SMch14Beams

Chapter 14 FOREIGN CURRENCY FINANCIAL STATEMENTS Answers to Questions 1

A company’s functional currncy is t! currncy of t! primary conomic n"ironmnt in #!ic! it oprats$ It is normally t! currncy in #!ic! it rci"s most of its paymnts from customrs customrs an% in #!ic! it pays most most of its lia&ilitis$ Ot!r factors t!at ar consi%r% in %trminin' t! functional currncy inclu% #!t!r its sals prics ar %trmin% primarily &y local comptition comptition or local 'o"rnmnt r'ulation insta% of s!ort(run )c!an' rat c!an's or #orl%#i% mar*ts$ T! functional currncy %trmination +local currncy or parnt currncy or som ot!r currncy, is critical in %trminin' #!at approac! to con"rtin' financial statmnts to t! ultimat rportin' currncy is us%- t! currnt rat or t! tmporal tmporal mt!o%$ If t! functional functional currncy is t! local currncy. currncy. t! currnt rat mt!o% is us%$ us%$ If it is t! parnt currncy. t! tmporal tmporal mt!o% is us%$ us%$ If it is som ot!r currncy. t!n &ot! approac!s may n% to & us%$

2

A !i'!ly inflationary conomy un%r GAA/ is on t!at !as cumulati" inflation of appro)imatly 011 prcnt or mor o"r a t!r(yar prio%$ T! functional currncy is assum% to & t! rportin' currncy +for U$S$ companis. t! %ollar, #!ic! mans t!at t! fori'n currncy financial statmnts must & rmasur% into t! %ollar usin' t! tmporal mt!o%$ T! ffct ffct of t! !yprinflation is t!n rflct% in t! currnt yar’s consoli%at% incom statmnt #!ic! #oul% not & t! cas if t! currnt rat mt!o% #r #r us%$ 2u%'mnt 2u%'mnt must & )rcis% )rcis% in applyin' applyin' t!is rul to a"oi% c!an'in' c!an'in' functional functional currncis fr3untly %u to minor %iffrncs in t! inflation rat $

3

T! functional functional currncy currncy of a fori'n fori'n su&si%iary su&si%iary %os not affct affct t! ori'inal ori'inal rcor%in' rcor%in' of t! &usinss &usinss com&ination$ T!is is &caus all assts. lia&ilitis. an% 3uitis of t! fori'n su&si%iary ar con"rt% into U$S$ U$S$ %ollars %ollars at t! currnt currnt )c!an' )c!an' rat rat in ff ffct ct on t! %at of consumm consummati ation on of t! &usin &usinss ss com&inati com&ination$ on$ As a rsult. no spcial proc%ur proc%ur must & appli% appli% at t! %at of ori'inal ori'inal rcor%in' rcor%in' of a fori'n su&si%iary$

4

T! currnt rat mt!o% is us% #!n t! fori'n su&si%iary’s local currncy is %trmin% to & t! su&si%iary su&si%iary’s ’s functional functional currncy$ currncy$ T! su&si%iary su&si%iary’s ’s financial statmnts statmnts must & translat% usin' t! currnt rat mt!o% into t! rportin' ntity’s currncy +typically +typically t! parnt’s currncy,$

5

T! tmporal mt!o% is us% #!n t! fori'n su&si%iary’s currncy is %trmin% to & t! rportin' ntity’s ntity’s currncy currncy +typicall +typically y t! parnt’s parnt’s currncy,$ currncy,$ T! su&si%iary’ su&si%iary’ss financial financial statmnts statmnts must & rmasur% usin' t! tmporal mt!o% into t! rportin' ntity’s currncy$

6

Sinc t! functional currncy is not t! parnt’s currncy. no %irct impact on t! rportin' ntity’s +parnt’s, cas! flo#s is is )pct% %u to to )c!an' rat c!an's$ T! ffcts ffcts of )c!an' rat c!an's ar rflct% in t! consoli%at% statmnt’s accumulat% compr!nsi" incom account insta% of &in' inclu%% in t! incom statmnt$

7

Sinc t! functional currncy is assum% to & t! rportin' ntity’s +or parnt’s, currncy. a %irct impact on t! parnt’s cas! flo#s is )pct% %u %u to )c!an' rat c!an's$ T! ffcts ffcts of )c!an' rat c!an's ar rflct% in t! consoli%at% incom statmnt$

8

A fori'n su&si%iary’s financial statmnts coul% & &ot! translat% an% rmasur% if t! ntity’s &oo*s ar maintain% in a %iffrnt currncy t!an t! functional currncy an% t! functional currncy is not t! rportin' ntity’s local local currncy$ In t!is cas. t! ntity’s ntity’s financial statmnts statmnts must & rmasur% into t! functional functional currncy usin' usin' t! tmporal mt!o%$ mt!o%$ T! 'ain or loss on rmasurm rmasurmnt nt is inclu%% in incom$ incom$ T! functional functional currncy currncy financial financial statmnts statmnts ar t!n translat% into t! rportin' rportin' ntity’s ntity’s currncy currncy usin' t! currnt currnt rat mt!o%$ mt!o%$ T! 'ain or loss on t! translation is inclu%% inclu%% in accumulat accumulat% % ot!r compr!nsi" incom$ incom$ In t!is situation. t! consoli%at% financial statmnts #oul% #oul% inclu% &ot! a

142

Foreign Currency Financial Statements

rmasurm rmasurmnt nt 'ain or loss in incom incom an% t! a translation translation a%4ustmnt a%4ustmnt inclu%% inclu%% in accumulat accumulat% % ot!r compr!nsi" incom$ 9

No. it #oul% not & appropriat to us t! an nual a"ra' )c!an' rat$ T!ortically. t! )c!an' rat at t! %at %at ac! ac! transac transactio tion n occur occurss s!oul% s!oul% & us%$ us%$ Gi"n Gi"n t!at t!is is not practi practical cal.. rason rasona&l a&l assumptions assumptions ar ma% concrn concrnin' in' #!at )c!an' rat to us$ us$ T! us of an a"ra' a"ra' )c!an' )c!an' rat is appropriat #!n sals ar arn% "nly %urin' t! yar an% )pnss ar incurr% "nly %urin' t! yar$ A rasona&l assumption for a !oli%ay tr 'ro#r 'ro#r #oul% & to us t! a"ra' )c!an' rat %urin' t! 3uartr from Octo&r Octo&r t!rou'! 5cm&r sinc sinc t!os ar t! mont!’s t!at trs ar typically typically sol%$ sol%$ For )pns )pnss. s. )aminin' )aminin' t! mont!s mont!s t!at ar t! most la&or la&or intnsi intnsi" " +suc! +suc! as plantin plantin'. '. frti frtili6i li6in' n' an% !ar"stin', an% usin' a rasona&l #i'!tin' of t!os mont!s )c!an' rats #oul% & a rasona&l #ay of %trminin' t! rat for t!os costs$

10

T! parnt purc!as% t! su&si%iary for an amount in )css of &oo* "alu$ T!is )css #as #as attri&uta&l to an unrcor%% patnt$ Rcall t!at t! )css amount amount #oul% not & inclu%% on t! su&si%iary’s su&si%iary’s &oo*s$ &oo*s$ T! consoli%at% financial statmnts. !o#"r. #oul% #oul% inclu% &ot! t! amorti6ation of t! patnt an% t! patnt$ Sinc t! currnt rat mt!o% is &in' us%. t! impact of t! c!an' in )c!an' rats on t! patnt an% t! amorti6ation is inclu%% in t! translation a%4ustmnt to & inclu%% in consoli%at% compr!nsi" incom$ T! su&si%iary’s su&si%iary’s translation a%4ustmnt #oul% not inclu% t!is &caus t! patnt #as #as not inclu% inclu%% % in t! &oo*s$ &oo*s$ T!us. T!us. t! consol consoli%a i%at% t% translati translation on a%4ust a%4ustmn mntt is lar'r lar'r t!an t! su&si%iary’s translation a%4ustmnt$

11

T! tmpor tmporal al mt!o% mt!o% r3uir r3uirs s rmas rmasuri urin' n' )pns )pnss s of a fori' fori'n n su&si su&si%ia %iary ry$$ E)pns E)pnss s rlat rlat% % to montary itms ar rmasur% rmasur% at appropriatly #i'!t% #i'!t% a"ra' )c!an' rats for t! prio%$ T!os typs of )pnss ar it!r pai% in cas! or rcor%% as lia&ilitis #!ic! #ill r3uir t! "ntual paymnt of cas!$ T!os T!os t!at rlat to nonmontary itms itms ar rmasur% rmasur% at !istorical !istorical )c!an' )c!an' rats$ E)pnss E)pnss rlat% to nonmontary itms #oul% & t!os rlat% to in"ntory an% plant assts$ Un%r t! currnt rat mt!o%. all accounts ar translat% at t! #i'!t% a"ra' rat$

12

If t! functional currncy is su&si%iary’s su&si%iary’s local currncy. currncy. t! currnt rat mt!o% is us%. an% t! 'ain or loss on t! !%' of a nt in"stmnt in a fori'n su&si%iary is rport% in ot!r compr!nsi" incom$ If t! functional functional currncy is t! parnt’s currncy. currncy. t! tmporal tmporal mt!o% is us%. an% t! 'ain or loss is inclu%% in currnt prio% incom$

Pearson Education, Inc. publishing as Prentice Hall

07(3

Chapter 14

SOLUTIONS TO EXERCISES Solution E14-1 1 2 3 4 5 6

c a c a b b

7 8 9

c b a

4 5

b a

Solution E14-2 [Based on AICPA] 1 2 3

c d d

Solution E14-3 Pai Coman! an" Su#$i"ia%! Consolidated Balance Sheet at Januar !, "#!! Current assets [$3,###,### % $&&#,### ' (!##,###) and [$/##,### ' ("##,###)

×

×

$!.*+]

$",!-+,### !,!3#,###

$!.*+] $!.*+]

!,*!",+##

$!.*+]

!,!*+,###

Buildings 8 net [$!,"##,### ' ("+#,###)

×

E0uip1ent 8 net [$!,###,### ' (!##,###)

×

2oodill [$&&#,### cost % (4+#,###) 5air 6alue

$!.*+]

×

"4-,+##

$*,33#,### Current liabilities [$*##,### ' (+#,###) 7otes paable [$!,###,### ' (!+#,###)

×

$!.*+]

$!.*+]

×

$

*/",+##

!,"4-,+##

Capital stoc8

3,###,###

9etained earnings

!,4##,### $*,33#,###



144

Solution E14-4 Foreign currency statements

In6entor ill be carried at the !#,### euros historical cost. Remeasured statements (Temporal Method)

In6entor ill be carried at cost o5 $+,3##. Under translated statements (Current Rate Method)

In6entor ill be carried at ear%end current rate o5 $*,###. Solution E14-5 1

Patent at ac0uisition o5 Si1 Cost o5 Si1 Boo8 6alue ac0uired: (3+,###,### Euros Patent in dollars

$.#3#

×

$!,"##,### !,#+#,### $

Patent in Euros ($!+#,###;$.#3# 2

!+#,### +,###,### Eu

Patent a1orti
3

×

$.#3" a6erage $

!*,###

Entr to record patent a1ortiust1ent 5ro1 translation o5 Patent

$!*,### 3,### !&,###

?o record patent a1ortiust1ent 5ro1 translation o5 patent co1puted as 5ollos: Beginning patent +,###,### Euros $.#3# $ !+#,### A1ortiust1ent !&,### Ending patent 4,+##,### .#34 $ !+3,###


07(+

Chapter 14

Solution E14-6 Preli1inar co1putations Cost o5 in6est1ent in Sta Boo8 6alue ac0uired (&#,### ) E@cess in dollars

$!*3,/## !4&,4##

$!.**

×

E@cess allocated to e0uip1ent (*,### )

$ !4,4## $

$!.**

×

Patent

1

&,&*#

$ 4,44# $ !4,4##

E0uit ad>ust1ent 5ro1 e@cess allocated to e0uip1ent on ece1ber 3!, "#!! epreciation o5 e@cess based on ) (*,###;3 ears

",### )

ndepreciated e@cess balance at ear%end based on ) (4,### ) × $!.*4 current rate Add: epreciation on e@cess based on ) 8 "#!! ",### )

$!.*+ a6erage rate

×

$

*,+*#

3,3## &,/*# &,&*#

ess: Beginning e@cess based on .S. dollars E0uit ad>ust1ent 5ro1 translation o5 e@cess allocated to e0uip1ent (loss 2

$

!##

E0uit ad>ust1ent 5ro1 e@cess allocated to patent on ece1ber 3!, "#!!. Patent (1ust be carried in ) $4,44#;$!.** = ",*-+ ) patent Patent a1orti
"*- )

na1orti
(",4#/ ) × $!.*4 current rate Add: A1orti
3,&4& 44!

$!.*+ a6erage rate

×

ess: Beginning patent based on .S. dollars E0uit ad>ust1ent 5ro1 translation o5 patent (loss

$ $ $

4,3&# 4,44# +#

Not required: ?he entr to record the decrease in the e0uit ad>ust1ent related to e0uip1ent and patent ould be as 5ollos:

Inco1e 5ro1 Sta E0uit ad>ust1ent 5ro1 translation (e0uip1ent E0uit ad>ust1ent 5ro1 translation o5 patent In6est1ent in Sta

$3,-4! !## +# $

3,/&!

?o ad>ust the inco1e 5ro1 Sta 5or depreciation on the e@cess allocated to e0uip1ent ($3,3## and a1ortiust1ent 5ro1 translation 5or the 5oreign e@change rate changes.



146

Solution E14-7 P%&limina%! 'omutation$ In6est1ent cost Boo8 6alue ac0uired (!,4##,### Eu × $.-+ e@change rate E@cess cost o6er boo8 6alue ac0uired

$!,3+#,### !,#+#,### $

3##,###

$

3##,###

E@cess on land at Januar !, "#!! ess: E@cess on land at ece1ber 3!, "#!!

$

3##,###

(4##,### Eu × $.-- current rate at ear%end E0uit ad>ust1ent 5ro1 translation % gain (credit

3#/,###

$

/,###

E@cess allocated to under6alued land (4##,### Eu

$.-+

×

E(uit! a")u$tm&nt *%om t%an$lation on &+'&$$ allo'at&" to lan"

Solution E14-8 [Based on AICPA] 1

a E@change loss o5 $!+,### less an e@change gain on the account paable o5 $4,### ($*4,### original paable % $*#,### ear%end ad>usted balance = $!!,### loss.

2

b ?ranslated at historical rate: "+,###;"." = $!!,3*4

3

d epreciation on the propert, plant, and e0uip1ent is co1puted as 5ollos: Propert, Plant and E0uip1ent " #!! ",4# #, ## # C " #!" !," ## ,# ##  C

÷ ÷

E@change Propert, Plant 9ate and E0uip1ent !.* = $!,+##,### !./ = ***,**-

3,*##,### C

÷ ÷

A1orti
$",!**,**-

$"!*,**-

4

a +.- C to $!, the rate in e55ect hen the di6idend as paid.

5

d ong%ter1 recei6ables !,+##,### C ong%ter1 debt ",4##,### C

÷

!.+ =

!.+ =

÷

6

c All three accounts are translated at current rates.

7

c Cu1ulati6e in5lation rate = (33# % !+#;!+# = !"#


$!,###,### $!,*##,###

07(-

Chapter 14

SOLUTIONS TO PRO,LES Solution P14-1 1

Pa8Ds inco1e 5ro1 Sco 5or "#!! In6est1ent cost o5 4# interest in Sco ess: Boo8 6alue ac0uired ($",4##,### Patent in dollars at ac0uisition

$!,#/#,### (&*#,### 

4#

×

$

Patent in euros at ac0uisition $!"#,###;$.*# e@change rate = E0uit in ScoDs inco1e ($3!#,### Patent a1orti
"##,### euros 4#

×

"##,### euros;!# ears × $.*" a6erage rate Inco1e 5ro1 Sco 5or "#!!

2

!"#,###

$

!"4,###

(!",4## 

$

!!!,*##

In6est1ent in Sco at ece1ber 3!, "#!! In6est1ent cost Add: Inco1e 5ro1 Sco

$!,#/#,### !!!,*## (-*,/##

ess: i6idends ($!&",### × 4# Add: E0uit ad>ust1ent 5ro1 translation ($"!",### × 4# Add: E0uit ad>ust1ent 5ro1 patent co1puted as: Beginning balance $!"#,### ess: Patent a1orti

/4,/##

&,4## $!,"#&,###

Proo5 o5 in6est1ent balance 7et assets at ece1ber 3!, "#!! o5 $",-3#,### Add: na1orti
×

4#

×

$.*+


$!,#&",###

!!-,###

$!,"#&,###


148

Solution P14-2 1

2

E@cess Patent at Januar !, "#!!: Cost Boo8 6alue o5 interest ac0uired

$34",###

(4,###,### Cs × $.!+ × 4# E@cess Patent E@cess Patent in Cs $!#",###;$.!+ = */#,### Cs

("4#,###

E@cess Patent a1orti
3

$.!4 a6erage

×

$

&,+"#

na1orti
4

$!#",###

×

$.!3 current rate

$ -&,+*#

E0uit ad>ust1ent 5ro1 E@cess Patent: Beginning balance in .S. dollars ess: A1ortiust1ent 5ro1 E@cess Patent

$!#",### (&,+"# (-&,+*#  $ !",&"#

Alternati6el, */,### Cs

×

*!",### Cs

($.!+ % $.!4 = ($.!+ % $.!3 =

×

$

*/#

!","4# $!",&"#

5

Inco1e 5ro1 Sor 8 "#!!: E0uit in inco1e ($!!",### × 4# ess: E@cess Patent a1orti
6

$ 44,/## (&,+"#  $ 3+,"/#

In6est1ent in Sor balance at ece1ber 3!, "#!!: Cost Januar ! Add: Inco1e "#!! ess: i6idends ($+*,###

4#

×

ess: E0uit ad>ust1ent ($/4,### × 4# ess: E0uit ad>ust1ent 5ro1 E@cess Patent In6est1ent in Sor ece1ber 3!, "#!!

$34",### 3+,"/# ("",4## (33,*## (!",&"#  $3#/,3*#

Chec8: 7et assets $""/,/## ($+-",### × 4# plus $-&,+*# una1orti

07(&

Chapter 14

Solution P14-3 1

Soo Coman!. Lt"/ ?ranslation or8sheet 5or "#!!

Debits Cash Accounts recei6able 8 net In6entories E0uip1ent Cost o5 sales epreciation e@pense Fperating e@penses i6idends Credits Accu1ulated depreciation Accounts paable Capital stoc8 9etained earnings Sales E0uit ad>ust1ent 5ro1 translation

British Pounds

E@change 9ate

"#,### -#,### +#,### /##,### 3+#,### /#,### !##,### 3#,### !,+##,###

$!.*+ !.*+ !.*+ !.*+ !.*3 !.*3 !.*3 !.*"

33#,### -#,### 4##,### !##,### *##,###

C C C C A A A 9

$!.*+ C !.*+ C !.*# H 1easured !.*3

!,+##,### 2

S ollars $

33,### !!+,+## /",+## !,3"#,### +-#,+## !3#,4## !*3,### 4/,*## $",4*3,+## $

+44,+## !!+,+## *4#,### !*#,### &-/,### "+,+## $",4*3,+##

Journal entries 8 "#!! anuary !" #$!! In6est1ent in Soo Cash ?o record purchase o5 Soo at boo8 6alue. During #$!! Cash

$/##,### $/##,###

$ 4/,*##

In6est1ent in Soo ?o record di6idends 5ro1 Soo.

$ 4/,*##

December %!" #$!! In6est1ent in Soo $!3&,*## Inco1e 5ro1 Soo $!!4,!## E0uit ad>ust1ent 5ro1 translation "+,+## ?o record inco1e 5ro1 Soo and enter e0uit ad>ust1ent 5or currenc 5luctuations.

Chec8: In6est1ent in Soo !;! i6idends Inco1e 5ro1 Soo E0uit ad>ust1ent In6est1ent in Soo !";3!

$/##,### (4/,*## !!4,!## "+,+## $/&!,###

Capital stoc8 9etained earnings !;! Add: Inco1e ess: i6idends Stoc8holdersD e0uit Current rate


4##,### ) !##,### ) -#,### ) (3#,### ) +4#,### ) $ !.*+ $/&!,###


1410

Solution P14-4 Preli1inar co1putations In6est1ent cost ess: Boo8 6alue o5 interest ac0uired

$4,###,###

",/##,### (-,###,### euros × $.+# e@change rate × /# interest Patent $!,"##,### Patent in euros ($!,"##,###;$.+# e@change rate = ",4##,### euros Patent a1orti
Sul Co%o%ation ?ranslation or8sheet at and 5or the ear ended ece1ber 3!, "#!!

Debits Cash Accounts recei6able In6entories E0uip1ent Cost o5 sales epreciation e@pense Fperating e@penses i6idends

Euros

!,###,### ",###,### 4,###,### /,###,### 4,###,### /##,### ",-##,### +##,### "3,###,###

Credits ",4##,### Accu1ulated depreciation 8 e0uip1ent Accounts paable 3,*##,### Capital stoc8 +,###,### 9etained earnings, Januar ! ",###,### Sales !#,###,### E0uit ad>ust1ent 5ro1 translation "3,###,###

2

E@change 9ate $.*### .*### .*### .*### .++## .++## .++## .+4##

.S. ollars

C C C C A A A H

*##,### !,"##,### ",4##,### 4,/##,### ","##,### 44#,### !,4/+,### "-#,### $!3,3&+,###

.*### C

$ !,44#,###

.*### .+### .+### .++##

",!*#,### ",+##,### !,###,### +,+##,### -&+,### $!3,3&+,###

C H H A

$

PetDs inco1e 5ro1 Sul 8 "#!! Share o5 SulDs net inco1e ($+,+##,### sales % $","##,### cost o5 sales % $44#,### depreciation % $!,4/+,### operating e@penses Percentage oned

$ !,3-+,### /# 

E0uit in SulDs net inco1e ess: Patent a1orti
!,!##,### ×

$.++ a6erage (!3",###

Inco1e 5ro1 Sul


$

&*/,###

07(!!

Chapter 14

Solution P14-4 3

(continued

In6est1ent in Sul ece1ber 3!, "#!! In6est1ent Januar !, "#!! Add: Inco1e 5ro1 Sul Add: E0uit ad>ust1ent 5ro1 translation ($-&+,### × /# Add: E0uit ad>ust1ent 5ro1 Patent [$!,"##,### Patent at beginning o5 the period % $!3",### Patent a1orti
×

$.*# current rate]

$4,###,### &*/,### *3*,###

(""/,### ("!*,### 

ess: i6idends ($"-#,### × /# In6est1ent in Sul ece1ber 3!, "#!!

$+,!*#,###

Solution P14-5 Sa% Coman! 9e1easure1ent or8sheet at ece1ber 3!, "#!!

British ) Cash Accounts recei6able Short%ter1 note recei6able In6entories and Buildings 8 net E0uip1ent 8 net Cost o5 sales epreciation e@pense Fther e@penses i6idends E@change loss on re1easure1ent

+#,### "##,### +#,### !+#,### 3##,### 4##,### +##,### *+#,### "##,### 4##,### !##,###

E@change 9ate $!.-# !.-# !.-# !.*/ !.*# !.*# !.*# G !.*# !.*+ !.*4

C C C H H H H H H A

3,###,### Accounts paable Bonds paable 8 !# Bond interest paable Capital stoc8 9etained earnings Sales

G

!/#,### +##,### "#,### +##,### 3##,### !,+##,### 3,###,###

$!.-# !.-# !.-# !.*#

C C C H  !.*+ A

.S. ollars $

/+,### 34#,### /+,### "+",### 4/#,### *4#,### /##,### !,#+/,### 3"#,### **#,### !*4,### *!,### $4,&4+,### $

3#*,### /+#,### 34,### /##,### 4/#,### ",4-+,### $4,&4+,###

Cost o5 sales = Beginning in6entor ("##,### ) × $!.*# ' purchases (*##,### ) $!.*+ % ending in6entor (!+#,### ) × $!.*/ = $!,#+/,###


×


1412

Solution P14-6 Stu Co%o%ation 9e1easure1ent or8sheet ece1ber 3!, "#!! 7e ealand ollars Debits Cash Accounts recei6able 8 net In6entories Prepaid e@penses and E0uip1ent Cost o5 sales epreciation e@pense Fther operating e@penses i6idends 9e1easure1ent loss

E@change 9ate

!+,### *#,### 3#,### !#,### 4+,### *#,### !"#,### !",### "/,### "#,###

$ #.*+ #.*+ #.** #.-# #.-# 7ote ! 7ote " 7ote 3 7ote 4 #.**

.S. ollars

C C H H H     H

$

&,-+# 3&,### !&,/## -,### 3!,+## 4!,/## /","## /,3*# !&,### !3,"## !,4+# $"-3,#*#

7ote +  $ #.*+ C #.-# H  #.*- A

$ !+,3*# !!,-## !#+,### -,### !34,### $"-3,#*#

4##,### Credits Accu1ulated depreciation Accounts paable Capital stoc8 9etained earnings Sales

7ote !

Friginal e0uip1ent (+#,### 7$ "##* (!#,### 7$

7ote "

"",### !/,### !+#,### !#,### "##,### 4##,###

×

×

$.-# ' e0uip1ent purchased in

$.*/

Beginning in6entor (+#,### 7$

$.-# ' purchases (!##,### 7$

×

$.*- % ending in6entor (3#,### 7$ 7ote 3

$.**

×

epreciation on original e0uip1ent (+#,### 7$ depreciation on ne e0uip1ent (!#,### 7$

7ote 4

×

$.-# '

×

$.*/

Fther operating e@penses consist o5 the prepaid supplies used (/,### 7$

7ote +

"#

×

"#

×

×

$.-# ' current ear outlas ("#,### 7$

$.*-

×

Accu1ulated depreciation on the original e0uip1ent ("#,### 7$ $.-# ' accu1ulated depreciation on the e0uip1ent purchased (",### 7$

×

$.*/


×

×

07(!3

Chapter 14

Solution P14-7 1

Sa% Coman! ?ranslation or8sheet at and 5or the ear ended ece1ber 3!, "#!! She0els Debits Cash ?rade recei6ables In6entories and E0uip1ent 8 net Buildings 8 net E@penses E@change loss (ad6anceG i6idends E0uit ad>ust1ent ?otal Credits Accounts paable Fther liabilities Ad6ance 5ro1 Pel Co11on stoc8 9etained earnings Januar ! Sales ?otal G

2

?ranslation 9ate

4#,### +#,### !+#,### !*#,### 3##,### +##,### 4##,### "#,### !##,###

$.3# .3# .3# .3# .3# .3# .3" .3" .33

C C C C C C A A 9

$ !",### !+,### 4+,### 4/,### &#,### !+#,### !"/,### *,4## 33,### 4#,*## $+*/,###

$.3# .3# .3# .3+ .3+ .3"

C C C H H A

$ 3*,### !/,### 4",### !-+,### !#+,### !&",### $+*/,###

!,-"#,### !"#,### *#,### !4#,### +##,### 3##,### *##,### !,-"#,###

.S. $

Sar increased its ad6ance b "#,### she0els and recogni
Journal entries to account 5or the in6est1ent in Sar: anuary !" #$!! In6est1ent in Sar $3#/,### Cash ?o record the in6est1ent in Sar Co. anuary #" #$!! Ad6ance to Sar $ 4",### Cash ?o record ad6ance to Sar deno1inated in .S. dollars. une #$!! Cash

$3#/,###

$ 4",###

$ 33,### In6est1ent in Sar

$ 33,###

?o record receipt o5 di6idends (!##,### she0els December %!" #$!! In6est1ent in Sar E0uit ad>ust1ent 5ro1 translation Inco1e 5ro1 Sar ?o record e0uit in Sar. Inco1e 5ro1 Sar E0uit ad>ust1ent 5ro1 translation In6est1ent in Sar

×

$.33.

$ !-,### 4#,*## $ +-,*## $

",+*# 3,/4#


$

*,4##

1414


?o record e0uit ad>ust1ent 5ro1 Patent a1orti
×

$.3" rate = $",+*#

Ending balance -",### she0els × $.3# rate = $"!,*## $"/,### beginning balance % $"!,*## ending balance = $*,4##


07(!+

Chapter 14

Solution P14-8 Preli1inar co1putations In6est1ent cost o5 SAA Boo8 6alue ac0uired (/,###,### C Patent

×

$!,-!#,### (!,+"#,###

$.!&#

$

Patent based on C ($!&#,###;$.!&# A1orti
!&#,### !,###,### C !##,### C

$.!/+

×

$

!/,+##

$

!*",###

$

&,+##

na1orti
$.!/#

×

E0uit ad>ust1ent 5or Patent 5or "#!!: Beginning balance ess: A1orti
$!&#,### (!/,+## (!*",###

9econciliation o5 in6est1ent account: In6est1ent in SAA Januar !, "#!! Add: Inco1e 5ro1 SAA 5or "#!! ($3*#,-+# % $!/,+## Patent a1ortiust1ent 5ro1 translation ($/4,-+# E0uit ad>ust1ent 5ro1 Patent i6idends 5ro1 SAA In6est1ent in SAA ece1ber 3!, "#!!

!##

×

$!,-!#,###

34","+# (/4,-+#

(&,+## (!/+,###  $!,--3,###



1416

Solution P14-8 (continued 1

Journal entries to account 5or the in6est1ent in SAA anuary !" #$!! In6est1ent in SAA $!,-!#,### Cash ?o record purchase o5 SAA stoc8 5or cash.

$!,-!#,###

uly !" #$!! Ad6ance to SAA $ 333,### Cash $ 333,### ?o record short%ter1 ad6ance to SAA deno1inated in dollars. &eptember !" #$!! Cash $ !/+,### In6est1ent in SAA $ !/+,### ?o record receipt o5 di6idends hen e@change rate is $.!/+. December %!" #$!! In6est1ent in SAA E0uit ad>ust1ent 5ro1 translation Inco1e 5ro1 SAA ?o record e0uit in inco1e o5 SAA.

$

"-*,### /4,-+# $

3*#,-+#

Inco1e 5ro1 SAA $ !/,+## E0uit ad>ust1ent 5ro1 translation &,+## In6est1ent in SAA $ "/,### ?o record Patent a1ortiust1ent 5ro1 Patent co1puted as 5ollos: Patent a1ortiust1ent: $!&#,### beginning Patent balance % $!/,+## a1orti

×

$.!/#

07(!-

Chapter 14

Solution P14-8 (continued P0 Co%o%ation an" Su#$i"ia%! Consolidation or8ing Papers 5or the ear ended ece1ber 3!, "#!!

PA

Ad>ust1ents and Eli1inations

SAA

Consolidated State1ents

'ncome &tatement

Sales

$

+*&,+##

Inco1e 5ro1 SAA

$!,!!#,###

34","+#

E@penses

$!,*-&,+## a 34","+#

(4##,###

(-4#,### c

E@change loss

!/,+##

(!,!+/,+##

(&,"+#

7et inco1e

$

+!!,-+#

$

/+*,+##

$

(&,"+#

3*#,-+#

$

+!!,-+#

$

/+*,+##

+!!,-+#

Retained arnings

9etained earnings 8 PA

$

9etained earnings 8 SAA

+!!,-+#

7et inco1e i6idends

(3##,###

+-#,###

b +-#,###

3*#,-+#  (!/+,###

a

!/+,###

(3##,###

9etained earnings ece1ber 3!, "#!!

$!,#*/,"+#

$

-4+,-+#

$

$

&&,###

$!,#*/,"+#

alance &heet

Cash

&#,-"#

$

Accounts recei6able

!"/,+##

Ad6ance to SAA

333,###

In6entories

!"#,###

"-#,###

3&#,###

and

!##,###

"//,###

3//,###

E0uip1ent 8 net

*##,###

+4#,###

!,!4#,###

Buildings 8 net

3##,###

&##,###

!,"##,###

In6est1ent in SAA

&#,###

!/&,-"# "!/,+##

d

!,--3,###

a

333,###

!+-,"+#

b !,*!+,-+# Patent

b !/#,+##

Accounts paable

!/,+##

!*",###

$3,44+,""#

$",!/-,###

$3,*//,""#

$

$

$

!*",-"#

Ad6ance 5ro1 PA

!3+,### 333,###

Fther liabilities

3#/,+##

!#/,###

Capital stoc8

",###,###

&+#,###

9etained earnings

!,#*/,"+#

-4+,-+# 

E0uit ad>ust1ent 8 PA

c

d 333,### 4!*,+## b &+#,###

",###,### !,#*/,"+#

(&4,"+#

(&4,"+# (/4,-+#

E0uit ad>ust1ent 8 SAA $3,44+,""#

"&-,-"#

b

/4,-+#

$",!/-,###


$3,*//,""#


1418

Solution P14-9 1

San Co%o%ation Ad>usted ?rial Balance ?ranslation or8sheet at ece1ber 3!, "#!! Cs Debits Cash Accounts recei6able In6entories and Buildings E0uip1ent Cost o5 sales epreciation e@pense Fther e@penses E@change loss i6idends E0uit ad>ust1ent

Credits Accu1ulated depreciation 8 buildings Accu1ulated depreciation 8 e0uip1ent Accounts paable Short%ter1 loan 5ro1 Par Capital stoc8 9etained earnings Januar ! Sales

2

9ate

.S. ollars

!+#,### !/#,### "3#,### "+#,### *##,### /##,### "##,### !##,### !"#,### 3#,### !##,### %%% ",-*#,###

$."# ."# ."# ."# ."# ."# ."" ."" ."" ."" ."!

C C C C C C A A A A 9

$ 3#,### 3*,### 4*,### +#,### !"#,### !*#,### 44,### "",### "*,4## *,*## "!,### 44,### $*#*,###

3##,### 4##,### !3#,### "3#,### /##,### "##,### -##,### ",-*#,###

$."# ."# ."# ."# ."4 ."4 .""

C C C C H H A

$ *#,### /#,### "*,### 4*,### !&",### 4/,### !+4,### $*#*,###

Journal entries 5or "#!! Pa%$ #oo$ anuary !" #$!! In6est1ent in San Cash

$"!*,### $"!*,###

?o record purchase o5 &# interest in San: !,###,### C e@change rate

×

$."4

&# interest.

×

May !" #$!$ Ad6ance to San $ 4*,### Cash $ 4*,### ?o record short%ter1 loan to San deno1inated in .S. dollars:

"##,### C

×

$."3 e@change rate.


07(!&

Chapter 14

Solution P14-9 (continued &eptember #$!! Cash

$ !/,&## In6est1ent in San

?o record receipt o5 di6idends 5ro1 San (!##,### C e@change rate

×

$ !/,&## ×

$."!

&# interest

December %!" #$!! In6est1ent in San $ &,&## E0uit ad>ust1ent 5ro1 translation 3&,*## Inco1e 5ro1 San $ 4&,+## ?o record in6est1ent inco1e 5ro1 San o5 $4&,+## co1puted as [$!+4,### re6enue  ($44,### cost o5 sales ' $"",### depreciation

e@pense ' $"*,4## other e@penses ' $*,*## e@change loss] × &# and to record e0uit ad>ust1ent 5ro1 translation o5 $3&,*## co1puted as $44,###

×

&#.

Suo%tin 'omutation$ In6est1ent balance Januar !, "#!! ess: i6idends Add: Inco1e 5ro1 San ess: E0uit ad>ust1ent 5ro1 translation In6est1ent balance ece1ber 3!, "#!!

$"!*,### (!/,&## 4&,+## (3&,*##  $"#-,###

7oncontrolling interest at Januar !, "#!! date o5 ac0uisition !,###,### C × $."4 × !# ess: 7oncontrolling interestDs share o5 the e0uit ad>ust1ent

$ "4,###

5ro1 translation 5or "#!! ($44,### × !# Beginning 7oncontrolling interest in consolidation or8ing Papers

(4,4## 


$ !&,*##


1420

Solution P14-9 (continued 3

Pa% Co%o%ation an" Su#$i"ia%! Consolidation or8ing Papers 5or the ear ended ece1ber 3!, "#!!

Par

Ad>ust1ents and Eli1inations

San &#

7oncontro Consolidated lling State1ents Interest

'ncome &tatement

Sales

$ /##,###

Inco1e 5ro1 San

$ !+4,###

4&,+##

Cost o5 sales epreciation e@pense Fther e@penses

$ a

4&,+##

(4##,###

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07("!

Chapter 14


SMch14Beams

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