In: Accounting
Question 21.21. On January 2, 20X8, Johnson
Company acquired a 100% interest in the capital stock of Perth
Company for $3,100,000. Any excess cost over book value is
attributable to a patent with a 10-year remaining life. At
the date of acquisition, Perth's balance sheet contained
the following information(in Foreign Currency Units, FCU): Cash 40,000 Receivables 150,000 Inventories 500,000 Equipment 1,500,000 Payables 200,000 Capital stock 600,000 Retained earnings 1,390,000 Perth's income statement for 20X8 is as follows(in Foreign Currency Units, FCU): Sales revenue 1,010,000 Cost of goods sold 590,000 Operating expenses 120,000 Depreciation expense 200,000 Income tax expense 40,000 The balance sheet of Perth at December 31, 20X8, is as follows(in Foreign Currency Units, FCU): Cash 180,000 Receivables 210,000 Inventories 520,000 Equipment 1,300,000 Payables 180,000 Capital stock 600,000 Retained earnings 1,430,000 Perth declared and paid a dividend of 20,000 FCU on October 1, 20X8. Spot rates at various dates for 20X8 follow: January 2: 1 FCU = $1.50 October 1: 1 FCU = $1.60 December 31: 1 FCU = $1.70 Weighted average: 1 FCU = $1.55 Assume Perth's revenues, purchases, operating expenses, depreciation expense, and income taxes were incurred evenly throughout 20X8. Refer to the above information. Assuming Perth's local currency is the functional currency, what is the amount of the adjustment that results from converting Perth's trial balance into U.S. dollars at December 31, 20X8? (Points : 4) |
$405,000 translation
debit
$405,000 remeasurement
credit
$405,000 translation
credit
$405,000 remeasurement
debit
Option C: Translation Credit
Workings | Amount in FCU | Exchange Rate | Amount in $ |
Cash | 180,000.00 | 1.7 | 306,000.00 |
Receivables | 210,000.00 | 1.7 | 357,000.00 |
Inventories | 520,000.00 | 1.7 | 884,000.00 |
Equipment | 1,300,000.00 | 1.7 | 2,210,000.00 |
2,210,000.00 | 3,757,000.00 | ||
Payables | 180,000.00 | 1.7 | 306,000.00 |
Capital stock | 600,000.00 | 1.5 | 900,000.00 |
Retained earnings - Beginning | 1,390,000.00 | 1.5 | 2,085,000.00 |
Profit Curerent Year | 40,000.00 | 1.55 | 62,000.00 |
2,210,000.00 | 3,353,000.00 | ||
Currency translation difference | (404,000.00) |
Amount in FCU | Exchange Rate | Amount in $ | |
Sales revenue | (1,010,000.00) | 1.55 | (1,565,500.00) |
Cost of goods sold | 590,000.00 | 1.55 | 914,500.00 |
Operating expenses | 120,000.00 | 1.55 | 186,000.00 |
Depreciation expense | 200,000.00 | 1.55 | 310,000.00 |
Income tax expense | 40,000.00 | 1.55 | 62,000.00 |
Dividend | 20,000.00 | 1.55 | 31,000.00 |
(40,000.00) | (62,000.00) |
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