On January 1, 20X8, Transport Corporation acquired 75 percent interest in Steamship Company for $300,000. Steamship...

On January 1, 20X8, Transport Corporation acquired 75 percent interest in Steamship Company for $300,000. Steamship is a Norwegian company. The local currency is the Norwegian kroner (NKr). The acquisition resulted in an excess of cost-over-book value of $25,000 due solely to a patent having a remaining life of 5 years. Transport uses the fully adjusted equity method to account for its investment. Steamship's December 31, 20X8, trial balance has been translated into U.S. dollars, requiring a translation adjustment debit of $8,000. Steamship's net income translated into U.S. dollars is $35,000. It declared and paid an NKr 20,000 dividend on June 1, 20X8. Relevant exchange rates are as follows:

January 1, 20X8	NKrl = $0.20
June 1, 20X8	NKrl = $0.23
December 31, 20X8	NKrl = $0.24
Average for 20X8	NKrl = $0.22

Assume the kroner is the functional currency.

1. Based on the preceding information, in the journal entry to record the receipt of dividend from Steamship,

A. Investment in Steamship Company will be credited for $3,450.
B. Cash will be debited for $3,300.
C. Investment in Steamship Company will be credited for $4,000.
D. Cash will be debited for $3,600.

2. Based on the preceding information, in the journal entry to record parent's share of subsidiary's translation adjustment:

A. Other Comprehensive Income — Translation Adjustment will be debited for $8,000.
B. Other Comprehensive Income — Translation Adjustment will be credited for $6,000.
C. Investment in Steamship Company will be credited for $6,000.
D. Investment in Steamship Company will be debited for $8,000.

3. Based on the preceding information, what amount of translation adjustment is required for increase in differential?

A. $3,000
B. $5,500
C. $4,500
D. $5,000

4. Based on the preceding information, in the journal entry to record the amortization of the patent for 20X8 on the parent's books, Investment in Steamship Company will be debited for:

A. $5,000
B. $5,500
C. $4,500
D. $3,000

Please provide calculations! Thank you!

Solutions

Expert Solution

1. Correct option is A

Transport corporation's interest in Steamship company is 75%. so, when Steamship company declared and paid dividend of Nkr 20,000, 75% of 20,000 that is Nkr 15,000 (0.75*20,000) is paid to Transport Corporation. Converting Nkr 15,000 to USD as per exchange rate as on the date of declaration of dividend that is June 1, 20X8, we get $3,450 (Nkr 15,000*$0.23).

Transport corporation debits cash account and credits investment in steamship company.

2. Correct option is C

Parent's share that is Transport corporation's share in Steamship company's translation adjustment is 75% of $8,000 (total translation adjustment), which come out to be $6,000 (0.75*8,000). Journal entry to record the same by parent company is other comprehensive income debit to investment in Steamship company by $6,000. So investment in Steamship company is credited by $6,000.

3. Correct option is C

Amount of translation adjustment required for increase in differential is computed below:

Cost over book value as a result of acquisition is $25,000 divided by $0.2 (1^st Jan 20X8)per Nkr is Nkr 125,0000.

Exchange rate to compute amortization in USD is average rate for 20X8 that is 0.22.

Therefore, amount of translation adjustment required for increase in differential is $4,500.

4. Correct option is B

To record amortization in the books of Transport company, investment in Steamship company is debited for $5,500 (25,000*0.22). Amortization amount of Nkr 25,000 is multiplied by average exchange rate of $0.22 to arrive at amortization amount of $5,500.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

32. Patriot Corporation acquired 75% ownership of Seahawk Corporation on January 1, 20X8, for $300,000. The...

32. Patriot Corporation acquired 75% ownership of Seahawk Corporation on January 1, 20X8, for $300,000. The fair value of the noncontrolling interest was $100,000. At that date, Seahawk reported common stock outstanding of $100,000 and retained earnings of $180,000. The differential is assigned to equipment, which had a fair value $50,000 greater than book value and a remaining economic life of 5 years at the date of the business combination. The remaining excess is considered goodwill. Seahawk reported net income...

Pie Corporation acquired 75 percent of Slice Company’s ownership on January 1, 20X8, for $96,000. At...

Pie Corporation acquired 75 percent of Slice Company’s ownership on January 1, 20X8, for $96,000. At that date, the fair value of the noncontrolling interest was $32,000. The book value of Slice’s net assets at acquisition was $92,000. The book values and fair values of Slice’s assets and liabilities were equal, except for Slice’s buildings and equipment, which were worth $18,400 more than book value. Accumulated depreciation on the buildings and equipment was $24,000 on the acquisition date. Buildings and...

Pie Corporation acquired 75 percent of Slice Company’s ownership on January 1, 20X8, for $96,000. At...

Pie Corporation acquired 75 percent of Slice Company’s ownership on January 1, 20X8, for $96,000. At that date, the fair value of the noncontrolling interest was $32,000. The book value of Slice’s net assets at acquisition was $91,000. The book values and fair values of Slice’s assets and liabilities were equal, except for Slice’s buildings and equipment, which were worth $18,200 more than book value. Accumulated depreciation on the buildings and equipment was $27,000 on the acquisition date. Buildings and...

Power Corporation acquired 75 percent of Best Company’s ownership on January 1, 20X8, for $93,000. At...

Power Corporation acquired 75 percent of Best Company’s ownership on January 1, 20X8, for $93,000. At that date, the fair value of the noncontrolling interest was $31,000. The book value of Best’s net assets at acquisition was $90,000. The book values and fair values of Best’s assets and liabilities were equal, except for Best’s buildings and equipment, which were worth $18,000 more than book value. Accumulated depreciation on the buildings and equipment was $24,000 on the acquisition date.Buildings and equipment...

Bristle Corporation acquired 75 percent of Silver Corporation's common stock on December 31, 20X8, for $300,000....

Bristle Corporation acquired 75 percent of Silver Corporation's common stock on December 31, 20X8, for $300,000. The fair value of the noncontrolling interest at that date was determined to be $100,000. Silver's balance sheet immediately before the combination reflected the following balances: Cash and Receivables$40,000 Inventory70,000 Land90,000 Buildings and Equipment (net) 250,000 Total Assets $450,000 Accounts Payable$30,000 Income Taxes Payable40,000 Bonds Payable100,000 Common Stock100,000 Retained Earnings 180,000 Total Liabilities and Stockholders' Equity $450,000 A careful review of the fair value of Silver's assets and...

Mill Corporation acquired 100 percent ownership of Roller Company on January 1, 20X8, for $118,000. At...

Mill Corporation acquired 100 percent ownership of Roller Company on January 1, 20X8, for $118,000. At that date, the fair value of Roller’s buildings and equipment was $19,000 more than the book value. Buildings and equipment are depreciated on a 10-year basis. Although goodwill is not amortized, Mill’s management concluded at December 31, 20X8, that goodwill involved in its acquisition of Roller shares had been impaired and the correct carrying value was $2,400. Trial balance data for Mill and Roller...

Mill Corporation acquired 100 percent ownership of Roller Company on January 1, 20X8, for $125,000. At...

Mill Corporation acquired 100 percent ownership of Roller Company on January 1, 20X8, for $125,000. At that date, the fair value of Roller’s buildings and equipment was $19,000 more than the book value. Buildings and equipment are depreciated on a 5-year basis. Although goodwill is not amortized, Mill’s management concluded at December 31, 20X8, that goodwill involved in its acquisition of Roller shares had been impaired and the correct carrying value was $2,600. Trial balance data for Mill and Roller...

Vision Corporation acquired 75 percent of the stock of Meta Company on January 1, 2007, for...

Vision Corporation acquired 75 percent of the stock of Meta Company on January 1, 2007, for $225,000. At that date, the fair value of the noncontrolling interest was $75,000. On January 1, 2009, Vision sold 1,500 shares of Meta's $10 par value shares for $60,000 in cash. Meta's balance sheet at the time of the sale contained the following amounts: Cash $40,000 Accounts Receivable $40,000 Inventory $20,000 Buildings and Equipment (net) $300,000 Total Assets $400,000 Accounts Payable 50,000 Bonds Payable...

Palmer Corporation acquired 70 percent of Krown Corporation’s ownership on January 1, 20X8, for $166,600. At...

Palmer Corporation acquired 70 percent of Krown Corporation’s ownership on January 1, 20X8, for $166,600. At that date, Krown reported capital stock outstanding of $139,000 and retained earnings of $99,000, and the fair value of the noncontrolling interest was equal to 30 percent of the book value of Krown. During 20X8, Krown reported net income of $41,400 and comprehensive income of $47,400 and paid dividends of $36,400. Required: a. Present all equity-method entries that Palmer would have recorded in...

On January 1, 20X8, Patriot Company acquired 100 percent of Stryder Company for $220,000 cash. The...

On January 1, 20X8, Patriot Company acquired 100 percent of Stryder Company for $220,000 cash. The trial balances for the two companies on December 31, 20X8, included the following amounts: Patriot Corp. Stryder Corporation Debit Credit Debit Credit Cash $ 50,000 $ 30,000 Accounts Receivable 60,000 40,000 Inventory 75,000 80,000 Land 60,000 40,000 Buildings and Equipment 300,000 120,000 Investment in Stryder Company 256,000 Cost of Goods Sold 270,000 170,000 Depreciation Expense 30,000 12,000 Other Expenses 80,000 63,000 Dividends Declared 40,000...

Subjects