Question

On January 1, 2016, Cayce Corporation acquired 100 percent of Simbel Company for consideration transferred with a fair value of $141,300. Cayce is a U.S.-based company headquartered in Buffalo, New York, and Simbel is in Cairo, Egypt. Cayce accounts for its investment in Simbel under the initial value method. Any excess of fair value of consideration transferred over book value is attributable to undervalued land on Simbel’s books. Simbel had no retained earnings at the date of acquisition. Following are the 2017 financial statements for the two operations. Information for Cayce and for Simbel is in U.S. dollars ($) and Egyptian pounds (£E), respectively.

	Cayce Corporation				Simbel Company
Sales	$	228,800			£E	882,900
Cost of goods sold		(108,200	)			(463,300	)
Salary expense		(22,600	)			(81,200	)
Rent expense		(8,800	)			(49,600	)
Other expenses		(26,400	)			(64,400	)
Dividend income—from Simbel		18,700				0
Gain on sale of building, 10/1/17		0				48,000
Net income	$	81,500			£E	272,400
Retained earnings, 1/1/17	$	336,000			£E	147,400
Net income		81,500				272,400
Dividends		(42,000	)			(68,000	)
Retained earnings, 12/31/17	$	375,500			£E	351,800
Cash and receivables	$	112,600			£E	165,800
Inventory		99,800				336,600
Prepaid expenses		30,000				0
Investment in Simbel (initial value)		141,300				0
Property, plant & equipment (net)		455,600				473,000
Total assets	$	839,300			£E	975,400
Accounts payable	$	68,000			£E	59,400
Notes payable—due in 2020		162,200				145,400
Common stock		138,000				258,000
Additional paid-in capital		95,600				160,800
Retained earnings, 12/31/17		375,500				351,800
Total liabilities and equities	$	839,300			£E	975,400

During 2016, the first year of joint operation, Simbel reported income of £E 181,000 earned evenly throughout the year. Simbel declared a dividend of £E 33,600 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 11,800 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, 2017		0.280
June 1, 2017		0.275
October 1, 2017		0.273
Weighted average rate for 2017		0.274
December 31, 2017		0.270
US DOLLARS

A. Translation Worksheet

account	Egyptian Pounds	Exchange Rate	Dollars

B. consolidation worksheet

account	cayce $	simbel $	debit	credit	consolidated balances

Answer 1

1) Simbel's financial statements are first translated into U.S.$ after reclassification of the 11,800-pound expenditure for rent from rent expense to prepaid rent. Credit balances are in parentheses.
Translation Worksheet
Account		Exchange
	Pounds	Rate	Dollars
Sales	882,900	0.274	241915
Cost of goods sold	-463,300	0.274	-126944
Salary expense	-81,200	0.274	-22249
Rent expense (adjusted)	-49,600	0.274	-13590
Other expenses	-64,400	0.274	-17646
Gain on sale of fixed assets, 10/1/17	48000	0.273	13104
Net income	272,400		74589.6
	Schedule 1	Above
R/E, 1/1/17	147400	0.288	42451.2
Net income	272400		74589.6
Dividends paid	-68000	0.275	-18700
R/E,12/31/17	351800		98340.8
Cash and receivables	165,800	0.270	44766
Inventory	336,600	0.270	90882
Prepaid rent (adjusted)	0	0.270	0
Fixed assets	473,000	0.270	127710
Total	975,400		263358
Schedule 1—Translation of 1/1/16 Retained Earnings
	Pounds		Dollars
Retained earnings, 1/1/16	0		0
Net income, 2016	-181000	0.288	-52128
Dividends, 6/1/16	33,600	0.288	9676.8
Retained earnings, 12/31/16	-147400		-42451
Schedule 2—Calculation of Cumulative Translation Adjustment at 12/31/16
	Pounds		Dollars
Net assets, 1/1/16	-418800	0.300	-125640
Net income, 2016	-181000	0.288	-52128
Dividends, 6/1/16	33,600	0.290	9744
Net assets, 12/3/16	-566200		-168024
Net assets, 12/31/16 at
current exchange rate	-566200	0.28	-158536
Translation adjustment, 2016(negative)			-9488
Net assets, 1/1/17	-566200	0.28	-158536
Net income, 2017	272400	Above	74589.6
Dividends, 6/1/17	-68000	0.275	-18700
Net assets, 12/31/17	-361800		-102646
Net assets, 12/31/17at
current exchange rate	-361800	0.27	-97686
Translation adjustment, 2017 (negative)			-4960.4
Cumulative translation adjustment, 12/31/17(negative)			-14448
2)
Consolidation Worksheet
	Cayce	Simbel	Adjustments and		Consolidated
Account	Dollars	Dollars	Debit	Credit	Eliminations
					Balances
					Dollars
Sales	228,800	241915			470,715
Cost of goods sold	-108,200	-126944			-235,144
Salary expense	-22,600	-22249			-44,849
Rent expense	-8,800	-13590			-22,390
Other expenses	-26,400	-17646			-44,046
Dividend income	18700	0	18700		0
Gain, 10/1/17	0	13104			13,104
Net income	81,500	74589.6			137,390
Ret earn, 1/1/17	336,000	42451.2	42451.2	42451.2	378,451
Net income	81,500	74589.6			156,090
Dividends paid	-42,000	-18700		18700	-42,000
Ret earn, 12/31/17	375,500	98340.8			492,541
Cash and receivables	112,600	44766			157,366
Inventory	99,800	90882			190,682
Prepaid rent	30,000	0			30,000
Investment	141,300	0	42451.2	183,751	0
Fixed assets	455,600	127710	29232	1008	611,534
Total	839,300	263358			989,582
Accounts payable	68,000	16038			84,038
Notes payable	162,200	39258			201,458
Common stock	138,000	69660	69660		138,000
Additional PIC	95,600	43416	43416		95,600
Ret earn, 12/31/17	375,500	94986			470,486
Subtotal		263358			989,582
Cummu trans adjust		-14448
Total	839,300	248910	245910	245910