accounts for its investment in Simbel under the initial value method. Any excess of fair value of consideration transferred over book value is attributable to undervalued land on Simbel’s books. Simbel had no retained earnings at the date of acquisition. The following are the 2020 financial statements for the two operations. Information for Cayce and for Simbel is in U.S. dollars ($) and Egyptian pounds (£E), respectively. Cayce Corporation Simbel
On January 1, 2019, Cayce Corporation acquired 100 percent of Simbel Company for consideration transferred with a fair value of $137,700. Cayce is a U.S.-based company headquartered in Buffalo, New York, and Simbel is in Cairo, Egypt. Cayce accounts for its investment in Simbel under the initial value method. Any excess of fair value of consideration transferred over book value is attributable to undervalued land on Simbel’s books. Simbel had no
| Cayce Corporation |
Simbel Company |
||||||
| Sales | $ | 222,400 | £E | 864,500 | |||
| Cost of goods sold | (105,000 | ) | (453,700 | ) | |||
| Salary expense | (21,800 | ) | (79,600 | ) | |||
| Rent expense | (8,400 | ) | (48,800 | ) | |||
| Other expenses | (25,200 | ) | (63,200 | ) | |||
| Dividend income—from Simbel | 17,600 | 0 | |||||
| Gain on sale of building, 10/1/20 | 0 | 44,000 | |||||
| Net income | $ | 79,600 | £E | 263,200 | |||
| Retained earnings, 1/1/20 | $ | 332,000 | £E | 144,200 | |||
| Net income | 79,600 | 263,200 | |||||
| Dividends | (38,000 | ) | (64,000 | ) | |||
| Retained earnings, 12/31/20 | $ | 373,600 | £E | 343,400 | |||
| Cash and receivables | $ | 112,200 | £E | 161,400 | |||
| Inventory | 99,400 | 327,800 | |||||
| Prepaid expenses | 30,000 | 0 | |||||
| Investment in Simbel (initial value) | 137,700 | 0 | |||||
| Property, plant, and equipment (net) | 442,800 | 469,000 | |||||
| Total assets | $ | 822,100 | £E | 958,200 | |||
| Accounts payable | $ | 66,400 | £E | 58,200 | |||
| Notes payable—due in 2023 | 155,300 | 144,200 | |||||
| Common stock | 134,000 | 254,000 | |||||
| Additional paid-in capital | 92,800 | 158,400 | |||||
| Retained earnings, 12/31/20 | 373,600 | 343,400 | |||||
| Total liabilities and equities | $ | 822,100 | £E | 958,200 | |||
Additional Information
-
During 2019, the first year of joint operation, Simbel reported income of £E 177,000 earned evenly throughout the year. Simbel declared a dividend of £E 32,800 to Cayce on June 1 of that year. Simbel also declared the 2020 dividend on June 1.
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On December 9, 2020, Simbel classified a £E 11,400 expenditure as a rent expense, although this payment related to prepayment of rent for the first few months of 2021.
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The exchange rates for 1 £E are as follows:
| January 1, 2019 | $ | 0.300 |
| June 1, 2019 | 0.290 | |
| Weighted average rate for 2019 | 0.288 | |
| December 31, 2019 | 0.280 | |
| June 1, 2020 | 0.275 | |
| October 1, 2020 | 0.273 | |
| Weighted average rate for 2020 | 0.274 | |
| December 31, 2020 | 0.270 | |
Translate Simbel’s 2020 financial statements into U.S. dollars and prepare a consolidation worksheet for Cayce and its Egyptian subsidiary. Assume that the Egyptian pound is the subsidiary’s functional currency.
| Sales | pounds | exchange rate | dollars |
| cost of goods sold | |||
| salary expense | |||
| rent expense | |||
| other expenses | |||
| gain on sale of building | |||
| Net income | |||
| retained earning | |||
| net income | |||
| dividends | |||
| retained earnings 12/30/20 | |||
| cash and recievables | |||
| inventory | |||
| prepaid expense (adjusted) | |||
| property, plant, equipment (net) | |||
| total assets | |||
| accounts payable | |||
| notes payable-due 2023 | |||
| common stock | |||
| additional paid in capital | |||
| retained earnings 12/30/20 | |||
| subtotal | |||
| cumulative translation adjustment | |||
| total liabilities and equities |
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