CHAPTER 20 MULTIPLE CHOICE 20-1:
b Bad debt expense (S$ 6,000 x P28.20) P169,200 Amortization of patents (S$ 4,000 x P28.20) 112,800 Rent expense (S$ 10,000 x P28.20) 282,000 Total P564,000 Average rate (P28.20) is used to translate all expenses since this is a reasonable estimation.
20-2:
b Machinery [(24,000 Ringgit ÷ 10) x P10.42] Equipment [(12,000 Ringgit ÷ 10) x P10.42] Total depreciation
20-3:
d Accounts receivable Prepaid expenses Property and equipment (net) Total
20-4:
P 25,008 12,504 P 37,512
P120,000 55,000 275,000 P450,000
a Depreciation expense (H$ 12,000 x P5.80) Bad debts (H$ 8,000 x P5.80) Rent (H$ 20,000 x P5.80) Total
P 69,600 46,400 116,000 P232,000
Average rate for the year is used in translating depreciation expense because this is more reasonable estimation than the rate when the related asset was acquired (P4.80). 20-5:
d [25,000 LCU x (1 ÷ 2)]
20-6:
20-7:
d Long-term receivable: [1,500,000 LCU x (1 ÷ 1.5 LCU)]
P1,000,000
Long-term debt: [2,400,000 LCU x (1 ÷ 1.5 LCU)]
P1,600,000
b (NT Dollar 10,000 x P1.70)
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20-8:
20-9:
b Beginning inventory Purchases Goods available for sale Ending inventory Cost of goods sold
40,000 Rupee 300,000 340,000 30,000 310,000 Rupee
Translated cost of goods sold (310,000 Rupee x P.5745)
P178,095
c Net assets, 1/1/05 Increase in net assets: Net income, 2005 (30,000 – 20,000) Net assets 12/31/05 Net assets at current rate Translation adjustment, 2005 (positive)
NZ Dollar 20,000
Rate P15
Phil Peso P300,000
10,000 30,000 30,000
P19
190,000 P490,000 630,000 P140,000
P21
20-10: b Equipment [800,000 x (1 ÷ 50)]
P16,000
Accumulated depreciation [560,000 x (1 ÷ 50)]
P11,200
Depreciation [80,000 x (1÷ 50)]
P 1,600
20-11: a (25,000 Rupee x P1.24) 20-12: d (5,000 Rupee x P1.30) 20-13: c Investment cost, Jan. 1, 2005 Less: Book and fair value of net assets acquired (300,000 Rp x P1.20) Goodwill Goodwill Impairment Balance
Pesos P42,000 4,340 (3,500 Rp x P1.24) P37,660
Translated balance (31,500 Rp x P1.32) Less: umimpaired goodwill Translation adjustment
P402,000 360,000 P 42,000 Rupee 35.000 (P42,000 / P1.20) 3,500 31,500 P41,580 37,660 P 3,920
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20-14: b Translation adjustment from translating the trial balance Translation adjustment from translating goodwill (per 20-13) Total translation adjustment
P12,000 Cr 3,920 Cr P15,920
20-15: b Investment in Subsidiary account, Jan. 1, 2005 Share in subsidiary net income [(800,000 yen x 70%) x P.57] Translation adjustment (P25,000 x 70%) Share of subsidiary dividends [(50,000 yen x 70%) x P.59] Investment in Subsidiary account, December 31, 2005
P1,600,000 319,200 17,500 ( 20,650) P1,916,050
20-16: d 20-17: a Initial inventory transfer date: Selling price Cost Profit Balance sheet date (75,000 x 1.70) 20-18: a
Phil Peso
Thailand Baht
P120,000÷1.60 (80,000) 40,000
75,000 B
127,500
75,000 B
(P127,500 – 40,000)
20-19: a Net asset beginning Net income Net asset translated at rate: During the year At end of year
Yen 200,000 200,000 400,000 400,000
Exchange Rate .44 .46 .48
Translation adjustment (credit) 20-20: a
Phil Peso 88,000 92,000 180,000 192,000 (12,000)
(70,000 rupee x P1.50)
20-21: c Investment cost Book value of interest acquired (1,100,000 x 1.10) x .80 Goodwill
P1,210,000 968,000 242,000
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PROBLEMS Problem 20-1 a. Pilipino Company Translation Working Paper December 31, 2005 Cash Accounts receivable Inventory Plant and equipment Cost of sales Operating expenses Depreciation expenses Total Accumulated Other Comprehensive Income Translation Adjustment Total debits Accumulated depreciation Accounts payable Common stock Retained earnings, Jan. 1 Sales Total credits
Yen 40,000 120,000 100,000 700,000 360,000 140,000 60,000 1,520,000
Exchange Rate .40 CR .40 CR .40 CR .40 CR .425 AR .425 AR .425 AR
Phil. Pesos 16,000 48,000 40,000 280,000 153,000 59,500 25,500 622,000 25,000 647,000
240,000 80,000 200,000 400,000 600,000 1,5200,000
.40 .40 .44 .44 .425
CR CR HR HR AR
P96,000 32,000 88,000 176,000 255,000 647,000
CR – Current Rate AR – Average Rate HR – Historical Rate
b. Proof of Translation Adjustment Yen Net assets at beginning of year Adjustment for changes in net assets Position during year Net income for the year Net assets translated at rates in effect For those items Net assets at end of year Change in translation adjustment during year (to OCI) – net decrease (debit)
600,000
Translation Rate .44
Phil. Pesos
40,000
.425
17,000
640,000
.40
281,000 256,000
264,000
25,000
Accumulated OCI – translation adjustment,1/1
-0-
Accumulated OCI – translation adjustment, Dec. 31 (debit)
25,000
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Problem 20-2 (1)
Trial Balance Translation
Cash Accounts receivable (net) Receivable from Davao Inventory Plant and equipment Cost of goods sold Depreciation expense Operating expenses Dividends paid Total debits
Thailand Baht 7,000 20,000 5,000 25,000 100,000 70,000 10,000 30,000 15,000 282,000
Translation Rate 1.60 CR 1.60 CR 1.60 CR 1.60 CR 1.60 CR 1.50 AR 1.50 AR 1.50 AR 1.54 HR
10,000 12,000 50,000 60,000 150,000 282,.000
1.60 1.60 1.80 1.46 1.50
Accumulated depreciation Accounts payable Bonds payable Common stock Sales Total Accumulated other comprehensive Income – Translation adj. (credit) Total credits
Philippine Pesos 11,200 32,000 8,000 40,000 160,000 105,000 15,000 45,000 23,000 439,300
CR CR CR HR AR
16,000 19,200 80,000 87,600 225,000 427,800 11,500 439,300
CR – Current Rate AR – Average Rate HR – Historical Rate
(2)
Proof of Translation Adjustment
Net assets at beginning of year Adjustments for changes in net asset position during year: Net income for year (sch. 1) Dividends paid Net assets translated at: Rates during year Rates at end of year Change in OCI – translation adj. during year – Net increase Accumulated OCI – translation adjustment – Jan. 1 Change in OCI – translation adjustment, Dec. 31 (credit)
Thailand Baht 60,000
Translation Rate 1.46
Philippine Pesos 87,600
40,000 (15,000)
1.50 1.54
60,000 (23,100)
85,000
1.60
124,500 136,000 11,500 -011,500
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Schedule 1: Sales Cost of goods sold Depreciation expense Operating expenses Net income
150,000 Thailand Baht ( 70,000) ( 10,000) ( 30,000) 40,000 Thailand Baht
(b) The change in the translation adjustment of P11,500 is included as a credit in the other comprehensive income on the Statement of Comprehensive Income. The other comprehensive income is then accumulated and reported in the stockholders’ equity section of the consolidated balance sheet as presented below: Net assets
P136,000
Common stock Retained earnings, Dec. 31 Accumulated Other Comprehensive Income Total
P 87,600 36,900 11,500 P136,000
Problem 20-3 a.
Translation Work paper
Cash Accounts receivable Inventory Plant and equipment Cost of sales Operating expenses Depreciation expense Dividends Total debits Accumulated depreciation Accounts payable Common stock Retained earnings, Jan. 1 Sales Total Accumulated OCI – Translation Adjustment Total credits
Brunei $ 1.600 2,500 4,000 35,000 17,000 7,000 3,000 1,500 71,600 9,000 2,600 20,000 10,000 30,000 71,600
Exchange Rate 33 CR 33 CR 33 CR 33 CR 31 AR 31 AR 31 AR 32 HR
Philippine Pesos 52,800 82,500 132,500 1,155,000 527,000 217,000 93,000 48,000 2,307,300
31 33 30 30 31
297,000 85,800 600,000 300,000 930,000 2,212,800
AR CR HR HR AR
94,500 2,307,300
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Proof of Translation Adjustment (not required) Brunei $ Net assets at beginning of year Adjustment for net assets position during the year: Net income Dividends paid Net assets translated at rates in effect for those items Net assets at end of year Change in translation adjustment during Year to OCI – net increase (credit) Accumulated OCI – translation adj. 1/1 Accumulated OCI – translation Adjustment – 12/31 (credit)
b.
Translation rate
30,000
30
Philippine Pesos 900,000
3,000 (1,500)
31 32
93,000 (48,000)
31,500
33
945,000 1,039,500 94,500 -094,500
Parent Company entries affecting Investment in Moslem Co. (equity method)
Jan. 2:
Oct. 15:
Investment in Moslem Co. Cash To record investment cost. Cash
900,000 900,000 48,000
Investment in Moslem Co. To record dividends received Dec. 31:
48,000
Investment in Moslem Co. Investment income To record equity in income of Moslem
93,000
Investment in Moslem Co. Other Comprehensive Income – Translation adjustment To record parent’s share of change in translation Adjustment
94,500
93,000
94,500
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Problem 20-4 UK Company Translation Working Paper Year Ended December 31, 2005 In Pounds Income Statement Sales Cost of sales Depreciation expense Other expenses Net income carried forward Retained Earnings Statement Balance, 1/1 Net income from above Balance, 12/31 Balance Sheet Cash Accounts receivable Inventories, at cost Prepaid expenses Property, plant and equipment (net) Total assets Accounts payable Current portion of long-term debt Long-term debt Capital stock Retained earnings from above Total Cumulative translation adjustment: Balance, 1/1 Current translation adjustment Balance, 12/31 Total liabilities and stockholders’ equity
90,000 (80,000) (1,500) (5,750) 2,750
Exchange Rate P67.50 67.50 67.50 67.50
2,500 2,750 5,250
In Phil. Pesos
(A) (A) (A) (A)
6,075,000 (5,400,000) (101,250) (388,125) 185,625
B F
119,500 185,625 305,125
2,500 4,000 5,500 750 9,000 21,750
67.60 67.60 67.60 67.60 67.60
(C) (C) (C) (C) (C)
169,000 270,400 371,800 50,700 608,400 1,470,300
3,500 500 7,500 5,000 5,250
67.60 67.60 67.60 67.20
(C) (C) (C) (H)
236,600 33,800 507,000 336,000 1,418,525
G 21,750
50,000 1,775 51,775 1,470,300
Translation Code: C = Current rate H = Historical rate A = Average rate B = Balance in Philippine pesos at the beginning of the year. F = Per Income Statement
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Problem 20-5 Goodluck Corporation Foreign Exchange Translation Worksheet Year Ended December 31, 2005
Cash Marketable securities Accounts receivable Inventories Property, plant and equip-net Cost of goods sold Depreciation expense Other expenses Totals
Trial Balance (In Pounds) 15,000 25,000 60,000 80,000 420,000 150,000 40,000 10,000 800,000
Accounts payable Current portion of LT debt Long-term debt Sales Other revenues Capital stock Retained earnings, 1/1 FC translation adjustment Balance, 1/1 Current year Net income
50,000 40,000 120,000 200,000 50,000 250,000 90,000
Totals
800,000
Exchange Rate 0.95 C 0.95 C 0.95 C 0.95 C 0.95 C 0.90 A 0.90 A 0.90 A 0.95 0.95 0.95 0.90 0.90 0,87 G
C C C A A H
G B B
Trial Balance (In Pesos) 14,250 23,750 57,000 76,000 399,000 135,000 36,000 9,000 750,000
Income Statement (In Pesos)
47,500 38,000 114,000 180,000 45,000 217,500 70,000
135,000 36,000 9,000 180,000
570,000 47,500 38,000 114,000
180,000 45,000 217,500 70,000
1,500 36,500 750,000
Balance Sheet (In Pesos) 14,250 23,750 57,000 76,000 399,000
(45,000)
1,500 36,500 45,000
180,000
570,000
Translation Code: A = Average rate B = Current rate H = Historical rate G = Given B = Balancing amount
Problem 20-6 a. Direct and indirect exchange rates January 1, 2007 December 31, 2007 December 31, 2008
Direct A$ P.03333=1 P.02857=1 P .025=1
Indirect A$30=P1 A$35=P1 A$40=P1
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The peso strengthened during 2007 because the number of A$ one Phil. Peso could acquire at the end of the year (35) is greater than the number of A$ that could be acquired at the beginning of the year (30); therefore, the value of the peso has increased relative to the A$ during 2007. The peso continued to strengthen during 2008. b. Translated December 31, 2007, balance sheet: Subsidiary’s Trial Balance _ (in A$)__ A$ 100,000 400,000 680,000 1,000,000 R 2,230,000
Cash Receivables Inventory Fixed assets Total Accumulated other comprehensive income – translated adjustment (debit) Total debits
Current payables Long-term debt Common stock Retained earnings Total credits
A$ 260,000 1,250,000 500,000 220,000 A$2,230,000
Direct Exchange Rate P.02857 P.02857 P.02857 P.02857
Translated Trial Balance ( in $)___ P 2,857 12,857 19,428 28,570 P 63,712
2,903 P 66,615 P.02857 P.02857 P.03333 P.03333
P 7,428 35,713 16,665 6,809 P 66,615
P.03333= average of beginning and ending exchange rates, rounded to 4 decimal points: P.030945= [(P.03333 + P.02856) /2] (Not required: Proof of translation adjustment (debit) of P 2,903) ___A$___ Net assets, 1/1/07 A$ 500,000 Adjustment for changes in net assets during year: Net income 220,000 Net assets translated at: Rates during year Rates at end of year A$ 720,000 Change in translation Adjustment during year (debit)
Translation _ Rate_ P.03333 P.03095 P.02857
_Dollars_ P 16,665 6,809 P 23,474 (20,570) P 2,904*
*Difference of P1 (P 2,904 – P 2,903) due to rounding of exchange rates.
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c. Translated December 31, 2008, balance sheet:
Cash Receivables Inventory Fixed assets Accumulated other comprehensive incometranslation adjustment (debit) Total debits
Subsidiary’s Trial Balance (in A$) A$ 80,000 550,000 720,000 900,000 A$ 2,250,000
Direct Exchange __Rate P.025 P.025 P.025 P.025
Translated Trial Balance (in P)__ P 2,000 13,750 18,000 22,500__ P56,250 5,635___ P61,885
(a)The retained earnings in pesos would begin with the December 31, 2007, peso balance (P6,809) that would be carried forward. To this would be added 2008’s net income of A$90,000, which is the change in retained earnings in A$ multiplied by the 2008 exchange rate of P.02679 [(P.02857 + P.025/2)] which equals P2, 411. Therefore, translated retained earnings on December 31, 2008, is P9, 220 (P9, 220= P6, 809 + P2, 411) (Not required: Proof of translation adjustment (debit) of P5, 635) Australian Dollar A$ 720,000
Net assets, 1/1/08 Adjustment for changes in net assets during year: Net income 90,000 Net assets translated at: rates during year Other comprehensive incomerate at end of year A$ 810,000 Change in other comprehensive income- translation adjustment during year (debit) Accumulated other comprehensive income- translation adjustment, 1/1/08 Accumulated other comprehensive income- translation adjustment, 12/31/08 (debit) d.
Translation _ Rate P.02857 P.02679
Pesos___ P20, 570 2,411___ P22, 981
P.025
(20,250)__ P2, 731 2,904___ P5, 635
The P2, 731 change in the accumulated other comprehensive income- translation adjustment during 2008 would be reported as a component of other comprehensive income on 2008 statement of other comprehensive income.
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