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

Problem 1Q

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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

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.

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