Solution manual advanced accounting 4e jeter ch13

To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com CHAPTER 13 Note: The letter A or B indicated for a question, exercise, or problem means that the question, exercise, or problem relates to a chapter appendix ANSWERS TO QUESTIONS (1) The parent company must control more than 50 percent of the voting stock of the subsidiary (2) The intent of control should be permanent (3) The control should rest with the majority owners The functional currency of an entity is the currency of the primary economic environment in which the entity operates The FASB provided the following six economic indicators: a The impact on the parent’s cash flow; b The short-term responsiveness of the sales price to changes in the exchange rate; c The sales market for the firm’s products; d The currency in which labor, materials, and other factor inputs are primarily obtained; e The currency in which debt is denominated and the ability of the foreign entity’s operations to generate amounts of that currency sufficient to service the debt; f The volume of transactions between the foreign entity and its parent Local currency, current rate U.S dollar, temporal The temporal method is used when a foreign subsidiary operates in a highly inflationary economy Remeasurement is the process of translating the accounts of a foreign entity into its functional currency when they are stated in another currency All assets and liabilities are translated using the current rate at the balance sheet date when the current rate method of translation is used Assets and liabilities are translated at the rate in effect at the balance sheet date Common stock is translated at the historical rate when the stock was issued Retained earnings consists of various period’s net income (translated at the yearly average rates) less dividends converted at the historical rates on the declaration dates The cumulative translation adjustment is a balancing amount in equity, which results in total equity (including the cumulative adjustment) being driven back to the rate in effect at the balance sheet date Thus, the ratios will not change from their calculations using the local currency Application of the temporal method produces translated amounts that reflect transactions as if they had been measured in dollars originally rather than in the local currency 13 - To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 10 Revenues and expenses are translated using the exchange rate in effect when they were recognized during the period except for expenses associated with nonmonetary items which are translated using historical rates Because it is impractical to translate numerous transactions, the use of an appropriate average is permitted 11 The translation adjustment is reported as a separate component of stockholders’ equity when the current rate method is used to translate the accounts Business Ethics Solutions Business ethics solutions are merely suggestions of points to address The objective is to raise the students' awareness of the topics, and to invite discussion In most cases, there is clear room for disagreement or conflicting viewpoints Spring-loading is a contentious issue, and the following points are among those that may be considered in a discussion or debate of whether it should be allowed or not: Though granting options is intended to motivate and incentivize the employees to generate more profits, granting an award that is already known (or strongly suspected) before-the-fact to be in the money very soon seems counter to this intent Companies engaged in spring-loading mislead investors by not disclosing that options are awarded with foreknowledge of the impending good news Spring-loading is legal as long as the compensation committee awarding the options knows the same information as the recipient, and the company informs shareholders that it does not withhold granting options when undisclosed, positive company information is pending Companies suspected of spring-loading cannot be said to have advantage of prior market reactions that have not actually taken place, and executives can argue, truthfully, that there is no way to know for certain how the market will react to impending news Option manipulation is generally more likely to occur in circumstances in which the company executives like CEOs have greater influence on the company’s pay-setting and governance processes, which suggests a lack of board oversight Spring-loaded grants might violate insider-trading rules, particularly if managers with knowledge of the information gives options to themselves, or if executives conceal good news from directors while urging them to grant options Also, see the following links: http://www.cfo.com/article.cfm/7880157/1/c_2984338 http://blog.issproxy.com/files/OptionsBackdating7806.pdf http://www.aflcio.org/corporatewatch/paywatch/stockoptions.cfm 13 - To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com ANSWERS TO EXERCISES Exercise 13-1 Cash Accounts receivable Inventory carried at cost Inventory carried at market Prepaid rent Property, plant, and equipment Goodwill Accounts payable Bonds payable Unamortized premium on bonds payable Preferred stock carried at issuance price Common stock Sales Cost of goods sold Depreciation expense Functional Currency U.S Dollar Local Currency C C C C H C C C H C H C H C C C C C C C H H H H A A H A H A Exercise 13-2 c b d d c Exercise 13-3 a c c b b 13 - To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 13-4 Swiss Francs Part A Consolidated Income and Retained Earnings Statement Revenues Operating Expenses Net Income Retained Earnings - 1/1 Dividends Retained Earnings - 12/31 Balance Sheet Cash and Receivables Net Property, Plant, and Equipment Total Accounts and Notes Payable Common Stock Retained Earnings Translation Rate $ 75,000 $.5654 (30,000) 5654 45,000 10,000 5987 55,000 (15,000) 5810 40,000 42,405 (16,962) 25,443 5,987 31,430 (8,715) 22,715 55,000 5321 37,000 5321 92,000 29,266 19,688 48,954 32,000 5321 20,000 5987 40,000 92,000 Balancing amt 92,000 Cumulative Translation Adjustment (debit) Total Part B Exposed net asset position - 1/1 Adjustment for changes in the net asset position during the year: Net income Dividends Net asset position translated using rate in effect at date of transactions Exposed net asset position - 12/31 Cumulative translation adjustment (debit) 13 - Swiss Translation Francs Rate 30,000$.5987 45,000 5654 (15,000).5810 60,000 5321 17,027 11,974 22,715 51,716 (2,762) 48,954 $ 17,961 25,443 (8,715) 34,689 31,927 (2,762) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 13-5 Swiss Francs Part A Balance Sheet Cash and Receivables Net Property, Plant, and Equipment Total Accounts and Notes Payable Common Stock Retained Earnings Total Consolidated Income Statement and Retained Earnings Statement Revenue Operating Expenses: depreciation other Translation Loss Net Income Retained Earnings - 1/1 Dividends Retained Earnings - 12/31 Net monetary liability position - 1/1 ($20,000 - $30,000) Adjustment for changes in net monetary position during the year: Add: Increase in cash and receivables from sales Less: Decrease in net asset position: Other operating expenses Dividends Net asset position translated using rate in effect at date of transaction Net monetary asset position-12/31 ($32,000 - $55,000) Translation gain (loss) 13 - $ 55,000 $.5321 37,000 5987 92,000 29,266 22,152 51,418 32,000 5321 20,000 5987 40,000 Balancing amt 92,000 17,027 11,974 22,417 51,418 75,000 5654 (3,000) 5987 (27,000) 5654 Balancing amt 45,000 10,000 5987 55,000 (15,000) 5810 40,000 Swiss Francs Part B Translation Rate Translation Rate 42,405 (1,796) (15,266) (198) 25,145 5,987 31,132 (8,715) 22,417 $ (10,000)$.5987 (5,987) 75,000 5654 42,405 (27,000) 5654 (15,000) 5810 23,000 5321 (15,266) (8,715) 12,437 12,238 (199) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 13-6 Swiss Franc Consolidated Income and Retained Earnings Statement Revenues Operating Expenses Depreciation Other Translation Loss Net Income Retained Earnings - 1/1 Dividends Retained Earnings - 12/31 Balance Sheet Cash and Receivables Net Property, Plant, and Equipment Total Accounts and Notes Payable Common Stock Retained Earnings Translation Adjustment (loss) Total 75,000 Part A Translation Rate Brazilian Real 1.3445 (3,000) 1.3940 (27,000) 1.3445 Balancing amount 45,000 10,000 1.3940 55,000 (15,000) 1.2438 40,000 55,000 37,000 92,000 1.2899 1.3940 32,000 1.2899 20,000 1.3940 40,000Balancing amount 92,000 -92,000 13 - Part B Translation Rate $ 100,838 $.4751 47,908 (4,182) (36,302) (2,271) 58,083 13,940 72,023 (18,657) 53,366 4751 4751 4751 (1,987) (17,247) (1,079) 27,595 6,818 34,413 (8,843) 25,570 70,945 51,578 122,523 4630 4630 32,847 23,880 56,727 41,277 27,880 53,366 122,523 4630 4891 19,111 13,636 25,570 58,317 (1,590) 56,727 122,523 4891 4740 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 13-7 Adjusted Trial Balance (£) Consolidated Income and Retained Earnings Statement Sales Cost of Goods Sold Depreciation Expense Other Expenses Net Income Beginning Retained Earnings Less: Dividends Ending Retained Earnings Balance Sheet Cash and Receivables Merchandise Inventory Property, Plant, and Equipment Current Liabilities Long-term Notes Payable Capital Stock Retained Earnings Cumulative Translation Adjustment Total Translation Rate 2,900,000 $1.4788 1,400,000 1.4788 300,000 1.4788 400,000 1.4788 800,000 900,000 Given 1,700,000 325,000 1.4730 1,375,000 4,288,520 2,070,320 443,640 591,520 1,183,040 1,593,408 2,776,448 478,725 2,297,723 1,275,000 490,000 3,450,000 5,215,000 1,878,075 721,770 5,081,850 7,681,695 1.4730 1.4730 1.4730 640,000 1.4730 1,200,000 1.4730 2,000,000 1.8365 1,375,000 Balancing amount 5,215,000 13 - Adjusted Trial Balance ($) 942,720 1,767,600 3,673,000 2,297,723 (999,348) 7,681,695 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 13-8 Adjusted Trial Balance (£) Balance Sheet Cash and Receivables Merchandise Inventory Property, Plant, and Equipment Translation Rate Adjusted Trial Balance ($) 1,275,000 $1.4730 490,000 1.4950 3,450,000 1.8365 5,215,000 Current Liabilities Long-term Notes Payable Capital Stock Retained Earnings Cumulative Translation Adjustment 640,000 1.4730 1,200,000 1.4730 2,000,000 1.8365 1,375,000Balancing amount 5,215,000 Consolidated Income and Retained Earnings Statement Sales Cost of Goods Sold Depreciation Expense Other Expenses Translation Gain Net Income Beginning Retained Earnings 2,900,000 (1,400,000) (300,000) (400,000) 800,000 900,000 1,700,000 325,000 1,375,000 Less: Dividends Ending Retained Earnings Schedule A - Translation of cost of goods sold Beginning Inventory Purchases (1,400,000 + 490,000 + 420,000) 420,000 1,470,000 1,890,000 490,000 1,400,000 Ending Inventory Cost of Goods Sold 13 - $1.4788 Schedule A 1.8365 1.4788 Given 1.4730 1.5300 1.4788 1.4950 1,878,075 732,550 6,335,925 8,946,550 942,720 1,767,600 3,673,000 2,563,230 8,946,550 4,288,520 (2,083,886) (550,950) (591,520) 188,467 1,250,631 1,791,324 3,041,955 478,725 2,563,230 642,600 2,173,836 2,816,436 732,550 2,083,886 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 13-9 Part A Exposed net asset position - 1/1 Adjustment for changes in the net asset position during the year Add: Revenues Less: Operating expenses Dividends Net asset position translated using rate in effect at date of transactions Exposed net asset position - 12/31 Cumulative translation adjustment - gain Part B Exposed net monetary liability position - 1/1 (15,500 + 25,000 – 32,000) Adjustment for changes in net monetary position during the year Less: Increase in cash and receivables - revenues Add: Decrease in monetary assets or increase in monetary liabilities Operating expenses - less depreciation and office supplies used Dividends Net monetary asset position translated using rate in effect at date of transactions Exposed net monetary asset position-12/31 (35,000 - 6,900 – 15,000) Translation gain (£) 63,000 Translation Rate $1.5403 ($) 97,039 40,000 (20,000) (4,000) 1.5532 1.5532 1.5961 79,000 1.5961 8,500 $1.5403 13,093 (40,000) 1.5532 (62,128) 14,400 4,000 13,100 1.5532 1.5961 22,366 6,384 20,285 20,909 624 1.5961 62,128 (31,064) (6,384) 121,719 126,092 4,373 Part C An entity’s accounting exposure to changes in the exchange rate is related to the set of accounts translated at the current rate Under the current rate method, all assets and liabilities are translated at the current rate Thus, under this method, only the net asset position will result in a translation adjustment Under the current rate method, a gain results from a net asset position and an increase in the exchange rate In contrast, monetary assets and liabilities are translated at the current rate when using the temporal method In this exercise, the company went from a net monetary liability position to a net monetary asset position during the year A translation gain results from an increase in the exchange rate 13 - To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 13-10A $30,000 = 57,781 50% = 28,891 $.4994 = $14,428 $.5192 $30,000 Accounts Payable = 60,072 $.4994 = $30,000 4994 Part A Inventory Measurement of accounts payable $30,000 Year-end 4994 $30,000 Date of transaction 5192 Transaction loss 60,072 57,781 2,291 The transaction loss is reported in determining net income for the current period since the transaction is not of a long-term investment nature Part B Unrealized profit in ending inventory - $6,000 50% = $3,000 Part C Measurement of accounts receivable Year-end 50,204 $.4994 = Transaction date 50,204 $.5192 = Transaction loss $25,878 26,066 $188 The transaction loss is reported in determining net income for the current period A transaction loss (or gain) related to a loan of a long-term investment nature is deferred and reported in a separate component of stockholders’ equity 13 - 10 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 13-8A Adjusted Trial Balance, Aus.$ Part A Consolidated Income and Retained Earnings Statement Sales Cost of Goods Sold Other Expenses Net Income Retained Earnings - 1/1 Translation Rate Adjusted Trial Balance, U.S.$ $.7962 7962 7962 Dividends: 4/30 10/31 Retained Earnings - 12/31 250,000 121,500 51,750 76,750 165,000 241,750 15,625 15,625 210,500 Balance Sheet Cash Accounts Receivable Inventory - 12/31 Land Buildings and Equipment Accumulated Depreciation Totals 95,250 106,250 83,250 187,500 250,000 (93,750) 628,500 7575 7575 7575 7575 7575 7575 72,152 80,484 63,062 142,031 189,375 (71,016) 476,088 62,500 15,000 340,500 210,500 628,500 7575 7575 7935 47,344 11,363 270,187 167,336 496,230 (20,142) 476,088 505,500 7935 401,114 76,750 (15,625) (15,625) 551,000 7962 7899 7910 61,108 (12,342) (12,359) 437,521 417,383 20,138* Accounts Payable Notes Payable Capital Stock Retained Earnings Totals Translation Adjustment - debit Totals Part B Exposed net asset position - 1/1 Adjustment for changes in the net asset position during the year: Add: Net income Less: Dividends 4/30 10/31 Net asset position translated using rate in effect at date of transactions Exposed net asset position - 12/31 Translation adjustment - debit *Difference of $4 due to rounding 13 - 28 7935 7899 7910 7575 199,050 96,738 41,203 61,109 130,928 192,037 12,342 12,359 167,336 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 13-8A (continued) Part C Investment in Nakima Company Cash (648,500 $.7935) 514,585 514,585 Cash 19,761 Dividend Income ($12,342 + $12,359) 80 = $19,761 19,761 Part D Supporting schedules for workpaper entries Account Equipment Land Inventories Patent Difference 73,875 54,063 27,187 150,000 305,125 Useful Life 10 Amortization (Aus.$) 14,775 27,187 15,000 56,962 Translation Rate $.7962 .7962 7962 Amortization (U.S.$) 11,764 21,646 11,943 45,353 Other Expenses - $11,764 + $11,943 = $23,707 Undervalued net assets at the beginning of the year Amortization this period Net asset position translated using the rate in effect at date of transaction Unamortized balance at end of year Translation adjustment Beginning of Year 27,187 73,875 54,063 150,000 305,125 Inventories Equipment Land Patent 13 - 29 Aus.$ 305,125 (56,962) 248,163 End of Year 59,100 54,063 135,000 248,163 7935 7962 7575 Translation Rate $.7575 7575 7575 U.S.$ 242,117 (45,353) 196,763 187,983 (8,780) U.S $ 44,768 40,953 102,263 187,984 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 13-8A (continued) BABBIT, INC AND FOREIGN SUBSIDIARY Consolidated Statement Workpaper For the Year Ended December 31, 2008 Babbit Inc Nakima Company Eliminations Dr Cr Noncontrolling Consolidated Interest Balances Income Statement Sales Dividend Income Cost of Goods Sold Other Expenses Net Income Noncontrolling Interest (61,109 – 21,646 – 23,707) 20 Net Income to Retained Earnings 545,475 19,761 565,236 425,000 75,000 500,000 65,236 199,050 _ 65,236 _ 61,109 (3) 199,050 96,738 (4) 41,203 (4) 137,941 61,109 744,525 _ 744,525 543,384 139,910 683,294 61,231 19,761 21,646 23,707 _ 65,114 _ 3,151 3,151 (3,151) 58,080 Retained Earnings Statement Retained Earnings - 1/1 Babbit, Inc Nakima Company Net Income from Above Dividends Declared Babbit, Inc Nakima Company Retained Earnings to Balance Sheet - 12/31 325,000 65,236 (50,000) _ 340,236 325,000 130,928 (1) 130,928 61,109 65,114 (24,701) _ (3) 167,336 196,042 13 - 30 3,151 19,761 19,761 58,080 (50,000) (4,940) _ (1,789) 333,080 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 13-8A (continued) Balance Sheet Cash Accounts Receivable Inventory Investment in Nakima Company Land Buildings and Equipment Accumulated Depreciation (196,016) Difference between Implied and Book Value Patent Totals Accounts Payable Notes Payable Capital Stock Babbit, Inc Nakima Company Translation Adjustment Babbit, Inc Nakima Company Retained Earnings from Above 333,080 1/1 Noncontrolling Interest 12/31 Noncontrolling Interest Totals 1,129,473 Babbit Inc 65,885 150,116 115,000 514,585 59,400 200,000 (125,000) _ 979,986 Nakima Company Eliminations Dr Cr 72,152 80,484 63,062 142,031 (4) 40,953 189,375 (4) 44,768 (71,016) Noncontrolling Consolidated Interest Balances (1) 514,585 (1) 242,117 (4) _ (4) 102,263 476,088 242,117 14,750 25,000 138,037 230,600 178,062 242,384 434,143 102,263 1,129,473 47,344 11,363 62,094 36,363 600,000 600,000 270,187 (1) 270,187 340,236 _ 979,986 (2) 16,114 (4) 8,780 (20,142) (2) 167,336 196,042 _ 476,088 (1) To eliminate investment account and create noncontrolling interest account (2) To recognize parent’s share of cumulative translation adjustment (3) To eliminate intercompany dividends (4) To allocate the difference between implied and book value 13 - 31 (24,894) 16,114 (1) 128,647 _ _ 921,224 (4,028) 19,761 128,647 122,830 921,224 (1,789) 122,830 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 13-9 (This is the same problem as Problem 13-3) Francs Part A Consolidated Income and Retained Earnings Statement Sales Cost of Goods Sold Depreciation Expense Other Expense Income Tax Expense Net Income Retained Earnings - 1/1 Translation Rate U.S.$ Less: Dividends Declared Retained Earnings - 12/31 3,775,000$.176 2,312,500 176 125,000 176 818,750 176 102,500 176 416,250 513,000 Given 929,250 375,000 18 554,250 664,400 407,000 22,000 144,100 18,040 73,260 75,948 149,208 67,500 81,708 Balance Sheet Cash Accounts Receivable Inventories Land Buildings (net) Equipment (net) Totals 962,500 $.19 660,000 19 1,037,500 19 500,000 19 550,000 19 405,000 19 4,115,000 182,875 125,400 197,125 95,000 104,500 76,950 781,850 Accounts Payable Short-Term Notes Payable Bonds Payable Common Stock Additional Paid-in Capital Retained Earnings Cumulative Translation Adjustment (Credit) Totals 800,000 650,750 850,000 960,000 300,000 554,250 4,115,000 152,000 123,643 161,500 144,000 45,000 81,708 73,999 781,850 13 - 32 19 19 19 15 15 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 13-9 (continued) Part B Verification of the Translation Adjustment Francs Exposed net asset position - 1/1 Adjustments for changes in net asset position during the year: Net income for the year Dividends declared Net asset position translated using rate in effect at date of transaction Exposed net asset position - 12/31 Change in cumulative translation adjustment during the year - net increase Cumulative translation adjustment - 1/1 (Given) Cumulative translation adjustment - 12/31 (Credit balance) * *Difference of $1.00 ($74,000 compared to $73,999) due to rounding * Common stock Additional paid-in capital Retained earnings 960,000 300,000 513,000 1,773,000 Francs 2,660 ,000 = 1.83 1,450 ,750 $ 505 ,400 = 1.83 275 ,643 Debt to equity 2,300 ,750 = 1.27 1,814 ,250 437 ,142 = 1.27 344 ,707 Gross profit percentage 1,462 ,500 = 38.7% 3,775 ,000 257 ,400 = 38.7% 664 ,400 Net income to sales 416 ,250 = 11.0% 3,775 ,000 73,260 = 11.0% 664 ,400 Part C Current ratio 13 - 33 Translation Rate 1,773,000*$.17 416,250 176 (375,000) 18 1,814,250 19 U.S.$ 301,410 73,260 (67,500) 307,170 344,708 37,538 36,462 74,000** To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 13-10 Francs Part A Balance Sheet Cash Accounts Receivable Inventories (FIFO Cost) Land Buildings (net) Equipment (net) Total Accounts Payable Short-Term Notes Payable Bonds Payable Common Stock Additional Paid-in Capital Retained Earnings Total Translation Rate U.S.$ 962,500 660,000 1,037,500 500,000 550,000 405,000 4,115,000 19 19 Schedule 15 15 15 182,875 125,400 191,938 75,000 82,500 60,750 718,463 800,000 650,750 850,000 960,000 300,000 554,250 4,115,000 19 19 19 15 15 152,000 123,643 161,500 144,000 45,000 92,320 718,463 Translation Francs Rate U.S.$ Consolidated Statement of Income and Retained Earnings Sales 3,775,000 $.176 664,400 Cost of Goods Sold 2,312,500 Schedule 388,532 Depreciation Expense 125,000 15 18,750 Other Expense 818,750 176 144,100 Income Tax Expense 102,500 176 18,040 416,250 94,978 Translation Loss Balancing Amt 11,818 Net Income 416,250 83,160 Retained Earnings - 1/1 513,000 76,660 929,250 159,820 Less: Dividends Declared 375,000 18 67,500 Retained Earnings - 12/31 554,250 92,320 Schedule Francs Beginning inventory Purchases Goods available Ending inventory Cost of goods sold 830,000 2,520,000 3,350,000 1,037,500 2,312,500 13 - 34 Translation Rate 165 176 185 U.S.$ 136,950 443,520 580,470 191,938 388,532 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 13-10 (continued) Part B Verification of the Translation Loss Francs Exposed net monetary liability position - 1/1 Adjustments for changes in net monetary position during the year: Less: Increase in cash and receivables from sales Add: Decrease in monetary assets or increase in monetary liabilities from operations: Purchases Other expenses Income taxes Dividends declared Net monetary liability position translated using rate in effect at date of transaction Exposed net monetary liability position - 12/31 Translation Loss *End of Year: Monetary assets 962,500 + 660,000 = Monetary liabilities 800,000 + 650,750 + 850,000 = Net monetary liability position 637,000 (3,775,000) 2,520,000 818,750 102,500 375,000 678,250* 1,622,500 2,300,750 678,250 13 - 35 Translation Rate U.S.$ 17 108,290 176 (664,400) 176 176 176 18 443,520 144,100 18,040 67,500 19 117,050 128,868 (11,818) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 13-11A Part A See Problem 13-9 Part B Cash ((375,000 $.18) 80) Investment in SFr Company 54,000 Investment in SFr Company Equity in Subsidiary Income 53,328 54,000 53,328 Part C Elimination Entries (1) Equity Income Investment in SFr Company Dividends Declared 53,328 672 54,000 (2) Beginning Retained Earnings - SFr Company Common Stock - SFr Company Additional Paid-In Capital - SFr Company Difference Between Implied and Book Value Investment in SFr Company Noncontrolling Interest 75,948 144,000 45,000 114,000 303,158 75,790 (3) Cumulative Translation Adjustment –SFr Company ($73,999 x 80) Cumulative Translation Adjustment – P Company 59,199 (4) Investment in SFr Company (37,500 $.156) x 80 Noncontrolling interest (37,500 $.156) x 20 Depreciation Expense (37,500 $.176) Land (385,000 $.19) Building (300,000 $.19) Difference Between Implied and Book Value Cumulative Translation Adjustment ($13,200 + $15,400) 4,680 1,170 6,600 73,150 57,000 : 13 - 36 59,199 114,000 28,600 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 13-11A (continued) Supporting computations for eliminating entries Francs Implied value of investment (2,000,000/.80) Book value of net assets Common stock Additional paid-in capital Retained earnings Net assets Difference between implied and book value Land Building Excess of cost over fair value 960,000 300,000 480,000 1,740,000 Translation Rate 2,500,000 15 1,740,000 760,000 (385,000) (375,000) 15 15 15 15 261,000 114,000 (57,750) (56,250) 56,250 (5,850) (6,600) 43,800 57,000 13,200 Undervalued building Amortization - Prior year - 2012 Building translated using rate in effect at date of transaction Unamortized balance - 12/31/2012 Cumulative translation adjustment 375,000 (37,500) (37,500) 15 156 176 300,000 19 Land - Date of acquisition - 12/31/2012 Cumulative translation adjustment 385,000 385,000 15 19 Total adjustment - $13,200 + $15,400 = $28,600 13 - 37 U.S.$ 375,000 57,750 73,150 15,400 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 13-11A (continued) Income Statement P Company SFr Company Sales Equity in Subsidiary Income Total Revenues Cost of Goods Sold Depreciation Expense Other Expense Income Tax Expense 4,200,000 53,328 4,253,328 2,720,000 210,000 914,000 100,000 664,400 Total Expenses Net Income Noncontrolling Interest Net Income to Retained Earnings 3,944,000 309,328 591,140 73,260 Retained Earnings Statement Retained Earnings - 1/1 P Company SFr Company Net Income from Above Dividends Declared P Company SFr Company Retained Earnings to Balance Sheet - 12/31 309,328 Eliminations Dr (1) 664,400 407,000 22,000 144,100 18,040 (4) 73,260 Noncontrolling Consolidated Interest Balances Cr 4,864,400 4,864,400 3,127,000 238,600 1,058,100 118,040 53,328 6,600 59,928 - 13,332 13,332 542,878 309,328 542,878 75,948 73,260 (2) 75,948 59,928 - 13,332 (200,000) 309,328 (200,000) (67,500) 652,206 4,541,740 322,660 (13,332) 309,328 81,708 13 - 38 (1) 135,876 54,000 (13,500) 54,000 (168) 652,206 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 13-11A (continued) Balance Sheet Cash Accounts Receivable Inventories (FIFO Cost) Investment in SFr Company Land Buildings (net) Equipment (net) Difference between Implied & Book Value Total Accounts Payable Short-Term Notes Payable Bonds Payable Common Stock P Company SFr Company Additional Paid-In Capital P Company SFr Company Cumulative Translation Adjustment P Company SFr Company Retained Earnings 1/1 Noncontrolling Interest 12/31 Noncontrolling Interest Total P Company SFr Company 500,200 516,400 627,800 297,806 182,875 125,400 197,125 450,000 610,000 290,000 95,000 104,500 76,950 Eliminations Dr (1) (4) (4) (4) Cr 672 (2) 4,680 73,150 57,000 Noncontrolling Consolidated Interest Balances 683,075 641,800 824,925 - 303,158 3,292,206 781,850 618,150 771,500 366,950 3,906,400 540,000 300,000 700,000 152,000 123,643 161,500 692,000 423,643 861,500 (2) 114,000 (4) 114,000 800,000 800,000 144,000 (2) 144,000 300,000 300,000 45,000 (2) 45,000 (3) (4) 652,206 73,999 81,708 (3) (4) 3,292,206 781,850 13 - 39 59,199 135,876 1,170 (2) 634,747 59,199 28,600 54,000 75,790 634,747 87,799 14,800 (168) 74,620 89,252 652,206 89,252 3,906,400 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 13-12A Part A See Problem 13-10 Part B Cash ((375,000 $.18) 80) Investment in SFr Company 54,000 Investment in SFr Company Equity in Subsidiary Income 53,328 54,000 53,328 Elimination Entries (1) Equity in Subsidiary Income Dividends Declared Investment in SFr Company 62,028 54,000 8,028 (2) Beginning Retained Earnings - SFr Company Common Stock - SFr Company Additional Paid-in Capital - SFr Company Difference Between Implied and Book Value Investment in SFr Company Noncontrolling interest (3) Investment in SFr Company Noncontrolling interest (37,500 x $.15) x 20) Depreciation Expense Land Building Difference between Implied and Book Value 76,660 144,000 45,000 114,000 303,728 75,932 4,500 1,125 5,625 57,750 45,000 Supporting computations: 375,000 $.15 = 37,500 $.15 = $5,625 10 Unamortized balance - 12/31/2009 Land 385,000 $.15 = $57,750 Building 375,000 - 37,500 - 37,500 = 300,000 $.15 = $45,000 Depreciation expense per year 13 - 40 114,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 13-12A (continued) Part C Income Statement Sales Equity in Subsidiary Income Total Revenues Cost of Goods Sold Depreciation Expense Other Expense Income Tax Expense Total Expenses Translation Loss Net Income Noncontrolling Interest Net Income to Retained Earnings Retained Earnings Statement Retained Earnings - 1/1 P Company SFr Company Net Income from Above Dividends Declared P Company SFr Company Retained Earnings to Balance Sheet - 12/31 P Company 4,200,000 62,028 4,262,028 2,720,000 210,000 914,000 100,000 3,944,000 318,028 318,028 SFr Company Eliminations Dr Noncontrolling Consolidated Interest Balances Cr 664,400 664,400 388,532 18,750 144,100 18,040 569,422 11,818 83,160 (1) 62,028 (3) 5,625 83,160 67,653 - 15,507 15,507 543,628 318,028 543,628 76,660 83,160 (2) 76,660 67,653 - 15,507 (200,000) 318,028 (200,000) (67,500) 661,656 4,864,400 4,864,400 3,108,532 234,375 1,058,100 118,040 4,519,047 11,818 333,535 (15,507) 318,028 92,320 13 - 41 (1) 144,313 54,000 (13,500) 54,000 2,007 661,656 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 13-12A (continued) Balance Sheet Cash Accounts Receivable Inventories (FIFO Cost) Investment in SFr Company Land Buildings (net) Equipment (net) Difference between Implied & Book Value Total Assets P SFr Company Company 500,200 182,875 516,400 125,400 627,800 191,938 307,256 (3) 450,000 610,000 290,000 3,301,656 Accounts Payable Short-Term Notes Payable Bonds Payable Common Stock P Company SFr Company Additional Paid-In Capital P Company SFr Company Retained Earnings 1/1 Noncontrolling Interest 12/31 Noncontrolling Interest 540,000 300,000 700,000 Total Liabilities and Equity 3,301,656 75,000 (3) 82,500 (3) 60,750 (2) 718,463 Eliminations Dr 4,500 (2) (1) 57,750 45,000 114,000 (3) Noncontrolling Consolidated Cr Interest Balances 683,075 641,800 819,738 303,728 8,028 582,750 737,500 350,750 114,000 3,815,613 152,000 123,643 161,500 692,000 423,643 861,500 800,000 800,000 144,000 (2) 144,000 300,000 661,656 300,000 45,000 (2) 92,320 (3) 718,463 13 - 42 45,000 144,313 1,125 555,688 (2) 54,000 75,932 555,688 2,007 74,807 76,814 661,656 76,814 3,815,613 ... equity when the current rate method is used to translate the accounts Business Ethics Solutions Business ethics solutions are merely suggestions of points to address The objective is to raise the...To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 10 Revenues and expenses are translated... http://www.aflcio.org/corporatewatch/paywatch/stockoptions.cfm 13 - To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com ANSWERS TO EXERCISES Exercise 13-1