on worksheet, parent accounting stock of Soo of London on January 1, 2011, for $
ID: 2337033 • Letter: O
Question
on worksheet, parent accounting stock of Soo of London on January 1, 2011, for $800,000, uired all the outstanding capital stock of Soo of London on January uity consisted of pounds was $1.60 and Soo's stockholders equity consisted of retained earnings. Soo's functional currency is the British oo at January 1, 2011, in British pounds and U.S. dollars are P a the exchange rate for British 000 capital stock and £100,000 marized as follows: British Pounds Exchange Rate U.S. Dollars Cash Accounts receivable-net $1.60 1.60 1.60 1.60 64,000 Equipment £900,000 £250,000 150,000 400,000 $1.440,000 Accumulated depreciation Accounts payable Capital stock Retained earnings $1.60 1.60 1.60 1.60 100 £900,000 1,440,000 Exchange rates for 2011 are as follows Current exchange rate, January 1, 2011 Average exchange rate for 2011 Rate for cash dividends Current exchange rate, December 31.2011 $1.60 1.63 1.62 1.65 Soo's adjusted trial balance in British pounds at December 31, 2011, is as follows: ts Cash Accounts receivable--net 70,000 800,000 -350.000 80,000 100,000 30,000 £1,500,000 Equipment Cost of sales Depreciation expense ses Dividends Credits Accumulated depreciation Accounts payable Capital stock Retained earnings Sales £330,000 70,000 400,000 100,000 ,000 £1,500,000 1 Prepare a translation worksheet to convert Soo's December 31, 2011, adjusted trial balance into U.S 2 Prepare journal entries on Pyl's books to account for the investment in Soo for 2011. compute the translation gain or loss.Explanation / Answer
1 it is given that P acquired 100% outstanding capital stock in S on Jan 2011 for $800000 when the exchange rate was $1.60 per pound and an average exchange rate for 2011 will be $1.63 per pound and exchange rate for cash dividend $1.62 per poiund and exchnage rate on Dec 31 2011 will be $1.65 Prepare the translation worksheet to convert S's adjusted TB at dec 31 2011 into S Translation Worksheet for 2011 A B C=A*B Debits Amount in Pounds Exchange Rate Amount in Dollars Cash 20000 1.65 33000 Accounts Receivable-net 70000 1.65 115500 Inventories 50000 1.65 82500 Equipment 800000 1.65 1320000 Cost of Sales 350000 1.63 570500 Depreciation Exp 80000 1.63 130400 Operating exp 100000 1.63 163000 Dividends 30000 1.62 48600 1500000 2463500 Credits Accumulated Depreciation 330000 1.65 544500 Accounts Payable 70000 1.65 115500 Capital Stock 400000 1.6 640000 Retained Earnings 100000 1.6 160000 Sales 600000 1.63 978000 Equity Adjust from Translation 25500 bal fig The difference is transferred to Equity Adjustment from translation account 1500000 2463500 2 It is given that P acquired 100 % OS capital stock on Jan 01 2011 for $800000 when the exchange rate was $ 1.6 per pound and average exchange rate for 2011 will be $1.63 per pound and exchange rate for cash dividend will be $1.62 per pound and exchange rate on dec 31 2011 will be $1.65 Journal Entry Date Account Title Dr Cr 1-Jan-11 Investment in S $800,000 To cash $800,000 to record the purchase of S at BV Cash $48,600 To Investment in S $48,600 to record the dividends from S 31-Dec-11 Investment in S $139,600 To Income from S $114,100 To Equity Adjust from Translation $25,500 to record the income from S and enter equity adjustment for currency flcutuation 3 it is given that P acquired 100% OS capital stock in S on Jan 1 2011 for $800000 when the exchange rate was $1.60 per pound and average exchange rate for 2011 will be $1.63 per pound and exchange rate for cash dividend will be $1.62 per pound and exchange rate on Dec 31 2011 will be $1.65 Compute the Effect of exchange rate as below BV of Net Assets at beginning (500000 Pounds *($1.65-$1.60) $25,000 Add Net Income (70000 pounds *($1.65-$1.63)) $1,400 Less Dividends (30000 pounds *($1.65-$1.62)) ($900) Exchange rate of changes on net assets $25,500 As the effect of exchange rate change on a net asset is positive and as per the translation workseet there is a credit balance of Equity adjustments from translation it depicts that there is a translation gain of $25500 during 2011
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