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
Rate
Dollars
Net assets, 1/1/X7
$0.02857
$20,570
Adjustment for changes in
net assets during year:
Net income
$0.02679
2,411
Net assets translated at:
Rates during year
$22,981
Other comprehensive income —
Rate at end of year
$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
Copyright © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized
for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted
on a website in whole or part.
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.