Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Chapter 12, Problem 12.17P
a
To determine
Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the
Preparation of a schedule translating the
a
Expert Solution
Answer to Problem 12.17P
The trial balance total after transaction adjustment December 31 20X4 $267,420
Explanation of Solution
S Inc.
Trial Balance Translation
For the year ended December 31, 20X5
| Particulars | Kroner | Exchange rate | U.S. Dollars |
| Cash | 150,000 | .21 | 31,500 |
| 200,000 | .21 | 42,000 | |
| Inventory | 270,000 | .21 | 56,700 |
| Property, plant and equipment | 600,000 | .21 | 126,000 |
| Cost of goods sold | 410,000 | .20 | 82,000 |
| Operating expenses | 100,000 | .20 | 20,000 |
| Depreciation expenses | 50,000 | .20 | 10,000 |
| Dividends paid | 40,000 | .19 | 7,600 |
| Total debit | 1,820,000 | 375,800 | |
| 150,000 | .21 | 31,500 | |
| Accounts payable | 90,000 | .21 | 18,900 |
| Notes payable | 190,000 | .21 | 39,900 |
| Common stock | 450,000 | .18 | 81,000 |
| 250,000 | .18 | 45,000 | |
| Sales | 690,000 | .20 | 138,000 |
| Total | 1,820,000 | 354,300 | |
| Accumulated other comprehensive income −translation adjustment credit | 24,000 | .20 | 4,800 21,500 |
| Total credit | 375,800 |
b
To determine
Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.
The
b
Expert Solution
Explanation of Solution
| Date | Particulars | Amount $ | Amount $ |
| Jan 1 | Investment in S company Stock | 151,200 | |
| Cash | 151,200 | ||
| (Cash paid for purchase of investment from S) | |||
| July 1 | Cash | 7,600 | |
| Investment in S company | 7,600 | ||
| (Cash received on account of dividends) | |||
| Dec 31 | Investment in S’s common stock | 26,000 | |
| Income from subsidiary | 26,000 | ||
| (Recognition of equity in net income from subsidiary | |||
| Investment in S common stock other income | 21,500 | ||
| Translation adjustment | 21,500 | ||
| (Translation adjustment is recognized) | |||
| Income from subsidiary | 3,600 | ||
| Investment in S company | 3,600 | ||
| (Amortization of differential) | |||
| Investment in S Company common stock other comprehensive income | 4,020 | ||
| Translation adjustment | 4,020 | ||
| (Translation adjustment is recognized in S company investment) |
- Purchase of investment from S Inc. recorded
- Cash received on account of dividends from S
- Equity in net income from subsidiary recognized
- Parents share of translation adjustment recorded
- Amortization of differential recognized
Determination of differential in amortization Schedule 1
| Particulars | Kroner | Exchange rate | U.S. Dollars |
| Property, plant, and equipment: | |||
| Income statement: | |||
| Difference at beginning of the year | 100,000 | .18 | 18,000 |
| Amortization 20X5 | (10,000) | .20 | (2,000) |
| Balance | 90,000 | 16,000 | |
| Balance sheet: | |||
| Remaining balance on December 31, 20X5 | 90,000 | .21 | 18,900 |
| Difference to other comprehensive income − translation adjustment | 2,900 | ||
| Patients: | |||
| Income statement: | |||
| Difference at the beginning of year | 40,000 | .18 | 7,200 |
| Amortization 20X5 | (8,000) | .20 | (1,600) |
| Remaining balance | 32,000 | 5,600 | |
| Balance sheet: | |||
| Balance on December 31,20X5 | 32,000 | .21 | 6,720 |
| Differential other comprehensive income − translation adjustment | 1,120 |
Amortization of differential
| Property plant and equipment | $2,900 |
| Patient | $1,120 |
| Total | $4,020 |
c
To determine
Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.
Preparation of a schedule for P’s consolidated comprehensive income for 20X5.
c
Expert Solution
Answer to Problem 12.17P
P’s consolidated comprehensive income $322,920
Explanation of Solution
Computation of P’s comprehensive income
| Particulars | U.S. Dollars |
| Income from P’s operations for 20X5 | 275,000 |
| Add: Income from the Norwegian subsidiary | 26,000 |
| Less: Amortization of differential | (3,600) |
| P’s net income | 297,400 |
| Add: Translation adjustment $21,500 + 4,020 | 25,520 |
| Total consolidated comprehensive income | 322,920 |
d
To determine
Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.
P’s total consolidated
d
Expert Solution
Answer to Problem 12.17P
P’s total consolidated stockholders equity at December 31, 20X5 $3,722,920
Explanation of Solution
Computation of P’s stockholders’ equity for December 31, 20X5.
| Particulars | U.S. Dollars |
| P’s stockholders’ equity at January 1, 20X5 | 3,500,000 |
| Add: Net income for 20X5 | 297,400 |
| Less: Dividends declared by P during 20X5 | (100,000) |
| Add: Accumulated other comprehensive income − translation adjustment | 25,520 |
| Consolidated stockholders’ equity at December 31, 20X5 | 3,722,920 |
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Chapter 12 Solutions
Advanced Financial Accounting
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