Stones trial balance contains amounts that reflect national accounting principles that are accepted in the country in which Stone operates, but do not conform to U.S. GAAP. These differences include the following:

InventoryStone records its inventory at fair value when goods are purchased and when they are sold. It has been determined that inventory would be valued at a lower amount had FIFO been used. Inventory is overvalued by 200,000 FC, and the related cost of goods sold is overvalued by 450,000 FC.

Depreciable AssetsBeginning in 20X7, appreciation was recognized on certain depreciable assets and included in net income. As of the beginning of 20X8, property, plant, & equipment and accumulated depreciation are overstated by 900,000 FC and 180,000 FC, respectively. During the current year, another 200,000 FC of appreciation was recognized, and current-year depreciation expense was overstated by 55,000 FC.

Depreciable AssetsIn 20X7, the company incurred 1,000,000 FC of research and development costs that were capitalized. These costs were amortized/depreciated over the life span of the resulting products. Annual amortization amounts were 400,000 FC and 300,000 FC for years 20X7 and 20X8, respectively.

The investment in Stone, expressed in dollars, consists of the following as measured by the simple equity method:

Problem 11-4 (LO 2, 5) Adjust to U.S. GAAP and translate trial balance. Potter Cor- poration purchased a 100% interest in Stone Corporation, a foreign subsidiary, on January 1, 2005, for 9,000,000 foreign currency (FC). On this date, Stone had common stock of 5,000,000 FC, paid-in capital in excess of par of 1,600,000 FC, and retained earnings of 2,000,000 FC. Bonds payable, which have a 5-year life, were overvalued by 50,000 FC. Any remaining excess of cost over book value is attributable to goodwill. The December 31, 20X8 unadjusted trial bal- ances for Stone and Potter are as follows: Stone Corporation 2,253,000 FC 5,580,000 6,400,000 Potter Corporation 4,862,000 15,500,000 11,138,000 14,664,900 44,600,000 (17,400,000) (5,230,000) Cash Net Accounts Receivable Inventory .. Investment in Stone Depreciable Assets Accumulated Depreciation Accounts Payable Unearned Revenue Bonds Payable Accrued Expenses Common Stock Paid-in Capital in Excess of Par Retained Earnings, January 1, 20x8 Sales .... Cost of Goods Sold Operating Expenses Interest Income Subsidiary Income Gain on Appreciation of Inventory Gain on Appreciation of Equipment Totals ... 25,750,000 (8,200,000) (3,290,000) (2,437,000) (10,200,000) (2,180,000) (5,000,000) (1,600,000) (5,870,000) (24,000,000) 18,460,000 5,184,000 (11,300,000) (3,961,100) (20,000,000) (4,750,000) (14,872,400) (55,000,000) 32,180,000 11,340,000 (146,000) (1,625,400) (650,000) (200,000) O FC Initial investment 19,000,000 FC x 1.10) 20x5 Income (1,000,000 FC x 1.15) 20x6 Income (1,200,000 FC x 1.27) 20X7 Income (350,000 FC x 1.33) 20X8 Income Total $ 9,900,000 1,150,000 1,524,000 465,500 1,625,400 $14,664,900 Relevant exchange rates (dollars/FC) are as follows: January 1, 20X5 20X5 Average 20x6 Average 20X7 Average December 31, 20X8 20X8 Average $1.10 1.15 1.27 1.33 1.42 1.40 Required Assuming the FC is Stone's functional currency, prepare all necessary adjustments to U.S. GAAP, and translate Stone's trial balance. Problem 11-4 (LO 2, 5) Adjust to U.S. GAAP and translate trial balance. Potter Cor- poration purchased a 100% interest in Stone Corporation, a foreign subsidiary, on January 1, 2005, for 9,000,000 foreign currency (FC). On this date, Stone had common stock of 5,000,000 FC, paid-in capital in excess of par of 1,600,000 FC, and retained earnings of 2,000,000 FC. Bonds payable, which have a 5-year life, were overvalued by 50,000 FC. Any remaining excess of cost over book value is attributable to goodwill. The December 31, 20X8 unadjusted trial bal- ances for Stone and Potter are as follows: Stone Corporation 2,253,000 FC 5,580,000 6,400,000 Potter Corporation 4,862,000 15,500,000 11,138,000 14,664,900 44,600,000 (17,400,000) (5,230,000) Cash Net Accounts Receivable Inventory .. Investment in Stone Depreciable Assets Accumulated Depreciation Accounts Payable Unearned Revenue Bonds Payable Accrued Expenses Common Stock Paid-in Capital in Excess of Par Retained Earnings, January 1, 20x8 Sales .... Cost of Goods Sold Operating Expenses Interest Income Subsidiary Income Gain on Appreciation of Inventory Gain on Appreciation of Equipment Totals ... 25,750,000 (8,200,000) (3,290,000) (2,437,000) (10,200,000) (2,180,000) (5,000,000) (1,600,000) (5,870,000) (24,000,000) 18,460,000 5,184,000 (11,300,000) (3,961,100) (20,000,000) (4,750,000) (14,872,400) (55,000,000) 32,180,000 11,340,000 (146,000) (1,625,400) (650,000) (200,000) O FC Initial investment 19,000,000 FC x 1.10) 20x5 Income (1,000,000 FC x 1.15) 20x6 Income (1,200,000 FC x 1.27) 20X7 Income (350,000 FC x 1.33) 20X8 Income Total $ 9,900,000 1,150,000 1,524,000 465,500 1,625,400 $14,664,900 Relevant exchange rates (dollars/FC) are as follows: January 1, 20X5 20X5 Average 20x6 Average 20X7 Average December 31, 20X8 20X8 Average $1.10 1.15 1.27 1.33 1.42 1.40 Required Assuming the FC is Stone's functional currency, prepare all necessary adjustments to U.S. GAAP, and translate Stone's trial balance