Palermo Inc. purchased 80 percent of the outstanding stock of Salina Ranching Company, located in Australia, on January 1, 20X3. The purchase price in Australian dollars (A$) was A$200,000, and A$40,000 of the differential was allocated to plant and equipment, which is amortized over a 10-year period. The remainder of the differential was attributable to a patent. Palermo Inc. amortizes the patent over 10 years. Salina Ranchings trial balance on December 31, 20X3, in Australian dollars is as follows:

Debits Credits

CashA$44,100

Accounts Receivable (net) 72,000

Inventory 86,000

Plant and Equipment 240,000

Accumulated Depreciation A$60,000

Accounts Payable 53,800

Payable to Palermo Inc. 10,800

Interest Payable 3,000

12% Bonds Payable 100,000

Premium on Bonds 5,700

Common Stock 90,000

Retained Earnings 40,000

Sales 579,000

Cost of Goods Sold 330,000

Depreciation Expense 24,000

Operating Expenses 131,500

Interest Expense 5,700

Dividends Paid 9,000

TotalA$942,300 A$942,300

Assume that the Australian dollar (A$) is the functional currency and that Palermo uses the fully adjusted equity method for accounting for its investment in Salina Ranching. A December 31, 20X3, trial balance for Palermo Inc. follows.

ItemDebits Credits

Cash$38,000

Accounts Receivable (net) 140,000

Receivable from Salina Ranching 6,480

Inventory 128,000

Plant & Equipment 500,000

Investment in Salina Ranching 152,064

Cost of Goods Sold 600,000

Depreciation Expense 28,000

Operating Expenses 204,000

Interest Expense 2,000

Dividends Declared 50,000

Translation Adjustment 22,528

Accumulated Depreciation $90,000

Accounts Payable 60,000

Interest Payable 2,000

Common Stock 500,000

Retained Earnings, January 1, 20X3 179,656

Sales 1,000,000

Income from Subsidiary 39,416

Total$1,871,072 $1,871,072

Additional Information:

Salina Ranching uses average cost for cost of goods sold. Inventory increased by A$20,000 during the year. Purchases were made uniformly during 20X3. The ending inventory was acquired at the average exchange rate for the year.

Plant and equipment were acquired as follows:

DateCost

January 20X1 A$180,000

January 1, 20X3 60,000

Plant and equipment are depreciated using the straight-line method and a 10-year life with no residual value.

The payable to Palermo is in Australian dollars. Palermos books show a receivable from Salina Ranching of $6,480.

The 10-year bonds were issued on July 1, 20X3, for A$106,000. The premium is amortized on a straight-line basis. The interest is paid on April 1 and October 1.

The dividends were declared and paid on April 1.

Exchange rates were as follows:

A$ $

January 20X11 = 0.93

August 20X11 = 0.88

January 1, 20X31 = 0.70

April 1, 20X31 = 0.67

July 1, 20X31 = 0.64

December 31, 20X31 = 0.60

20X3 average1 = 0.65

Required: a. Prepare a set of consolidating entries, in general journal form, for the entries required to prepare a comprehensive consolidation worksheet (including other comprehensive income) as of December 31, 20X3.

b. Prepare a comprehensive consolidation worksheet as of December 31, 20X3