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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 $($which owns $20\%$ of Acme outstanding stock$),$ 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, and 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. The company also bought and sold merchandise from its acquired company, called Simbel. You must translate euro financial statements into U$.$S$.$ dollars. The international exchange rates and financial statements of the foreign subsidiary are provided.

In January I, $20$X$3($before acquiring Coyote$),$ Acme Corporation acquired $100\%$ of Simbel Company for consideration transferred with a fair value of $$126,000.$ Acme is a U$.$S$.-$based company headquartered in Fairfield, New Jersey, and Simbel is in Cairo, Egypt. Acme accounts for its investment in Simbel under the initial value method. Any excess of fair value of consideration transferred over book value is attributable to undervalued land on Simbel's books. Simbel had no retained earnings at the date of acquisition. The following are the $20$X$4$ financial statements for the two operations. Information for Acme and for Simbel is in U$.$S$.$ dollars $($$$)$ and Egyptian pounds $($E$),$ respectively.

Acme Corporation Simbel Company

Sales $$200,000$E $800,000$

Cost of goods sold $(93,800)(420,000)$

Salary expense $(19,000)(74,000)$

Rent expense $(7,000)(46,000)$

Other expenses $(21,000)(59,000)$

Dividend income $-$ from Simbel $13,750-0-$

Gain on sale of building, $10/1/$X$3-0-30,000$

Net income $$72,950$E $231,000$

Retained earnings, $1/1/$X$3$ $ $318,000$E $133,000$

Net income $72,950231,000$

Dividends $(24,000)(50,000)$

Retained earnings, $12/31/$X$3$ $$366,950$E$314,000$

Cash and receivables $$110,750$E $146,000$

Inventory $98,000297,000$

Prepaid expenses $30,000-0-$

Investment in Simbel $($initial value$)126,000-0-$

Property, plant, and equipment $($net$)398,000455,000$

Total assets $$762,750$E$898,000$

Accounts payable $$60,800$E $54,000$

Notes payable $-$ due in $20$X$7132,000140,000$

Common stock $120,000240,000$

Additional paid $-$ in capital $83,000150,000$

Retained earnings, $12/31/$X$4366,950314,000$

Total liabilities and equities $$762,750$E$898,000$

Additional Information

During $20$X$3,$ the first year of joint operation, Simbel reported income of $$E $163,000$ earned evenly throughout the year. Simbel declared a dividend of $$E $30,000$ to Acme on June $1$ of that year. Simbel also declared the $20$X$4$ dividend on June $1.$

On December $9,202$X$,$ Simbel classified a $$E $10,000$ expenditure as a rent expense, although this payment related to prepayment of rent for the first few months of $20$X$5.$

The exchange rates for $1$E are as follows:

January $1,20$X$3$ $$0\mathrm{.}30$

June $1,20$X$30\mathrm{.}290$

Weighted average rate for $20$X$30\mathrm{.}288$

December $31,20$X$30\mathrm{.}280$

June $1,20$X$40\mathrm{.}275$

October $1,20$X$40\mathrm{.}273$

Weighted average rate for $20$X$40\mathrm{.}274$

December $31,20$X$40\mathrm{.}270$

Egyptian Pounds U$.$S$.$ Dollars

Retained earnings, $1/1/$X$3$

Net income, $20$X$3$

Dividends, $6/1/$X$3$

Retained earnings, $1/1/$X$4$

Calculation of Cumulative Translation Adjustment at $12/31/$X$3$

Egyptian Pounds U$.$S$.$ Dollars

Net assets, $1/1/$X$3$

Net income, $20$X$3$

Dividends, $6/1/$X$3$

Net assets, $12/31/$X$3$

Net assets, $12/31/$X$3$ at current exchange rate

Translation adjustment, $20$X$3($negative$)$

Net assets, $1/1/$X$3$

Net income, $20$X$3$

Dividends, $6/1/$X$3$

Net assets, $12/31/$X$3$

Net assets, $12/31/$X$3$ at current exchange rate

Translation adjustment, $20$X$4($negative$)$

Cumulative translation adjustment, $12/31/$X$3($negative$)$

Consolidation Worksheet

Account Acme Dollars Simbel Dollars Debit Credit Dollars

Sales

Cost of goods sold

Salary expense

Rent expense

Other expenses

Dividend income

Gain, $10/1/$X$3$

Net income

Ret earn, $1/1/$X$3$

Net income

Dividends

Ret earn, $12/31/$X$3$

Cash and receivables

Inventory

Prepaid rent

Investment

Property, plant, & equipment

Total

Acc payable

Notes payable

Common stock

Additional PIC

Ret earn, $12/31/$x$3$

Subtotal

Cumulative translation adjustment

Total

Thank you!