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PROBLEM 11-4
Retained Earnings—Parent …………………………………………. 832,500
Investment in Spruco …………………………………………….. 832,500
To eliminate the entry in the subsidiary income
account against the investment account
(740,000 FC × 1.25 × 90%).
Capital Stock—Subsidiary (5,900,000 × 90%) ………………… 5,310,000
Exchange Translated
Spruco’s equity balances: In FC Rate Amount
Capital at September 1, 2013, excluding retained
earnings (8,000,000 – 3,000,000) …………………. 5,000,000 1.18 5,900,000
Retained earnings at September 1, 2013 ……………. 3,000,000 1.18 3,540,000
Remainder of 2013 income ……………………………….. 350,000 1.20 420,000
Remainder of 2013 dividend ……………………………… (500,000) 1.25 (625,000)
2014 net income ………………………………………………. 920,000 1.30 1,196,000
11–21 Ch. 11—Problems
Problem 11-4, Concluded
In FC
Allocation of excess of cost over book value: Patent Goodwill Total
Controlling interest ……………………………………… 360,000 540,000 900,000
Retained Earnings—Parent …………………………………………. 102,600
Retained Earnings—Subsidiary. …………………………………… 11,400
Accumulated Amortization—Patents ………………………… 109,800
Cumulative Translation Adjustment —Subsidiary ………. 4,200
To record amortization on excess determined as
follows:
In FC In U.S.$
Annual amortization of patent (400,000 FC
over 10 years) ……………………………………………. 40,000
Accumulated amortization as of December 31, 2015
(2.25 years × 40,000) ………………………………….. 90,000
Accumulated amortization as of December 31, 2015
(90,000 FC × $1.22) ……………………………………. 109,800
PROBLEM 11-5
1. Remeasurement of the 2015 trial balance:
Balance Exchange Balance
in FC-A Rate (FC-B/FC-A) In FC-B
Inventory ………………………………… 2,230,000 See Note A 919,400
Depreciable assets ………………….. 2,250,000 See Note B 1,140,000
Accumulated depreciation ………… (387,500) See Note B (195,500)
Cash ……………………………………… 600,000 0.39 234,000
All other assets ……………………….. 1,088,000 0.40 435,200
Note A – Remeasured cost of sales and ending inventory:
Balance in
FC-A
Rate
(FC-B/FC-A)
Balance In
FC-B
Goods available for sale:
Beginning inventory…………………… 940,000 0.48 451,200
First quarter purchases ……………… 1,470,000 0.46 676,200
Second quarter purchases …………. 1,200,000 0.44 528,000
11–23 Ch. 11—Problems
Note B –Remeasured depreciable assets, depreciation expense, and accumulated
depreciation:
in FC-A
Rate
(FC-B/FC-A) In FC-B
Depreciable assets:
Acquired on January 1, 2013 ……… 1,500,000 0.50 750,000
Acquired on March 31, 2014 ………. 750,000 0.52 390,000
Total ……………………………………….. 2,250,000 1,140,000
Note C – Remeasured common stock:
Balance Exchange Rate Balance
in FC-A (FC-B/FC-A) In FC-B
Issued at beginning of 2013 …………….. 2,000,000 0.50 1,000,000
2. Translated trial balance for Gilmore Enterprises for the year 2015:
Balance Exchange Balance
In FC-B Rate ($/FC-B) In Dollars
Inventory ………………………………………. 919,400 $.30 275,820
Depreciable assets ………………………… 1,140,000 $.30 342,000
Accumulated depreciation ……………….. (195,500) $.30 (58,650)
Cash …………………………………………….. 234,000 $.30 70,200
All other assets ……………………………… 435,200 $.30 130,560
Ch. 11—Problems 11–24
Note D – Translated value for common stock:
Balance Exchange Balance
in FC-B Rate ($/FC-B) in $
Issued at beginning of 2013 …………….. 1,000,000 0.40 400,000
3. Cumulative translation adjustment traceable to 2015:
CR (DR)
2015
The change in exchange rates during the period multiplied by the
amount of the net assets at the beginning of the period:
1,241,000 FC times $0.30 versus $0.47 ……………………. $(210,970)
The difference between the weighted-average exchange rate used
in translating income elements and the end-of-period exchange rate
4. Amount of bank loan to serve as a hedge:
In Dollars
Remeasurement loss …………………………. $ 32,555
2015 translation adjustment ………………… 242,970
Net adverse impact ……………………………. $ 275,525
Exchange rate at: 1 FC-B =
Inception of loan …………………………………… $0.45
11–25 Ch. 11—Problems
PROBLEM 11-6
1. Calculation of cumulative translation adjustment – Credit (Debit):
2014 2015
600,000 FC times $ 1.38 versus $ 1.50 ……
…
(72,000)$
730,000 FC times $ 1.45 versus $ 1.38 ……
…
51,100$
…
…
…
…
…
…
…
The difference betweeen the weighted-average exchange
rate used in translating income elements and the end-of-
period exchange rate multiplied by the increase or decrease
in net assets for the period traceable to net income:
The change in exchange rates during the period multiplied
by the amount of the net assets at the beginning of the
period:
Problem 11-6, Continued
2. Cumulative translation on consolidated balance sheet traceable to controlling and noncon-
trolling interests:
Calculation of excess of cost over book value at date of acquisition (in FC):
Implied value of subsidiary (880,000 FC divided by 80%)…
…
1,100,000
Book value at date of acquisition……………………………… 600,000
Excess of implied value over book value……………………
…
500,000
Allocation of excess of cost over book value at date of acquisition (in FC):
80% 20%
Total Controlling Noncontrolling
Undeveloped land……………………….
…
112,500 90,000 22,500
Equipment………………………………… 150,000 120,000 30,000
…
Interest
Problem 11-6, Continued
Cumulative translation traceable to controlling and noncontrolling interests:
80% 20%
Total Controlling Noncontrolling
Translation adjustment per above – CR (DR)……
…
(78,300)$ (62,640)$ (15,660)$
Distribution of asset markup:
Equipment:
Translated value (150,000 FC x $1.38)………
…
207,000
Value at acquisition (150,000 FX x $1.50)……
…
(225,000)
Cumulative translation adjustment……………
…
(18,000) (14,400) (3,600)
Licensing agreement:
Translated value (100,000 FC x $1.38)………
…
138,000
Value at acquisition (100,000 FX x $1.50)……
…
(150,000)
…
…
Year 2014
Interest
Problem 11-6, Concluded
80% 20%
Total Controlling Noncontrolling
Adjustment traceable to 2014- CR (DR)…………
…
(78,300)$
Adjustment traceable to 2015- CR (DR)…………
…
55,550
Cumulative translation adjustment at y/e 2015…. (22,750) (18,200)$ (4,550)$
Distribution of asset markup:
Equipment:
Translated value (150,000 FC x $1.45)………
…
217,500
Value at acquisition (150,000 FX x $1.50)……
…
(225,000)
Cumulative translation adjustment……………
…
(7,500) (6,000) (1,500)
Licensing agreement:
…
…
2
…
2
…
Year 2015
Interest
11–29 Ch. 11—Problems
PROBLEM 11-7
Translated Trial Balance
December 31, 2015
Exchange
Balance Rate Balance
Account in FC Dollars/FC in U.S.$
Cash ………………………………………………………….. 50,000 1.93 $ 96,500
Receivables (net) ………………………………………… 169,000 1.93 326,170
Prepaids …………………………………………………….. 24,000 1.93 46,320
Accounts Payable ……………………………………….. 126,000 1.93 $ 243,180
Dividends Payable ………………………………………. 100,000 1.94 194,000
Notes Payable …………………………………………….. 94,000 1.93 181,420
Bonds Payable ……………………………………………. 274,000 1.93 528,820
Note A—The translated dollar amount of retained earnings is as follows:
Exchange
Balance Rate Balance
in FC Dollars/FC in U.S.$
Beginning balance ………………………………………. 300,000 1.90 $ 570,000
Last half of 2012 net income …………………………. 75,000 1.92 144,000
2013 Net income …………………………………………. 135,000 2.05 276,750
Problem 11-7, Continued
Elimination and Adjusting Entries
1. Subsidiary Income ……………………………………………………………. 173,840
Dividends Declared (sub account) ………………………………… 155,200
Investment in Subsidiary ……………………………………………… 18,640
To eliminate the subsidiary income and dividend
declared against the investment in subsidiary account.
Sales …………………………………………………………………… $1,235,200
Dividends declared: 100,000 FC × $1.94 × 80% = ……………….. $ 155,200
2. Capital Stock …………………………………………………………………… 152,000
Paid-In Capital in Excess of Par Value ……………………………….. 319,200
3. Goodwill …………………………………………………………………………. 289,500
Depreciable Assets ………………………………………………………….. 101,325
Retained Earnings ………………………………………………………. 76,950
Cumulative Translation Adjustment ………………………………. 6,075
Cost to parent………………………………………………………………….. 650,000
Book value ……………………………………………………………………… 610,000
Percentage acquired by parent ………………………………………….. × 80% 488,000
Excess of cost over book value ………………………………………….. 162,000
Allocation of Excess: Dec. 31,
Total 2015 Total in
To Parent To NCI in FC Dollars/FC U.S.$
11–31 Ch. 11—Problems
Problem 11-7, Concluded
4. Depreciation Expense ………………………………………………………. 10,237
Retained Earnings ……………………………………………………………. 26,408
Cumulative Translation Adjustment ………………………………. 1,181
Accumulated Depreciation …………………………………………… 35,464
To depreciate excess—includes exchange rate adjustment.
Depreciation expense: In FC Average $/FC In U.S. $
2012 ……………………………….. 2,625 $1.92 $ 5,040
5. Cumulative Translation Adjustment—DaLuca ……………………… 20,146
Cumulative Translation Adjustment—Parent ………………….. 16,117
Cumulative Translation Adjustment—NCI ………………………. 4,029
To allocate translation adjustment to parent and NCI.
80% to 20% to
Cumulative translation balance: Debit (Credit) in U.S.$ Parent NCI
Balance per translated trial balance …….. (12,890) (10,312) (2,578)
PROBLEM 11-8
Tobac, Inc.
Trial Balance Translation
December 31, 2017
Relevant
Balance Exchange Balance
Account in FC Rate in Dollars
Cash ……………………………………………………………. 3,087,385 FC $0.65 $ 2,006,800
Net Accounts Receivable ……………………………….. 12,000,000 0.65 7,800,000
Inventory ……………………………………………………… 8,000,000 0.65 5,200,000
Sales …………………………………………………………… (40,000,000) 0.67 (26,800,000)
Cost of Sales ………………………………………………… 27,600,000 0.67 18,492,000
Depreciation Expense ……………………………………. 3,300,000 0.67 2,211,000
Interest Expense on Balfour Loan
(accrued at December 31) ………………………… 118,154 0.65 76,800
Exchange Gain on Balfour Loan ……………………… (30,769) 0.67 (20,615)
11–33 Ch. 11—Problems
Problem 11-8, Continued
Consolidating the Foreign Subsidiary
Balfour Corporation and Tobac, Inc.
Worksheet for Consolidated Financial Statements (in dollars)
For Year Ended December 31, 2017
Eliminations Consolidated Consolidated
Trial Balance
and Adjustments Income Balance
Balfour
Tobac Dr Cr Statement Sheet
Cash ……………………………………………………………. 4,463,200 2,006,800 …………….. ………..…… ………………… 6,470,000
Depreciable Assets ……………………………………….. 68,000,000 22,100,000 …………….. ………….…. ………………… 90,100,000
Equipment ……………………………………………………. ……………… ………………. (D/A) 1,950,000 …………….. ………………… 1,950,000
Accumulated Depreciation ……………………………… (42,000,000) (7,995,000) …………….. (D/A) 487,500 ..………………. (50,482,500)
Due to Balfour ………………………………………………. ……………… (1,356,800) (LN1) 1,356,800 …………….. ………………… ……………….
Exchange Gain on Balfour Loan ……………………… ……………… (20,615) …………….. …………….. (20,615) ……………….
Other Expenses ……………………………………………. 10,000,000 3,358,452 (D/A) 201,000 …………….. 13,559,452 ……………….
Interest Income …………………………………………….. (76,800) ………………. (LN2) 76,800 …………….. ………………… ……………….
Subsidiary Income …………………………………………. (2,682,363) ………………. (CY1) 2,682,363 …………….. ………………… ……………….
Problem 11-8, Concluded
Eliminations and Adjustments:
(CY1) Eliminate the subsidiary income account against the investment account.
(EL) Eliminate the subsidiary’s January 1, 2017, equity balances against the investment
account.
(D/A) Distribute the excess of cost over book value and record appropriate amortization.
Cost to acquire subsidiary ……………………………………………………………. 33,000,000 FC
Book value of subsidiary ……………………………………………………………… 30,000,000
Excess of cost over book value …………………………………………………….. 3,000,000 FC
Excess of cost over book value in dollars at:
July 1, 2015 (3,000,000 FC × $0.55) ………………………………………… $1,650,000
December 31, 2017 (3,000,000 FC × $0.65) …………………………….. $1,950,000
Accumulated depreciation of excess at December 31, 2017, in dollars
(750,000 FC × $0.65) …………………………………………………………….. $487,500
Depreciation expense in dollars:
2015 (150,000 FC × $0.57) …………………………………………………….. $85,500
PROBLEM 11-9
Tobac, Inc.
Trial Balance Translation
December 31, 2017
Balance Relevant
in Foreign Exchange Balance
Account Currency Rate in Dollars
Cash ……………………………………………………………. 3,087,385 FC $0.65 $ 2,006,800
Net Accounts Receivable ……………………………….. 12,000,000 0.65 7,800,000
Paid-In Capital in Excess of Par ……………………… (8,480,000) 0.55 (4,664,000)
Retained Earnings, January 1, 2017 ………………… (7,520,000) Note C (4,856,000)
Sales …………………………………………………………… (40,000,000) 0.67 (26,800,000)
Cost of Sales ………………………………………………… 27,600,000 Note D 18,048,000
Note A—Ending inventory consists of:
Inventory acquired before July 1, 2015 (1,500,000 FC × $0.55) ………… $ 825,000
Inventory acquired in the first quarter of 2017 (6,500,000 FC × $0.62) . 4,030,000
$4,855,000
Note B—Depreciable assets consists of the following:
Assets acquired prior to July 1, 2015 (30,000,000 FC × $0.55) …………. $16,500,000
Assets acquired on April 1, 2017 (4,000,000 FC × $0.64) ………………… 2,560,000
$19,060,000
Accumulated depreciation consists of:
Problem 11-9, Continued
Depreciation expense consists of:
Assets acquired prior to July 1, 2015
Note C—The translated balance of retained earnings is as follows:
Balance on July 1, 2015 (2,520,000 FC × $0.55) …………………………….. $1,386,000
Last 6 months, 2015 income ………………………………………………………… 1,610,000
2016 Income ……………………………………………………………………………… 1,860,000
Retained earnings, December 31, 2016 …………………………………………. $4,856,000
11–37 Ch. 11—Problems
Problem 11-9, Continued
Consolidating the Foreign Subsidiary
Balfour Corporation and Tobac, Inc.
Worksheet for Consolidated Financial Statements (in dollars)
For Year Ended December 31, 2017
Eliminations Consolidated Consolidated
Trial Balance
and Adjustments Income Balance
Balfour
Tobac Dr Cr Statement Sheet
Cash ……………………………………………………………. 4,463,200 2,006,800 …………….. ………..…… ………………… 6,470,000
Net Accounts Receivable ……………………………….. 15,350,000 7,800,000 …………….. …………….. ………………… 23,150,000
Depreciable Assets ……………………………………….. 68,000,000 19,060,000 …………….. ………….…. ………………… 87,060,000
Equipment ……………………………………………………. ……………… ………………. (D/A) 1,650,000 …………….. ………………… 1,650,000
Accumulated Depreciation ……………………………… (42,000,000) (6,792,000) …………….. (D/A) 412,500 ..………………. (49,204,500)
Due to Balfour ………………………………………………. ……………… (1,356,800) (LN1) 1,356,800 …………….. ………………… ……………….
Exchange Gain on Balfour Loan ……………………… ……………… (20,615) …………….. …………….. (20,615) ……………….
Other Expenses ……………………………………………. 10,000,000 3,358,452 (D/A) 165,000 …………….. 13,523,452 ……………….
Interest Income …………………………………………….. (76,800) ………………. (LN2) 76,800 …………….. ………………… ……………….
Subsidiary Income …………………………………………. (3,495,363) ………………. (CY1) 3,495,363 …………….. ………………… ……………….
Problem 11-9, Concluded
Eliminations and Adjustments:
(CY1) Eliminate the subsidiary income account against the investment account.
(EL) Eliminate the subsidiary’s January 1, 2017, equity balances against the investment account.
(D/A) Distribute the excess of cost over book value and record appropriate amortization.
Cost to acquire subsidiary …………………………………………………………… 33,000,000 FC
Book value of subsidiary ……………………………………………………………… 30,000,000
Excess of cost over book value ……………………………………………………. 3,000,000 FC
Annual depreciation of excess (3,000,000 FC ÷ 10) ……………………….. 300,000 FC
Accumulated depreciation of excess at December 31, 2016
(300,000 FC × 1.5 years) ……………………………………………………….. 450,000 FC
