Student Name:
Class:
Problem 10-36
McGraw-Hill
Instructor
[*C] To accrue 2017 increase in subsidiary book value.
[ I ] To eliminate intercompany dividend payments recorded by parent as income.
[E] To revalue (write down) excess cost over book value for change in exchange rate since date of acquisition.
[S] To eliminate subsidiary’s stockholders’ equity and allocate excess purchase price over book value to land (fixed assets).
Student Name:
Class:
Problem 10-36
McGraw-Hill
Instructor
Adjustment and Elimination Entries
*C 38,244
Correct! 38,244 Correct!
S72,000 Correct!
Correct! 45,000 Correct!
38,244 Correct!
9,000 Correct!
164,244 Correct!
I13,750
Correct! 13,750 Correct!
E900
Correct! 900 «- Correct!
Property, plant & equipment (revaluation)
Cumulative translation adjustment
Dividends
Dividend income
Investment in Simbel
Property, plant and equipment (revaluation)
Retained earnings, 1/1/17 (Simbel)
To revalue (write down) the excess of acquisition consideration over book value for the
change in exchange rate since the date of acquisition with the counterpart recognized in
the consolidated cumulative translation adjustment.
Additional Paid-in Capital (Simbel)
Common Stock (Simbel)
Retained earnings, 1/1/17
Investment in Simbel
To eliminate intra-entity dividend payments recorded by parent as income.
To eliminate subsidiary’s stockholders’ equity accounts and allocate the excess of
acquisition consideration over book value to land (Property, plant and equipment).
To accrue 2017 increase in subsidiary book value (see Schedule 1). Entry is needed
because parent is using the cost method.
Net income
Net income
Retained earnings, 1/1/17
December 31, 2017
Gain on sale of building, 10/1/17
Dividend income-from Simbel
Other expenses
Rent expense
Weighted-average for 2017
October 1, 2017
June 1, 2017
Given P10-36:
Cost of purchase
Cayce purchases interest in Simbel
Exchange rates between U.S. dollar and Egyptian pound:
Simbel reported rent expense that should be prepayment
Dividend declared to Cayce on June 1, 2016
Simbel reported income during 2016
Student Name:
Class:
Part I(a). Czech koruna is the functional currency
Exchange
Kcs Rate U.S. $
25,000,000 0.035 875,000
(12,000,000) 0.035 (420,000)
(2,500,000) 0.035 (87,500)
(1,800,000) 0.035 (63,000)
(1,200,000) 0.035 (42,000)
(1,000,000) 0.035 (35,000)
6,500,000 227,500
500,000 given 22,500
(1,500,000) 0.031 (46,500)
Equipment
Inventory
Accounts receivable
Cash
(8,500,000) 0.030 (255,000)
72,000,000 0.030 2,160,000
(30,300,000) 0.030 (909,000)
6,000,000 0.030 180,000
Exchange
Kcs Rate U.S. $
Translation adjustment
Retained earnings, 12/31/17
Additional paid-in capital
Common stock
Long-term debt
Accounts payable
Dividends, 12/15/17
Net income, 2017
Net assets, 1/1/17
current exchange rate
Cumulative translation adjustment, 12/31/16 (negative)
Current rate method
Sales
Dividends, 12/15/17
Retained earnings, 1/1/17
Net income
Other expenses
Cost of goods sold
Building
Accumulated depreciation – Equipment
Problem 10-37
McGraw-Hill
Instructor
Research and development expense
Depreciation expense-building
Depreciation expense-equipment
Land
Accumulated depreciation – Building
Student Name:
Class:
Problem 10-37
McGraw-Hill
Instructor
Exchange
Kcs Rate U.S. $
25,000,000 0.035 875,000
(12,000,000) Sch. A (493,500)
(2,500,000) Sch. B (118,000)
(1,800,000) Sch. C (85,200)
(1,200,000) 0.035 (42,000)
(1,000,000) 0.035 (35,000)
6,500,000 101,300
– 408,000
6,500,000 509,300
500,000 Given 353,000
(1,500,000) 0.031 (46,500)
5,500,000 815,800
Correct!
2,000,000 0.030 60,000
3,300,000 0.030 99,000
8,500,000 0.032 272,000
25,000,000 Sch. B 1,180,000
(8,500,000) Sch. B (418,000)
72,000,000 Sch. C 3,408,000
(30,300,000) Sch. C (1,510,200)
6,000,000 0.050 300,000
78,000,000 3,390,800
Correct!
2,500,000 0.030 75,000
50,000,000 0.030 1,500,000
5,000,000 0.050 250,000
15,000,000 0.050 750,000
5,500,000 Above 815,800
78,000,000 3,390,800
Total liabilities and equities
Accumulated depreciation – equipment
Equipment
Inventory
Accounts receivable
Cost of goods sold
Sales
Part I(b). U.S. dollar is the functional currency – temporal method
Remeasurement gain, 2017
Income before remeasurement gain
Accumulated depreciation – building
Building
Retained earnings, 12/31/17
Additional paid-in capital
Common stock
Long-term debt
Accounts payable
Total assets
Land
Other expenses
Research and development expense
Depreciation expense-building
Depreciation expense-equipment
Cash
Retained earnings, 12/31/17
Dividends, 12/17/17
Retained earnings, 1/1/17
Net income
Student Name:
Class:
Problem 10-37
McGraw-Hill
Instructor
Exchange
Kcs Rate U.S. $
6,000,000 0.043 258,000
14,500,000 0.035 507,500
(8,500,000) 0.032 (272,000)
12,000,000 493,500
Correct! Correct!
Exchange
Kcs Rate U.S. $
20,000,000 0.050 1,000,000
5,000,000 0.036 180,000
25,000,000 1,180,000
Correct! Correct!
8,000,000 0.050 400,000
500,000 0.036 18,000
8,500,000 418,000
2,000,000 0.050 100,000
500,000 0.036 18,000
2,500,000 118,000
Correct! Correct!
Exchange
Kcs Rate U.S. $
60,000,000 0.050 3,000,000
12,000,000 0.034 408,000
72,000,000 3,408,000
30,300,000 1,510,200
Total
Accumulated Depreciation – New Building
Accumulated Depreciation – Old Building
Depreciation Expense – New Building
Depreciation Expense – Old Building
1,800,000 85,200
Correct! Correct!
Depreciation Expense – New Equipment
Depreciation Expense – Old Equipment
Total
Accumulated Depreciation – New Equipment
Accumulated Depreciation – Old Equipment
Schedule A – Cost of goods sold
Schedule B – Equipment
Cost of goods sold
Ending inventory
Purchases
Beginning inventory
Total
New Equipment-acquired 1/3/17
Old Equipment – at 1/1/16
Total
Total
New Building – acquired 3/5/17
Old Building – at 1/1/16
Total
Schedule C – Building
Student Name:
Class:
Problem 10-37
McGraw-Hill
Instructor
Exchange
Kcs Rate U.S. $
(37,000,000) 0.040 (1,480,000)
25,000,000 0.035 875,000
(14,500,000) 0.035 (507,500)
(1,200,000) 0.035 (42,000)
(1,000,000) 0.035 (35,000)
(1,500,000) 0.031 (46,500)
(5,000,000) 0.036 (180,000)
(12,000,000) 0.034 (408,000)
(47,200,000) (1,824,000)
(47,200,000) 0.030 (1,416,000)
(408,000)
Correct!
Sales
Net monetary liabilities, 12/31/17
Calculation of Remeasurement Gain
Increase in monetary assets:
Net monetary liabilities, 1/1/17
Purchase of buildings, 3/5/17
Purchase of equipment, 1/3/17
Dividends, 12/15/17
Other expenses
Research & development
Purchase of inventory
Remeasurement gain – 2017
current exchange rate
Net monetary liabilities, 12/31/17 at
Decrease in monetary assets:
Student Name:
Class:
Problem 10-37
McGraw-Hill
Instructor
Exchange
Kcs Rate U.S. $
25,000,000 0.035 875,000
(12,000,000) Sch. A (493,500)
(2,500,000) Sch. B (118,000)
(1,800,000) Sch. C (85,200)
(1,200,000) 0.035 (42,000)
(1,000,000) 0.035 (35,000)
6,500,000 101,300
– (92,000)
6,500,000 9,300
500,000 Given (147,000)
(1,500,000) 0.031 (46,500)
5,500,000 (184,200)
25,000,000 Sch. B 1,180,000
(8,500,000) Sch. B (418,000)
72,000,000 Sch. C 3,408,000
(30,300,000) Sch. C (1,510,200)
6,000,000 0.050 300,000
Inventory
Accounts receivable
Cash
78,000,000 3,390,800
Total assets
Common stock
Long-term debt
Accounts payable
50,000,000 0.050 2,500,000
5,500,000 Above (184,200)
78,000,000 3,390,800
Correct!
Kcs Rate U.S. $
12,000,000 493,500
Beginning inventory
Cost of goods sold
Ending inventory
Purchases
Schedule A – Cost of goods sold
Other expenses
Accumulated depreciation – Equipment
Equipment
Land
Accumulated depreciation – Building
Building
Total liabilities and equities
Retained earnings, 12/31/17
Additional paid-in capital
Part I(c). U.S. dollar is the functional currency – temporal method (no long-term debt)
Research and development expense
Sales
Retained earnings, 12/31/17
Dividends, 12/15/17
Retained earnings, 1/1/17
Net income
Remeasurement loss, 2017
Income before remeasurement loss
Depreciation expense-building
Depreciation expense-equipment
Cost of goods sold
Student Name:
Class:
Problem 10-37
McGraw-Hill
Instructor
Exchange
Kcs Rate U.S. $
20,000,000 0.050 1,000,000
5,000,000 0.036 180,000
25,000,000 1,180,000
Correct! Correct!
8,000,000 0.050 400,000
500,000 0.036 18,000
8,500,000 418,000
Correct! Correct!
2,000,000 0.050 100,000
2,500,000 118,000
Exchange
Total
Deprec. Expense – New Equip.
Schedule C – Building
Kcs Rate U.S. $
60,000,000 0.050 3,000,000
12,000,000 0.034 408,000
72,000,000 3,408,000
Correct! Correct!
30,000,000 0.050 1,500,000
300,000 0.034 10,200
30,300,000 1,510,200
Correct! Correct!
Deprec. Expense – Old Building
300,000 0.034 10,200
1,800,000 85,200
Exchange
Kcs Rate U.S. $
Purchase of buildings, 3/5/17
Dividends, 12/15/17
Purchase of equipment, 1/3/17
Other expenses
Research & development
Purchase of inventory
Calculation of Remeasurement Loss
Decrease in monetary assets:
Sales
Net monetary assets, 1/1/17
Increase in monetary assets:
Net monetary assets, 12/31/17
Total
New Equipment-acquired 1/3/17
Old Equipment – at 1/1/17
Total
Acc.Deprec.-New Equipment
Acc.Deprec.-Old Equipment
Deprec. Expense – Old Equip.
Acc.Deprec.-Old Building
New Building-acq. 3/5/17
Old Building – at 1/1/17
Total
Acc.Deprec.-New Building
Total
Deprec. Expense – New Building
Total
Schedule B – Equipment
Student Name:
Class:
Problem 10-37
McGraw-Hill
Instructor
The negative translation adjustment in part 1(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 2017 (from
$.040 at 1/1/17 to $.030 at 12/31/17). A net asset balance sheet exposure exists because all assets are
translated at the current exchange rate and exceed total liabilities which are also translated at the current
exchange rate. The remeasurement gain in part I(b) arises because of two factors: (1) there is a net
monetary liability balance sheet exposure and (2) the Czech koruna has depreciated against the U.S. dollar.
Under the temporal method, Cash and Accounts Receivable are the only assets translated at the current
exchange rate (total Kcs 5,300,000). Accounts Payable and Long-Term Debt are also translated at the
current exchange rate (total Kcs 52,500,000). Because the Czech koruna amount of liabilities translated at
the current rate exceeds the Czech koruna amount of assets translated at the current rate, a net monetary
liability balance sheet exposure exists. The remeasurement loss in part I(c) arises because of two factors:
(1) there is a net monetary asset balance sheet exposure and (2) the Czech koruna has depreciated against
the U.S. dollar during 2017. Cash and Accounts Receivable are the only assets translated at the current
exchange rate (total Kcs 5,300,000). Because there is no Long-term Debt in part 1(c), Accounts Payable is
the only liability translated at the current exchange rate (total Kcs 2,500,000). Because the Czech koruna
amount of the assets translated at the current rate exceeds the Czech koruna amount of liabilities translated
at the current rate, a net monetary asset balance sheet exposure exists.
Part II. Explain the negative translation adjustment in Part I(a) and remeasurement gain or loss in Parts 1(b)
and 1(c).
100%
0.05$
6,000,000
0.043$
8,500,000
0.032$
5,000,000
12,000,000
0.036$
0.034$
10
40
0.031$
U.S.$ Kcs
0.040 1
0.035 1
0.030 1
Average for 2017
January 1, 2017
Equipment
Exchange rates for Kcs at time of acquisition:
December 31, 2017
Beginning inventory, 1/1/17 (Kcs), acquired 12/18/16
Exchange rates between U.S. dollar and Czech koruna (Kcs):
Equipment (Kcs) acquired 1/3/17
Equipment depreciated (straight-line) over years
Buildings
Given P10-37:
Exchange rate for Czech koruna (Kcs), 1/1/16
Dividends declared and paid when exchange rate for Kcs was
Buildings depreciated (straight-line) over years
Fixed assets on books at acquisition except:
Exchange rate for Kcs when ending inventory acquired
Ending inventory acquired in latter part of 2017 (Kcs)
Exchange rate for Czech koruna (Kcs), 12/18/16
Buildings (Kcs) acquired 3/5/17
Diekmann purchases interest in Rakona, 1/1/16
Given P10-37:
2,000,000
3,300,000
8,500,000
25,000,000
(8,500,000)
Less: accumulated depreciation
Building
2,500,000
50,000,000
5,000,000
15,000,000
5,500,000
RAKONA A.S.
Kcs
25,000,000
(12,000,000)
(2,500,000)
(1,800,000)
(1,200,000)
(1,000,000)
6,500,000
500,000
Retained earnings is US dollars, 12/31/16
Part b.
Cumulative translation adjustment (debit bal.)
Retained earnings in US dollars, 12/31/16
Part c.
Part I.
Additional information:
Less: Dividends, 2017
Assets
December 31, 2015
Balance Sheet
RAKONA A.S.
Common stock
Long-term debt
Accounts payable
Liabilities and Stockholders’ Equity
Retained earnings
Additional paid-in capital
Research and development expense
Plus: Retained earnings, 1/1/17
Net income
Other expenses (including taxes)
Cash
For the Year Ending December 31, 2015
Depreciation expense-building
Depreciation expense-equipment
Cost of goods sold
Sales
Accounts receivable (net)
Inventory
Less: accumulated depreciation
Equipment
(in Czech Koruna – Kcs)