On January 1, 2019, Parker, Inc., a U.S.-based firm, acquired 100 percent of Suffolk PLC located in Great Britain for consideration paid of 52,000,000 British pounds (£), which was equal to fair value. The excess of fair value over book value is attributable to land (part of property, plant, and equipment) and is not subject to depreciation. Parker accounts for its investment in Suffolk at cost. On January 1, 2019, Suffolk reported the following balance sheet: Cash Accounts receivable $ 2,000,000 Accounts payable 3,000,000 Long-term debt 14,000,000 Common stock 40,000,000 Retained earnings $59,000,000 $ 1,000,000 $,000,000 44,000,000 6,000,000 Inventory Property, plant, and equipment (net) $59,000,000 Suffolk's 2019 income was recorded at £2,000,000. It declared and paid no dividends in 2019. On December 31, 2020, two years after the date of acquisition, Suffolk submitted the following trial balance to Parker for consolidation: Page 537 Cash $ 1,500,000 Accounts Receivable 5,200,000 Inventory 18,000,000 Property, Plant, and Equipment (net) 36,000,000 Accounts Payable (1,450,000) Long-Term Debt (5,000,000) Common Stock (44,000,000) Retained Earnings, 1/1/20 (8,000,000) Sales (28,000,000) Cost of Goods Sold 16,000,000 Depreciation 2,000,000 Other Expenses 6,000,000 Dividends, 1/30/20 1,750,000 -0- Other than paying dividends, no intra-entity transactions occurred between the two companies. Relevant U.S. dollar exchange rates for the British pound follow: January 30 Average December 31 January 1 $ 1.60 $ 1.61 $ 1.64 2019 2020 $ 1.62 1.66 1.64 1.65 1.68

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Chapter1: Financial Statements And Business Decisions
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On January 1, 2019, Parker, Inc., a U.S.-based firm, acquired 100 percent of Suffolk PLC located in Great Britain for consideration paid
of 52,000,000 British pounds (£), which was equal to fair value. The excess of fair value over book value is attributable to land (part of
property, plant, and equipment) and is not subject to depreciation. Parker accounts for its investment in Suffolk at cost. On January 1,
2019, Suffolk reported the following balance sheet:
Cash
Accounts receivable
$ 2,000,000 Accounts payable
3,000,000 Long-term debt
14,000,000 Common stock
40,000,000 Retained earnings
$59,000,000
$ 1,000,000
$,000,000
44,000,000
6,000,000
Inventory
Property, plant, and equipment (net)
$59,000,000
Suffolk's 2019 income was recorded at £2,000,000. It declared and paid no dividends in 2019.
On December 31, 2020, two years after the date of acquisition, Suffolk submitted the following trial balance to Parker for
consolidation:
Page 537
Cash
$ 1,500,000
Accounts Receivable
5,200,000
Inventory
18,000,000
Property, Plant, and Equipment (net) 36,000,000
Accounts Payable
(1,450,000)
Long-Term Debt
(5,000,000)
Common Stock
(44,000,000)
Retained Earnings, 1/1/20
(8,000,000)
Sales
(28,000,000)
Cost of Goods Sold
16,000,000
Depreciation
2,000,000
Other Expenses
6,000,000
Dividends, 1/30/20
1,750,000
-0-
Other than paying dividends, no intra-entity transactions occurred between the two companies. Relevant U.S. dollar exchange rates for
the British pound follow:
January 1
January 30
Average
December 31
$ 1.60
$ 1.61
$ 1.62
$ 1.64
2019
2020
1.64
1.65
1.66
1.68
Transcribed Image Text:On January 1, 2019, Parker, Inc., a U.S.-based firm, acquired 100 percent of Suffolk PLC located in Great Britain for consideration paid of 52,000,000 British pounds (£), which was equal to fair value. The excess of fair value over book value is attributable to land (part of property, plant, and equipment) and is not subject to depreciation. Parker accounts for its investment in Suffolk at cost. On January 1, 2019, Suffolk reported the following balance sheet: Cash Accounts receivable $ 2,000,000 Accounts payable 3,000,000 Long-term debt 14,000,000 Common stock 40,000,000 Retained earnings $59,000,000 $ 1,000,000 $,000,000 44,000,000 6,000,000 Inventory Property, plant, and equipment (net) $59,000,000 Suffolk's 2019 income was recorded at £2,000,000. It declared and paid no dividends in 2019. On December 31, 2020, two years after the date of acquisition, Suffolk submitted the following trial balance to Parker for consolidation: Page 537 Cash $ 1,500,000 Accounts Receivable 5,200,000 Inventory 18,000,000 Property, Plant, and Equipment (net) 36,000,000 Accounts Payable (1,450,000) Long-Term Debt (5,000,000) Common Stock (44,000,000) Retained Earnings, 1/1/20 (8,000,000) Sales (28,000,000) Cost of Goods Sold 16,000,000 Depreciation 2,000,000 Other Expenses 6,000,000 Dividends, 1/30/20 1,750,000 -0- Other than paying dividends, no intra-entity transactions occurred between the two companies. Relevant U.S. dollar exchange rates for the British pound follow: January 1 January 30 Average December 31 $ 1.60 $ 1.61 $ 1.62 $ 1.64 2019 2020 1.64 1.65 1.66 1.68
The December 31, 2020, financial statements (before consolidation with Suffolk) follow Dividend income is the U.S. dollar amount of
dividends received from Suffolk translated at the $1.65/£ exchange rate at January 30, 2020. The amounts listed for dividend income and
all affected accounts (i.e., net income, December 31 retained earnings, and cash) reflect the $1.65/£ exchange rate at January 30, 2020.
Credit balances are in parentheses.
Parker
Sales
$ (70,000,000)
34,000,000
Cost of goods sold
Depreciation
20,000,000
Other expenses
6,000,000
(2,887,500)
Dividend income
Net income
$ (12,887,500)
$ (48,000,000)
Retained earnings, 1/1/20
Net income, 2020
Dividends, 1/30/20
Retained earnings, 12/31/20
(12,887,500)
4,500,000
$ (56,387,500)
3,687,500
10,000,000
Cash
$
Accounts receivable
Inventory
30,000,000
Investment in Suffolk
83,200,000
105,000,000
(25,500,000)
Plant and equipment (net)
Accounts payable
Long-term debt
Common stock
(50,000,000)
Retained earnings, 12/31/20
(100,000,000)
(56,387,500)
-0-
Parker's chief financial officer (CFO) wishes to determine the effect that a change in the value of the British pound would have on
consolidated net income and consolidated stockholders' equity. To help assess the foreign currency exposure associated with the
investment in Suffolk, the CFO requests assistance in comparing consolidated results under actual exchange rate fluctuations with results
that would have occurred had the dollar value of the pound remained constant or declined during the first two years of Parker's
ownership.
1. Translate Suffolk's December 31, 2017, trial balance from British pounds to
U.S. dollars. The British pound is Suffolk's functional currency.
Transcribed Image Text:The December 31, 2020, financial statements (before consolidation with Suffolk) follow Dividend income is the U.S. dollar amount of dividends received from Suffolk translated at the $1.65/£ exchange rate at January 30, 2020. The amounts listed for dividend income and all affected accounts (i.e., net income, December 31 retained earnings, and cash) reflect the $1.65/£ exchange rate at January 30, 2020. Credit balances are in parentheses. Parker Sales $ (70,000,000) 34,000,000 Cost of goods sold Depreciation 20,000,000 Other expenses 6,000,000 (2,887,500) Dividend income Net income $ (12,887,500) $ (48,000,000) Retained earnings, 1/1/20 Net income, 2020 Dividends, 1/30/20 Retained earnings, 12/31/20 (12,887,500) 4,500,000 $ (56,387,500) 3,687,500 10,000,000 Cash $ Accounts receivable Inventory 30,000,000 Investment in Suffolk 83,200,000 105,000,000 (25,500,000) Plant and equipment (net) Accounts payable Long-term debt Common stock (50,000,000) Retained earnings, 12/31/20 (100,000,000) (56,387,500) -0- Parker's chief financial officer (CFO) wishes to determine the effect that a change in the value of the British pound would have on consolidated net income and consolidated stockholders' equity. To help assess the foreign currency exposure associated with the investment in Suffolk, the CFO requests assistance in comparing consolidated results under actual exchange rate fluctuations with results that would have occurred had the dollar value of the pound remained constant or declined during the first two years of Parker's ownership. 1. Translate Suffolk's December 31, 2017, trial balance from British pounds to U.S. dollars. The British pound is Suffolk's functional currency.
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