Pirate's consolidated comprehensive income for 20X5. (Amounts to be deducted should be indicated with a minus sign.) Income from Pirate's operations for 20X5, exclusive of income from the Norwegian subsidiary Add: Income from the Norwegian subsidiary Deduct: Amortization of differential $ Pirate's Net Income 10 Add: Translation adjustment Pirate's Consolidated Comprehensive Income 0 EA d. Compute Pirate's total consolidated stockholders' equity at December 31, 20X5 Consolidated stockholders' equity
