On 12/20/20x1, Banana Company, a U.S.-based entity, acquired all of the outstanding common stock of Pooma Industries, which is located in Switzerland.   The cost of acquiring Watermellon was 8.2 million Swiss francs.  On the acquisition date, the U.S. dollar/Swiss franc exchange rate was $0.52 = SF1.   The assets and liabilities acquired at 12/20/20x1 were: Assets Swiss Franc Liabilities and Equity Swiss Franc Cash 500,000 Notes Payable 1,270,500 Inventory 770,500 Shareholders' Equity 3,500,000 Property, plant and equipment 3,500,000     Total Assets $4,770,500 Total Liabilities and Shareholders’ Equity $4,770,500   At 12/31/20x1, Banana Company prepares its year-end financial statements. By 12/31/20x1, the U.S. dollar/Swiss franc exchange rate was $0.535 = SF1.   For purposes of this problem, assume that after the 12/20/20x1, Watermellon Industries had no additional transactions that changed their financial position.   Required Determine the resulting adjustment to be reported in consolidation, assuming the Swiss Franc is Watermellon Industries’ functional currency. Please show your work.  Additionally, explain how the company would account for/report the adjustment in their financial statements. Determine the resulting adjustment to be reported in consolidation, assuming the U.S. dollar is Watermellon Industries’ functional currency.Please show your work.  Additionally, explain how the company would account for/report the adjustment in their financial statements.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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On 12/20/20x1, Banana Company, a U.S.-based entity, acquired all of the outstanding common stock of Pooma Industries, which is located in Switzerland.

 

The cost of acquiring Watermellon was 8.2 million Swiss francs.  On the acquisition date, the U.S. dollar/Swiss franc exchange rate was $0.52 = SF1.

 

The assets and liabilities acquired at 12/20/20x1 were:

Assets

Swiss Franc

Liabilities and Equity

Swiss Franc

Cash

500,000

Notes Payable

1,270,500

Inventory

770,500

Shareholders' Equity

3,500,000

Property, plant and equipment

3,500,000

 

 

Total Assets

$4,770,500

Total Liabilities and Shareholders’ Equity

$4,770,500

 

At 12/31/20x1, Banana Company prepares its year-end financial statements. By 12/31/20x1, the U.S. dollar/Swiss franc exchange rate was $0.535 = SF1.

 

For purposes of this problem, assume that after the 12/20/20x1, Watermellon Industries had no additional transactions that changed their financial position.

 

Required

  1. Determine the resulting adjustment to be reported in consolidation, assuming the Swiss Franc is Watermellon Industries’ functional currency. Please show your work.  Additionally, explain how the company would account for/report the adjustment in their financial statements.
  2. Determine the resulting adjustment to be reported in consolidation, assuming the U.S. dollar is Watermellon Industries’ functional currency.Please show your work.  Additionally, explain how the company would account for/report the adjustment in their financial statements.
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