ParkerSales$ (70,000,000)Cost of goods sold34,000,000Depreciation20,000,000Other expenses6,000,000(2,887,500)Dividend incomeNet income$ (12,887,500)Retained earnings, 1/1/20Net income, 2020Dividends, 1/30/20$ (48,000,000)(12,887,500)4,500,000$ (56,387,500)3,687,500Retained earnings, 12/31/20Cash$Accounts receivable10,000,00030,000,000InventoryInvestment in Suffolk83,200,000105,000,000Plant and equipment (net)Accounts payable(25,500,000)Long-term debt(50,000,000)Common stockRetained earnings, 12/31/20(100,000,000)(56,387,500)-0-Parker's chief financial officer (CFO) wishes to determine the effect that a change in the value of the British pound would have onconsolidated net income and consolidated stockholders' equity. To help assess the foreign currency exposure associated with theinvestment in Suffolk, the CFO requests assistance in comparing consolidated results under actual exchange rate fluctuations with resultsthat would have occurred had the dollar value of the pound remained constant or declined during the first two years of Parker'sownership.1. Prepare the 2017 consolidated income statement and the December 31, 2017,consolidated balance sheet. On January 1, 2019, Parker, Inc., a U.S.-based firm, acquired 100 percent of Suffolk PLC located in Great Britain for consideration paidof 52,000,000 British pounds (£), which was equal to fair value. The excess of fair value over book value is attributable to land (part ofproperty, plant, and equipment) and is not subject to depreciation. Parker accounts for its investment in Suffolk at cost. On January 1,2019, Suffolk reported the following balance sheet:CashAccounts receivable$ 2,000,000 Accounts payable3,000,000 Long-term debt14,000,000 Common stock40,000,000 Retained earnings$59,000,000$ 1,000,000$,000,00044,000,0006,000,000InventoryProperty, plant, and equipment (net)$59,000,000Suffolk's 2019 income was recorded at £2,000,000. It declared and paid no dividends in 2019.On December 31, 2020, two years after the date of acquisition, Suffolk submitted the following trial balance to Parker forconsolidation:Page 537Cash$ 1,500,000Accounts Receivable5,200,00018,000,000InventoryProperty, Plant, and Equipment (net)36,000,000Accounts 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 Sold16,000,000Depreciation2,000,0006,000,000Other ExpensesDividends, 1/30/201,750,000-0-Other than paying dividends, no intra-entity transactions occurred between the two companies. Relevant U.S. dollar exchange rates forthe British pound follow:January 1January 3020192020$ 1.601.64$ 1.611.65Average$ 1.621.66December 31$ 1.641.68The December 31, 2020, financial statements (before consolidation with Suffolk) follow. Dividend income is the U.S. dollar amount ofdividends received from Suffolk translated at the $1.65/£ exchange rate at January 30, 2020. The amounts listed for dividend income andall 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.

Consolidated Financial Statements: These are financial statements where assets, liabilities,…

Parker Sales $ (70,000,000) Cost of goods sold 34,000,000 Depreciation 20,000,000 Other expenses 6,000,000 (2,887,500) Dividend income Net income $ (12,887,500) Retained earnings, 1/1/20 Net income, 2020 $ (48,000,000) (12,887,500) 4,500,000 Dividends, 1/30/20 Retained earnings, 12/31/20 Cash $ (56,387,500) $ 3,687,500 10,000,000 30,000,000 Accounts receivable Inventory Investment in Suffolk $3,200,000 Plant and equipment (net) 105,000,000 Accounts payable (25,500,000) Long-term debt (50,000,000) Common stock (100,000,000) (56,387,500) Retained earnings, 12/31/20 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. Prepare the 2017 consolidated income statement and the December 31, 2017, consolidated balance sheet.

Parker Sales $ (70,000,000) Cost of goods sold 34,000,000 Depreciation 20,000,000 Other expenses 6,000,000 (2,887,500) Dividend income Net income $ (12,887,500) Retained earnings, 1/1/20 Net income, 2020 $ (48,000,000) (12,887,500) 4,500,000 Dividends, 1/30/20 Retained earnings, 12/31/20 Cash $ (56,387,500) $ 3,687,500 10,000,000 30,000,000 Accounts receivable Inventory Investment in Suffolk $3,200,000 Plant and equipment (net) 105,000,000 Accounts payable (25,500,000) Long-term debt (50,000,000) Common stock (100,000,000) (56,387,500) Retained earnings, 12/31/20 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. Prepare the 2017 consolidated income statement and the December 31, 2017, consolidated balance sheet.

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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