Question
Translation of financial statements and consolidation of a foreign subsidiary (no amortization of AAP) Assume that your company owns a subsidiary operating in Great Britain.
Translation of financial statements and consolidation of a foreign subsidiary (no amortization of AAP)
Assume that your company owns a subsidiary operating in Great Britain. The subsidiary maintains its books in the British pound (GBP) as its functional currency.
The relevant exchange rates for the $US value of the British pound (GBP) are as follows:
BOY rate | $1.42 |
EOY rate | $1.49 |
Avg. rate | $1.45 |
PPE purchase date rate | $1.46 |
LTD borrowing date rate | $1.46 |
Dividend rate | $1.47 |
Historical rate (common stock and APIC) | $1.07 |
b. Compute the ending Cumulative Translation Adjustment directly, assuming a BOY balance of $(185,980). What journal entry did the parent company make as a result of this computation?
BOY Net assets x EOY -BOY Exchange rates | |||
Net income x EOY -Avg. Exchange rates | |||
Dividends x EOY -Div. Exchange rates | |||
current year translation adjustment | |||
BOY Cumulative Translation Adjustment | |||
EOY Cumulative Translation Adjustment |
. Following are selected financial statement accounts for the parent:
Income statement: | Balance sheet: | |||
Sales | $18,420,000 | Assets | ||
Cost of goods sold | (12,894,000) | Cash | $1,888,528 | |
Gross profit | 5,526,000 | Accounts receivable | 2,357,760 | |
Equity income | 852,600 | Inventory | 3,573,480 | |
Operating expenses | (3,499,800) | Equity investment | 5,608,658 | |
Net income | $2,878,800 | Property, plant, and equipment (PPE), net | 19,031,544 | |
$32,459,970 | ||||
Statement of retained earnings: | ||||
BOY retained earnings | $15,864,000 | Liabilities and stockholders equity | ||
Net income | 2,878,800 | Current liabilities | $1,475,442 | |
Dividends | (634,560) | Long-term liabilities | 1,000,000 | |
Ending retained earnings | $18,108,240 | Common stock | 2,091,380 | |
APIC | 9,722,094 | |||
Statement of accum. comp. income: | Retained earnings | 18,108,240 | ||
BOY cumulative translation adjustment | $(185,980) | Cumulative translation adjustment | 62,814 | |
Current-year translation gain (loss) | 248,794 | $32,459,970 | ||
EOY cumulative translation adjustment | $62,814 |
Assume the following information: The purchase price for the subsidiary included an AAP asset relating to Land that the parent estimated was worth GBP400,000 more than its book value on the subsidiarys balance sheet. Confirm the balance of the Equity Investment account of $5,608,658 on the parents balance sheet.
Equity Investment | |||
---|---|---|---|
BOY Common stock | Answer
| Answer
| |
BOY APIC | Answer
| Answer
| |
BOY Retained earnings | Answer
| Answer
| |
BOY AAP | Answer
| Answer
| |
Answer
| Answer
| BOY CTA | |
Equity income | Answer
| Answer
| Dividends |
Current translation adjustment | Answer
| Answer
| |
AAP Translation adjustment (AOCI) | Answer
| Answer
| |
Balance | Answer
|
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