E16-17. Translating foreign currency
(AICPA adapted)
Because the subsidiary’s functional currency is the local currency unit
(LCU), Ward Inc. must use the current rate method to translate the
included in the consolidated income statement would be 400,000 x .44 =
$176,000.
E16-18. Reporting transaction foreign exchange gain/loss
(AICPA adapted)
Lindy Corp. has engaged in a foreign currency transaction. The transaction
or losses go through income in the year that the change occurs.
On November 5, 2017, Lindy would make the following entry (not required):
euros x $1.40 per euro)
In preparing its 2017 financial statements, Lindy would make the following
adjusting entry to reflect the year-end spot rate (not required):
DR Accounts payable $2,000
On January 15, 2018 Lindy would make the following entry (not required):
DR Accounts payable ($140,000- $2,000) $138,000
DR Foreign exchange transaction loss 6,000
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Thus, a $2,000 foreign exchange gain would be recognized in 2017 and a
$6,000 foreign exchange loss would be recognized in 2018.
E16-19. Adjustments and eliminations for consolidation under acquisition
method
(A) DR Common Stock $1,500,000
DR Retained Earnings 500,000
To eliminate Beta’s stockholders’ equity accounts against Alpha’s
(B) DR Fixed assets $300,000
To allocate the excess of the price paid for Beta’s shares ($2,000,000)
over Alpha’s proportionate interest in the book value of Beta’s net assets
(C) DR Fixed assets $75,000
DR Goodwill-noncontrolling interest 25,000
the consolidated balance sheet.
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Requirement 2:
Alpha Beta
Eliminations Consolidated
Dr Cr Balance Sheet
Assets
Current assets $ 1,750,000 $ 500,000 $2,250,000
$ 300,000
Common stock 7,000,000
0 1,500,000 A
00
Capital in excess of
par 500,000 0 500,000
Retained Earnings
1,000,00
0 500,000 500,000 A 1,000,000
Noncontrolling interest 400,000 A 500,000
100,000 C
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E16-20. Consolidation worksheet and balance sheet under acquisition method
Requirement 1:
The elimination entries that Chesapeake should make in its consolidated
worksheet are given below:
(A) DR Common Stock $ 400,000
To eliminate Deardon’s stockholders’ equity accounts against
Chesapeake’s Investment in Deardon account and set up Noncontrolling
CR Investment in Deardon 108,000
To allocate the excess of the price paid for Deardon’s shares ($810,000)
over Chesapeake’s proportionate interest in the book value of Deardon’s
(C) DR Current assets $5,000
DR Patent 7,500
DR Goodwill 5,000
To adjust the net assets of Deardon to reflect the full fair value at time of
Note that total noncontrolling interest is $90,000 ($78,000 (A) + $12,000
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Requirement 2:
Chesapeake Deardon
Eliminations Consolidated
Dr Cr Balance Sheet
Assets
Current assets $ 500,000 $ 400,000 $ 45,000 B $950,000
5,000 C
PP&E, net 800,000 800,000 $ 22,500 B 1,575,000
2,500 C
Liabilities
Current liabilities $ 400,000 $ 150,000 $ 550,000
Long term liabilities 500,000 270,000 $ 27,000 B
3,000 C 800,000
Total Liabilities
and Equity $ 2,210,000 $ 1,200,000 $ 955,000 $ 955,000 $ 2,750,000
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Financial Reporting and Analysis (7th Ed.)
Chapter 16 Solutions
Intercorporate Investments
Problems
Problems
P16-1. Equity method accounting
Requirement 1:
Figland’s equity in Irene’s earnings (40% x $600,000)
$240,000
Requirement 2:
Cost of initial investment $1,800,000
Investment income [see Requirement (1)] 175,000
P16-2. Accounting for trading securities
Requirement 1:
Desired balance in Fair Value adjustment account at
12/31/16:
DR
Previous balance before adjustment 0
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CR Unrealized holding gain on trading securities
$5,000
Requirement 2:
DR Cash $14,000
DR Fair Value adjustment—trading securities 2,500
adjustment on 12/31/16 was determined as follows:
Cost of Co. B common stock $30,000
Fair value on 12/31/16 (25 ,000)
Fair value adjustment related to Co. B shares sold $2 ,500
Requirement 3:
Desired balance in Fair Value adjustment account:
12/31/17
Cost Fair Value
Co. A Common $50,000 $55,000
on 7/01/17 ($5,000 DR + $2,500 DR) 7 ,500
DR
Required adjustment to Fair Value adjustment account
$2,500
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Requirement 4:
DR Cash $14,000
DR Realized loss on sale of available-for-sale
securities 1,000
of available for sale securities $2,500
P16-3 Consolidated balance sheet and income statement
under acquisition method.
Requirement 1:
The consolidating balance sheet appears on the
following page.
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Pate Starmont
Eliminations Consolidated
Dr Cr Balance Sheet
Assets
Current assets $ 400,000 $ 300,000 $700,000
Long term assets 1,000,000 860,000 1,860,000
Total liabilities 1,200,000 270,000 1,470,000
Stockholders’ Equity
Common stock 500,000 300,000 300,000 A 500,000
600,00
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Total Liabilities
and Equity 1,160,000
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(A) To eliminate Starmont’s stockholders’ equity accounts against
$178,000.
(B) To allocate the excess of the price paid for Starmont’s shares
allocate is $188,000.
(C) To reflect the full fair value of goodwill at time of acquisition
Note that total noncontrolling interest is $225,000 ($178,000 (A)
Total goodwill is $235,000 ($188,000 (B) + $47,000 (C)), which
Requirement 2:
Intra-entity Sale:
The intra-entity sale from Pate to Starmont needs to be eliminated to
are eliminated against each other.
Income Allocated to Noncontrolling Interest:
Starmont’s tax expense is .35 x $220,000 = $77,000, so its net
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adjustment required to income for the noncontrolling interest share of
Goodwill.
Consolidated Income Statement:
The 2018 consolidated income statement worksheet is as follows:
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