Scenario

You are a senior accountant for Acme Corporation in the United States. At the start of the fiscal year, your company (parent) invested in a new company (subsidiary), called Coyote, and obtained 100% control of the foreign-based company. Goodwill was recorded as part of the transaction. The subsidiary uses the euro as its functional currency, but the financial information has already been converted into the US dollar. Acme Corporation has a controlling financial interest. The subsidiary continued to operate on its own, as it bought and sold equipment, merchandise, and land during the year. You are consolidating the financial statements of both companies and filling out the consolidation workbook.

Directions

You will submit two products: an Excel financial workbook containing journal entries and consolidated financial statements, and a Word document synopsis of concepts related to foreign currency and exchange risk.

Specifically, you must address the following rubric criteria:

Part One

1. Create journal entries identifying consolidations and investments. Consider the following:
   1. The various related costs involved in a business combination
   2. A business combination when the acquired firm retains its separate existence
   3. How goodwill is recorded in journal entries
2. Prepare consolidated financial statements when goodwill is present.
3. Complete foreign financial statement conversions. Consider the following:
   1. Account for foreign currency transactions using the two-transactions perspective, accrual approach.
   2. Account for forward contracts and options used as hedges of foreign currency.
   3. Account for forward contracts and options used as hedges of foreign currency firm commitments.
   4. Account for forward contracts and options used as hedges of forecasted foreign currency transactions.
4. Compile calculated translation adjustment amounts.

Part Two

1. Explain concepts related to foreign currency, exchange rates, and exchange risk. Consider the following:
   1. Account for foreign currency borrowings.
   2. Identify the basic concepts of hedge accounting.