2. July 1, Record the dividend received from the foreign subsidiary. 3. December

Question

2.  July 1, Record the dividend received from the foreign subsidiary.

3. December 31 Record the equity in the net income of the foreign subsidiary.

4. December 31 Record the parent's share of the translation adjustment from the translation of the subsidiary's accounts.

5. December 31 Record the amortization of the differential.

6. December 31 Record the translation adjustment applicable to the differential.

On January 1, 20X5, Pirate Company acquired all of the outstanding stock of Ship Inc., a Norwegian company, at a cost of $163,800 Ship's net assets on the date of acquisition were 700,000 kroner (NKr). On January 1, 20X5, the book and fair values of the Norwegian subsidiary's identifiable assets and liabilities approximated their fair values except for property, plant, and equipment and patents acquired. The fair value of Ship's property, plant, and equipment exceeded its book value by $18,000. The remaining useful life of Ship's equipment at January 1, 20X5, was 10 years. The remainder of the differential was attributable to a patent having an estimated useful life of 5 years. Ship's trial balance on December 31, 20X5, in kroner, follows Debits Credits Cash Accounts Receivable (net) Inventory Property, Plant & Equipment Accumulated Depreciation Accounts Payable Notes Payable Common Stock Retained Earnings Sales Cost of Goods Sold Operating Expenses Depreciation Expense Dividends Paid Total NKr 155,000 204,000 293,000 605,000 NKr 169,000 96,000 196,000 430,000 270,000 736,000 424,000 115,000 60,000 41,000 NKr1,897,000 NKr1, 897,000

Explanation / Answer

Trial Balance of Pirate INC. as on 31st Dec. 2015

Item Balance($)

1. Cash 32550(155000 * 0.21)

2. Accounts receivable 42840(204000 * 0.21)

3. Inventory 61530(293000 * 0.21)

4. Property,plant & Equipment 108900(605000 * 0.18)

5. Cost of goods sold 84800(424000 * 0.20)

6. Operating expenses 23000(115000 * 0.20)

7. Depreciation expense 10800(60000 * 0.18)

8. Dividends paid 7790(41000 * 0.19)

TOTAL DEBITS 372210

1. Accumulated Depreciation 30420(169000 * 0.18)

2. Accounts payable 20160(96000 * 0.21)

3. Notes payable 41160(196000 * 0.21)

4. Common stock 77400(430000 * 0.18)

5. Retained Earnings 48600(270000 * 0.18)

6. Sales 147200(736000 * 0.20)

  TOTAL CREDITS 364940

EXCHANGE DIFFERENCE(GAIN) 7270

The above gain is transferred to FOREIGN CURRENCY TRANSLATION RESERVE.

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