On January 1, 20X5, Pirate Company acquired all of the outstanding stock of Ship Inc., a Norwegiancompany, at a cost of $167,400. Ship's net assets on the date of acquisition were 700, 000 kroner (NKr). OnJanuary 1, 20X5, the book and fair values of the Norwegian subsidiary's identifiable assets and liabilitiesapproximated their fair values except for property, plant, and equipment and patents acquired. The fair valueof Ship's property, plant, and equipment exceeded its book value by $18,000. The remaining useful life ofShip's equipment at January 1, 20X5, was 10 years. The remainder of the differential was attributable to apatent having an estimated useful life of 5 years. Ship's trial balance on December 31, 20X5, in kroner,follows: Debits Credits Cash NKr 163, 000 Accounts Receivable (net) 223, 000 Inventory 279,000 Property,Plant & Equipment 603,000 Accumulated Depreciation NKr 160,000 Accounts Payable 98,000 Notes Payable206,000 Common Stock 440,000 Retained Earnings 260,000 Sales 746, 000 Cost of Goods Sold 424,000Operating Expenses 121,000 Depreciation Expense 57,000 Dividends Paid 40,000 Total NKr 1, 910,000 NKr1,910,000 Additional Information: Ship uses the FIFO method for its inventory. The beginning inventory wasacquired on December 31, 20X4, and ending inventory was acquired on December 15, 20X5. Purchases ofNKr430,000 were made evenly throughout 20X5. Ship acquired all of its property, plant, and equipment onJuly 1, 20X3, and uses straight-line depreciation. Ship's sales were made evenly throughout 20X5, and itsoperating expenses were incurred evenly throughout 20X5. The dividends were declared and paid on July1, 20X5. Pirate's income from its own operations was $243,000 for 20X5, and its total stockholders' equityon January 1, 20X5, was $3,600,000. Pirate declared $190,000 of dividends during 20X5. Exchange rateswere as follows: NKr $ July 1, 20X3 1 = 0.15 December 30, 20X4 1 = 0.18 January 1, 20X5 1 = 0.18 July1, 20X5 1 = 0.19 December 15, 20X5 1 = 0.205 December 31, 20X5 1 = 0.21 Average for 20X5 1 = 0.20\table [[July 1, 20 x 3, 1, = 0.15b. Assume that Pirate uses the fully adjusted equity method. Record all journalentries that relate to its investment in the Norwegiar subsidiary during 20 x 5. Provide the necessarydocumentation and support for the amounts in the journal entries, including a sche of the translationadjustment related to the differential. (If no entry is required for a transaction/event, select "No journal entry b. Assume that Pirate uses the fully adjusted equity method. Record all journal entries that relate to its investment in the Norwegiansubsidiary during 20X5. Provide the necessary documentation and support for the amounts in the journal entries, including a scheof the translation adjustment related to the differential. (If no entry is required for a transaction/event, select "No journal entryrequired" in the first account field.)No123456DateJanuary 01July 01December 31December 31December 31December 31Answer is complete but not entirely correct.General JournalInvestment in Ship CompanyCashCashInvestment in Ship CompanyInvestment in Ship CompanyIncome from subsidiaryInvestment in Ship CompanyOther Comprehensive Income - Translation adjustmentIncome from subsidiaryInvestment in Ship CompanyInvestment in Ship CompanyOther Comprehensive Income - Translation adjustmentDebit167,4007,60028,80021,6407,20017,260Credit167,4007,60028,80021,6407,20017,260

The rate at which one country’s currency can be converted into another country’s currency referred…

On January 1, 20X5, Pirate Company acquired all of the outstanding stock of Ship Inc., a Norwegian company, at a cost of $167, 400. 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 NKr 163,000 Accounts Receivable (net) 223, 000 Inventory 279,000 Property, Plant & Equipment 603,000 Accumulated Depreciation NKr 160,000 Accounts Payable 98,000 Notes Payable 206,000 Common Stock 440,000 Retained Earnings 260,000 Sales 746,000 Cost of Goods Sold 424,000 Operating Expenses 121,000 Depreciation Expense 57,000 Dividends Paid 40,000 Total NKr 1,910,000 NKr 1,910,000 Additional Information: Ship uses the FIFO method for its inventory. The beginning inventory was acquired on December 31, 20X4, and ending inventory was acquired on December 15, 20X5. Purchases of

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q