On January 1, 20X5, Pirate Company acquired all of the outstanding stock of Ship Incorporated, a Norwegian company, at a cost of $153,000. 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 153,000 Accounts Receivable (net) 229,000 Inventory 278,000 Property, Plant and Equipment 614,000 Accumulated Depreciation NKr 163,000 Accounts Payable 106,000 Notes Payable 207,000 Common Stock 440,000 Retained Earnings 260,000 Sales 746,000 Cost of Goods Sold 419,000 Operating Expenses 122,000 Depreciation Expense 53,000 Dividends Paid 54,000 Total NKr 1,922,000 NKr 1,922,000 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 NKr430,000 were made evenly throughout 20X5. Ship acquired all of its property, plant, and equipment on July 1, 20X3, and uses straight-line depreciation. Ship’s sales were made evenly throughout 20X5, and its operating expenses were incurred evenly throughout 20X5. The dividends were declared and paid on July 1, 20X5. Pirate’s income from its own operations was $272,000 for 20X5, and its total stockholders’ equity on January 1, 20X5, was $3,500,000. Pirate declared $150,000 of dividends during 20X5. Exchange rates were as follows: July 1, 20X3 NKr 1 = $ 0.15 December 30, 20X4 NKr 1 = $ 0.18 January 1, 20X5 NKr 1 = $ 0.18 July 1, 20X5 NKr 1 = $ 0.19 December 15, 20X5 NKr 1 = $ 0.205 December 31, 20X5 NKr 1 = $ 0.21 Average for 20X5 NKr 1 = $ 0.20 Assume the U.S. dollar is the functional currency, not the krone. Required: Prepare a schedule remeasuring the trial balance from Norwegian kroner into U.S. dollars. Assume that Pirate uses the fully adjusted equity method. Record all journal entries that relate to its investment in the Norwegian subsidiary during 20X5. Provide the necessary documentation and support for the amounts in the journal entries. Prepare a schedule that determines Pirate's consolidated net income for 20X5. Compute Pirate's total consolidated stockholders' equity at December 31, 20X5.

On January 1, 20X5, Pirate Company acquired all of the outstanding stock of Ship Incorporated, a Norwegian company, at a cost of $153,000. 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 153,000 Accounts Receivable (net) 229,000 Inventory 278,000 Property, Plant and Equipment 614,000 Accumulated Depreciation NKr 163,000 Accounts Payable 106,000 Notes Payable 207,000 Common Stock 440,000 Retained Earnings 260,000 Sales 746,000 Cost of Goods Sold 419,000 Operating Expenses 122,000 Depreciation Expense 53,000 Dividends Paid 54,000 Total NKr 1,922,000 NKr 1,922,000 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 NKr430,000 were made evenly throughout 20X5. Ship acquired all of its property, plant, and equipment on July 1, 20X3, and uses straight-line depreciation. Ship’s sales were made evenly throughout 20X5, and its operating expenses were incurred evenly throughout 20X5. The dividends were declared and paid on July 1, 20X5. Pirate’s income from its own operations was $272,000 for 20X5, and its total stockholders’ equity on January 1, 20X5, was $3,500,000. Pirate declared $150,000 of dividends during 20X5. Exchange rates were as follows: July 1, 20X3 NKr 1 = $ 0.15 December 30, 20X4 NKr 1 = $ 0.18 January 1, 20X5 NKr 1 = $ 0.18 July 1, 20X5 NKr 1 = $ 0.19 December 15, 20X5 NKr 1 = $ 0.205 December 31, 20X5 NKr 1 = $ 0.21 Average for 20X5 NKr 1 = $ 0.20 Assume the U.S. dollar is the functional currency, not the krone. Required: Prepare a schedule remeasuring the trial balance from Norwegian kroner into U.S. dollars. Assume that Pirate uses the fully adjusted equity method. Record all journal entries that relate to its investment in the Norwegian subsidiary during 20X5. Provide the necessary documentation and support for the amounts in the journal entries. Prepare a schedule that determines Pirate's consolidated net income for 20X5. Compute Pirate's total consolidated stockholders' equity at December 31, 20X5.

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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	Debits	Credits
Cash	NKr 153,000
Accounts Receivable (net)	229,000
Inventory	278,000
Property, Plant and Equipment	614,000
Accumulated Depreciation		NKr 163,000
Accounts Payable		106,000
Notes Payable		207,000
Common Stock		440,000
Retained Earnings		260,000
Sales		746,000
Cost of Goods Sold	419,000
Operating Expenses	122,000
Depreciation Expense	53,000
Dividends Paid	54,000
Total	NKr 1,922,000	NKr 1,922,000

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 NKr430,000 were made evenly throughout 20X5.
Ship acquired all of its property, plant, and equipment on July 1, 20X3, and uses straight-line depreciation.
Ship’s sales were made evenly throughout 20X5, and its operating expenses were incurred evenly throughout 20X5.
The dividends were declared and paid on July 1, 20X5.
Pirate’s income from its own operations was $272,000 for 20X5, and its total stockholders’ equity on January 1, 20X5, was $3,500,000. Pirate declared $150,000 of dividends during 20X5.

Exchange rates were as follows:

July 1, 20X3	NKr 1 = $ 0.15
December 30, 20X4	NKr 1 = $ 0.18
January 1, 20X5	NKr 1 = $ 0.18
July 1, 20X5	NKr 1 = $ 0.19
December 15, 20X5	NKr 1 = $ 0.205
December 31, 20X5	NKr 1 = $ 0.21
Average for 20X5	NKr 1 = $ 0.20

Assume the U.S. dollar is the functional currency, not the krone.

Required:

Prepare a schedule remeasuring the trial balance from Norwegian kroner into U.S. dollars.
Assume that Pirate uses the fully adjusted equity method. Record all journal entries that relate to its investment in the Norwegian subsidiary during 20X5. Provide the necessary documentation and support for the amounts in the journal entries.
Prepare a schedule that determines Pirate's consolidated net income for 20X5.
Compute Pirate's total consolidated stockholders' equity at December 31, 20X5.

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