Question

On January 1, 2016, Cayce Corporation acquired 100 percent of Simbel Company for consideration transferred with a fair value of $127,800. Cayce is a U.S.-based company headquartered in Buffalo, New York, and Simbel is in Cairo, Egypt. Cayce accounts for its investment in Simbel under the initial value method. Any excess of fair value of consideration transferred over book value is attributable to undervalued land on Simbel’s books. Simbel had no retained earnings at the date of acquisition. Following are the 2017 financial statements for the two operations. Information for Cayce and for Simbel is in U.S. dollars ($) and Egyptian pounds (£E), respectively.

	Cayce Corporation				Simbel Company
Sales	$	204,800			£E	813,900
Cost of goods sold		(96,200	)			(427,300	)
Salary expense		(19,600	)			(75,200	)
Rent expense		(7,300	)			(46,600	)
Other expenses		(21,900	)			(59,900	)
Dividend income—from Simbel		14,575				0
Gain on sale of building, 10/1/17		0				33,000
Net income	$	74,375			£E	237,900
Retained earnings, 1/1/17	$	321,000			£E	135,400
Net income		74,375				237,900
Dividends		(27,000	)			(53,000	)
Retained earnings, 12/31/17	$	368,375			£E	320,300
Cash and receivables	$	111,100			£E	149,300
Inventory		98,300				303,600
Prepaid expenses		30,000				0
Investment in Simbel (initial value)		127,800				0
Property, plant & equipment (net)		407,600				458,000
Total assets	$	774,800			£E	910,900
Accounts payable	$	62,000			£E	54,900
Notes payable—due in 2020		136,325				140,900
Common stock		123,000				243,000
Additional paid-in capital		85,100				151,800
Retained earnings, 12/31/17		368,375				320,300
Total liabilities and equities	$	774,800			£E	910,900

Additional Information

• During 2016, the first year of joint operation, Simbel reported income of £E 166,000 earned evenly throughout the year. Simbel declared a dividend of £E 30,600 to Cayce on June 1 of that year. Simbel also declared the 2017 dividend on June 1.

• On December 9, 2017, Simbel classified a £E 10,300 expenditure as a rent expense, although this payment related to prepayment of rent for the first few months of 2018.

• The exchange rates for 1 £E are as follows:

January 1, 2016	$	0.300
June 1, 2016		0.290
Weighted average rate for 2016		0.288
December 31, 2016		0.280
June 1, 2017		0.275
October 1, 2017		0.273
Weighted average rate for 2017		0.274
December 31, 2017		0.270

Translate Simbel’s 2017 financial statements into U.S. dollars and prepare a consolidation worksheet for Cayce and its Egyptian subsidiary. Assume that the Egyptian pound is the subsidiary’s functional currency.

Complete this question by entering your answers in the tabs below.

• Translation Worksheet
• Consolidation Worksheet

Prepare a Translation worksheet. (Round "Exchange Rate" answers to 3 decimal places. Round your "Dollars" answers to the nearest whole number. Amounts to be deducted and negative amounts should be indicated with a minus sign.)

CAYCE CORPORATION TRANSLATION WORKSHEET Account Egyptian Pounds Exchange Rate Dollars Sales Cost of goods sold Salary expense Rent expense (adjusted) Other expenses Gain on sale of fixed asset, 10/1/17 Net income 0 0 Retained earnings, 1/1/17 Net income Dividends Retained earnings, 12/31/17 0 0 Cash and receivables Inventory Prepaid rent (adjusted) Property, plant & equipment Total assets 0 0 Accounts payable Notes payable Common stock Additional paid-in capital Retained earnings, 12/31/17 Subtotal 0 0 Total liabilities and equities 0 0

Answer 1

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							Cayce
Translation Work Sheet							Simbel
Account	Pounds	Rate	Dollars
Sales	$            813,900	0.274	$     223,009
Cost of goods sold	$          -427,300	0.274	$   -117,080
Salary expense	$             -75,200	0.274	$     -20,605
Rent expense (adjusted) ($46,600+$10,300)	$             -36,300	0.274	$        -9,946
Other expenses	$             -59,900	0.274	$     -16,413
Gain on sale of fixed Assets	$              33,000	0.273	$         9,009
Net income	$            248,200		$       67,974
R/E, 1/1/17	$            135,400	Schedule 1	$       38,934
Net income	$            248,200	Above	$       67,974
Dividends paid	$             -53,000	0.275	$     -14,575
R/E,12/31/17	$            330,600		$       92,333
Cash and receivables	$            149,300	0.270	$       40,311
Inventory	$            303,600	0.270	$       81,972
Prepaid rent (adjusted)	$              10,300	0.270	$         2,781
Fixed assets	$            458,000	0.270	$     123,660
Total	$            921,200		$     248,724
Accounts payable	$              54,900	0.270	$       14,823
Notes payable	$            140,900	0.270	$       38,043
Common stock	$            243,000	0.300	$       72,900
Add’l paid-in capital	$            151,800	0.300	$       45,540
Retained earnings, 12/31/17	$            330,600	Above	$       92,333
Subtotal			$     263,639
Cumulative translation adjustment (negative)		Schedule 2	$     -14,915
Total	$            921,200		$     248,724	$                             -
Schedule 1—Translation of 1/1/17 Retained Earnings
	Pounds		Dollars
Retained earnings, 1/1/16	$                        -		-0-
Net income, 2016	$            166,000	0.2880	$       47,808
Dividends, 6/1/16	$             -30,600	0.2900	$        -8,874
Retained earnings, 12/31/17	$            135,400		$       38,934
Schedule 2—Calculation of Cumulative Translation Adjustment at 12/31/08
	Pounds		Dollars
Net assets, 1/1/16 (Common Stock+Additional Capital)	$            394,800	0.3000	$     118,440
Net income, 20016	$            166,000	0.2880	$       47,808
Dividends, 6/1/16	$             -30,600	0.2900	$        -8,874
Net assets, 12/3/16	$            530,200		$     157,374
Net assets, 12/31/16 at current Exchange Rate	$            530,200	0.2800	$     148,456
Translation adjustment, 2016 (negative)			$         8,918
Net assets, 1/1/17	$            530,200	0.280	$     148,456
Net income, 2017	$            248,200	Above	$       67,974
Dividends, 6/1/17	$             -53,000	0.275	$     -14,575
Net assets, 12/31/17	$            725,400		$     201,855
Net assets, 12/31/17 at current exchange rate	$            725,400	0.2700	$     195,858
Translation adjustment, 2017 (negative)			$         5,997
Cumulative translation adjustment, 12/31/17 (negative)			$       14,915