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Chapter 12 - Multinational Accounting: Issues in Financial Reporting and Translation of Foreign Entity Statements
E12-13 (continued)
c.
Translated December 31, 20X7, balance sheet:
Subsidiary’s
Direct
Translated
Trial Balance
Exchange
Trial Balance
(in rupees)
Rate
(in $)
Cash
R 80,000
$0.025
$ 2,000
Receivables
550,000
$0.025
13,750
Inventory
720,000
$0.025
18,000
Fixed assets
900,000
$0.025
22,500
Total
R 2,250,000
$56,250
AOCI translation adjustment (debit)
5,635
Total debits
$61,885
Current payables
R 340,000
$0.025
$ 8,500
Long-term debt
1,100,000
$0.025
27,500
Common stock
500,000
$0.03333
16,665
Retained earnings
310,000
(a)
9,220
Total credits
R 2,250,000
$61,885
(a) The retained earnings in dollars would begin with the December 31, 20X6's,
dollar balance ($6,809) that would be carried forward. To this would be added
20X7's net income of R 90,000, which is the change in retained earnings in
rupees multiplied by the average 20X7 exchange rate of $.02679 [($.02857 +
$.025)/2] which equals $2,411. Therefore, translated retained earnings on
December 31, 20X7, is $9,220 ($9,220 = $6,809 + $2,411).
(Not required: Proof of translation adjustment (debit) of $5,635)
Translation
Rupees
Rate
Dollars
Net assets, 1/1/X7
R 720,000
$0.02857
$20,570
Adjustment for changes in
net assets during year:
Net income
90,000
$0.02679
2,411
Net assets translated at:
Rates during year
$22,981
Other comprehensive income —
Rate at end of year
R 810,000
$0.025
(20,250)
Change in other comprehensive
Income — translation
adjustment during year (debit)
$ 2,731
Accumulated other comprehensive
Income — translation adjustment, 1/1/X7
2,904
Accumulated other comprehensive
Income — translation adjustment,12/31/X7 (debit)
$ 5,635
d. The $2,731 change in the accumulated other comprehensive income — translation
adjustment during 20X7 would be reported as a component of other
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P12-16 Parent Company Journal Entries and Translation
a.
Canadian
Exchange
U.S.
P
Dollars
Rate
Dollars
Investment cost
C$150,000
0.80
$120,000
1/1/X1
Book value of investment
100%
on January 1, 20X1
90,000
0.80
72,000
NB
Differential
C$ 60,000
$ 48,000
Canadian
Exchange
U.S.
Dollars
Rate
Dollars
Income Statement:
Differential at date of
acquisition:
Plant and equipment
C$10,000
0.80
$8,000
Trademark
C$50,000
0.80
$40,000
Amortization this period:
Plant and equipment
(10 years)
(1,000)
0.75
(750)
Trademark (10 years)
(5,000)
0.75
(3,750)
Remaining balance:
Plant and equipment
C$ 9,000
$7,250
Trademark
C$45,000
$36,250
Balance Sheet:
Remaining balance on
12/31/X1 translated at
year-end exchange rates:
Plant and equipment
C$ 9,000
0.70
$6,300
Trademark
C$45,000
0.70
$31,500
Difference to OCI—
translation adjustment:
Plant and equipment
$ 950
Trademark
$ 4,750
Note that the differential adjustment is from the amounts of $7,250 for plant and
equipment and from $36,250 for trademark. The required amounts for the consolidated
balance sheet are $6,300 for plant and equipment, and $31,500 for trademark. Therefore,
in each of these cases, the differential adjustment will reduce the amount of the
differential component in the investment account, requiring a credit to the Investment in
North Bay Company account with a corresponding debit to the Other Comprehensive
Income—Translation Adjustment account. The differential adjustment adjusts to the
correct amount necessary to prepare the consolidated balance sheet.
