35. (continued)
b. and c.
The following C$ financial statements are produced by combining the figures
from the main operation with the remeasured figures from the branch
remeasured in C$.
Income Statement c. Translation into U.S. dollars—
For the Year Ended December 31, 2015 Current Rate Method
Sales C$ 354,160 x .67 A =$ 237,287.20
Cost of goods sold (223 ,500)x .67 A = (149 ,745.00)
Gross profit 130,660 87,542.20
Depreciation expense (8,500)x .67 A = (5,695.00)
Salary expense (29,060)x .67 A = (19,470.20)
Statement of Retained Earnings
For the Year Ended December 31, 2015
Retained earnings, 1/1/15 C$ 135,530Given $ 70,421.00
Net income (above) 89,090Above 59,740.30
35. (continued)
b. and c.
Balance Sheet
December 31, 2015
Cash C$ 46,650x .65 C = $ 30,322.50
Receivables 75,350x .65 C = 48,977.50
Inventory 107,520x .65 C = 69,888.00
Accounts payable C$ 52,150x .65 C = $ 33,897.50
Notes payable 76,000x .65 C = 49,400.00
Cumulative translation adjustment Schedule Two 26 ,961.70
Total C$ 374 ,770 $ 243 ,600.50
Schedule Two—Translation Adjustment
Net assets, 1/1/15 C$ 185,530x .70 = $129,871.00
Changes in net assets
Net income 89,090 Above 59,740.30
Dividends (28 ,000)x .69 = (19 ,320.00)
Net assets, 12/31/15 C$ 246 ,620 $170,291.30
36. (90 minutes) (Translate foreign currency financial statements and prepare
consolidation worksheet)
Step One
Translation Worksheet
Exchange
Account Pounds Rate Dollars
Sales (800,000) 0.274 (219,200)
Cost of goods sold 420,0000.274 115,080
Salary expense 74,0000.274 20,276
Rent expense (adjusted) 36,0000.274 9,864
R/E, 1/1/15 (133,000) Schedule 1 (38,244)
Net income (241,000) Above (66,004)
Dividends 50 ,0000.275 13 ,750
R/E,12/31/15 (324 ,000) (90 ,498)
Accounts payable (54,000)0.270 (14,580)
Notes payable (140,000)0.270 (37,800)
Subtotal (259,878)
Cumulative translation
adjustment (negative) Schedule 2 14 ,718
Total (908 ,000) (245 ,160)
36. (continued)
Schedule 1—Translation of 1/1/15 Retained Earnings
Pounds Dollars
Retained earnings, 1/1/14 -0- -0-
Net income, 2014 (163,000)0.288 (46,944)
Schedule 2—Calculation of Cumulative Translation Adjustment at 12/31/15
Pounds Dollars
Net assets, 1/1/14 (390,000)0.300 (117,000)
Net income, 2014 (163,000)0.288 (46,944)
Net assets, 1/1/15(523,000) 0.280 (146,440)
Net income, 2015(241,000) Above (66,004)
Dividends, 6/1/15 50 ,000 0.275 13 ,750
Net assets, 12/31/15 (714 ,000) (198,694)
Net assets, 12/31/15 at
36. (continued)
Step Two
Cayce and Simbel’s U.S. dollar accounts are then consolidated. Necessary
adjustments and eliminations are made.
Consolidation Worksheet
Adjustments and
Consolidated
Cayce Simbel Eliminations Balances
Account Dollars Dollars Debit Credit Dollars
Sales (200,000)
(219,200) (419,200)
Cost of goods sold 93,800
115,080 208,880
Dividend income (13,750)
-0- (I) 13,750
-0-
Gain, 10/1/15 -0- (8 ,190) (8 ,190)
Net income (72 ,950)
(66,004) (125 ,204)
13,750 (I) 13,750 24 ,000
Ret earn, 12/31/15 (366 ,950)
(90,498) (457 ,448)
Cash and receivables 110,750
39,420 150,170
Inventory 98,000
80,190 178,190
-0-
Fixed assets 398 ,000
122,850 (S) 9,000
528,950
Total 762 ,750
245,160 890 ,010
Accounts payable (60,800)
(72,000) (S) 72,000
(120,000)
Additional PIC (83,000)
(45,000) (S) 45,000
Total (762 ,750)
(245,160) 217 ,138
(890,010)
36. (continued)
Explanation of Adjustment and Elimination Entries
Entry *C
Investment in Simbel……………………..………..…..….….... 38,244
Retained earnings, 1/1/15………………………..………... 38,244
To accrue 2015 increase in subsidiary book value (see Schedule 1). Entry is
needed because parent is using the cost method.
Entry S
The excess of acquisition consideration over book value is calculated as
follows:
Acquisition consideration…………….………..……………………….. $126,000
Book value, 1/1/15………………………………………………………..
The excess of acquisition consideration over book value is 30,000 pounds.
The U.S. dollar equivalent at 1/1/15, the date of acquisition, is $9,000
(£E30,000 x $.30).
Entry I
Dividend income…………………………….….………….……. 13,750
Dividends……………………..………………………..…..….… 13,750
To eliminate intra-entity dividend payments recorded by parent as income.
Entry E
value for the change in exchange rate since the date of acquisition with the
counterpart recognized in the consolidated cumulative translation
adjustment.
The revaluation of “excess” is calculated as follows:
Excess of acquisition consideration over book value
U.S. dollar equivalent at 12/31/15 £E30,000 x $.27 = $8,100
37. (90 minutes) Translate [remeasure] foreign currency financial statements
using U.S. GAAP and explain sign of translation adjustment [remeasurement
gain/loss])
Part I (a). Czech koruna is the functional currency—current rate method
Exchange
K č S Rate US$
Sales 25,000,000 0.035 875,000
Cost of goods sold (12,000,000)
(420,000)
(63,000)
Research and development expense (1,200,000)
(42,000)
Other expenses (1 ,000,000)
(35,000)
(46,500)
Retained earnings, 12/31/15 5 ,500,000
203,500
Cash 2,000,000
60,000
Accounts receivable 3,300,000
750,000
Accum. deprec.—equipment (8,500,000)
(255,000)
Building 72,000,000
Total assets 78 ,000,000
2,340,000
Accounts payable 2,500,000
75,000
Long-term debt 50,000,000
Retained earnings, 12/31/15 5,500,000
above 203,500
Translation adjustment – to balance (438 ,500)
Total liabilities and equities 78 ,000,000
2,340,000
37. (continued)
Calculation of Translation Adjustment
Translation adjustment, 2015 (negative) 202,500
Net assets, 1/1/15 20,500,000
820,000
Net income, 2015 6,500,000
227,500
Dividends, 12/15/15 (1 ,500,000)
(46,500)
37. (continued)
Part I (b). U.S. dollar is the functional currency—temporal method
Exchange
K č S Rate US$
Sales
Net income 6,500,000
509,300
Retained earnings, 1/1/15 500,000 given 353,000
Dividends, 12/15/15 (1 ,500,000)
(46,500)
Retained earnings, 12/31/15 5 ,500,000
815,800
272,000
Equipment
25,000,000Sched.B 1,180,000
Accum. deprec.—equipment (8,500,000)
(418,000)
300,000
Total assets 78 ,000,000
3,390,800
Accounts payable 2,500,000
75,000
750,000
Retained earnings, 12/31/15 5 ,500,000
815,800
Total liabilities and equities 78 ,000,000
3,390,800
Schedule A—Cost of goods sold
K č S ER US$
Beginning inventory 6,000,000
0.043258,000
Purchases
37. (continued)
Schedule B—Equipment
K č S ER US$
Old Equipment—at 1/1/14 20,000,000 0.050
1,000,000
New Equipment—acquired 1/3/15 5 ,000,000
180,000
400,000
Accum. Depr.—New Equipment 500 ,0000.036 18 ,000
Total 8 ,500,000
418,000
118,000
Schedule C—Building
K č S ER US$
Old Building—at 1/1/14 60,000,000
3,000,000
New Building—acquired 3/5/15 12 ,000,000
Total 30 ,300,000
1,510,200
Deprec. expense—Old Building 1,500,000
75,000
85,200
Calculation of Remeasurement Gain
K č S ER US$
(1,480,000)
Increase in mon. assets:
Sales 25,000,000
875,000
Decrease in mon. assets:
(35,000)
Dividends, 12/15/15 (1,500,000)
(46,500)
Purchase of equipment, 1/3/15 (5,000,000)
(180,000)
current exchange rate (47 ,200,000)
(1,416,000)
Remeasurement gain—2015 (408 ,000)
37. (continued)
Part I (c). U.S. dollar is the functional currency—temporal method (no long-
term debt)
Exchange
K č S Rate US$
Sales 25,000,000
(118,000)
Depreciation expense—building (1,800,000)
(85,200)
Research and development expense (1,200,000)
(42,000)
Net income 6,500,000
9,300
Retained earnings, 1/1/15 500,000 given (147,000)
Dividends, 12/15/15 (1 ,500,000)
(46,500)
99,000
Inventory 8,500,000
272,000
Equipment 25,000,000
1,180,000
(1,510,200)
Land 6 ,000,000
300,000
Total assets 78 ,000,000
3,390,800
Additional paid in capital 50,000,000
2,500,000
Retained earnings, 12/31/15 5 ,500,000
(184,200)
Total liabilities and equities 78 ,000,000
37. (continued)
Calculation of Remeasurement Loss
K č S ER US$
Net monetary assets, 1/1/15 13,000,000
520,000
Increase in monetary assets:
Sales 25,000,000
875,000
Decrease in monetary assets:
(180,000)
Purchase of buildings, 3/5/15 (12 ,000,000)
(408,000)
Net monetary assets, 12/31/15 2 ,800,000
176,000
Net monetary assets, 12/31/15
at current exchange rate 2 ,800,000
37. (continued)
Part II. Explanation of the negative translation adjustment in Part I (a),
remeasurement gain in Part I (b), and remeasurement loss in Part I (c).
The negative translation adjustment in Part I (a) arises because of two
factors: (1) there is a net asset balance sheet exposure and (2) the Czech
koruna has depreciated against the U.S. dollar during 2015 (from $.040 at
The remeasurement gain in Part I (b) arises because of two factors: (1) there
is a net monetary liability balance sheet exposure and (2) the Czech koruna
has depreciated against the U.S. dollar. Under the temporal method, Cash
and Accounts Receivable are the only assets translated at the current
The remeasurement loss in Part I (c) arises because of two factors: (1) there
is a net monetary asset balance sheet exposure and (2) the Czech koruna has
depreciated against the U.S. dollar during 2015. Cash and Accounts
Receivable are the only assets translated at the current exchange rate (total