Parker's chief financial officer (CFO) wishes to determine the effects 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. REQUIREDUse Excel to comprete the following four parts:Part 1: Given the relevant exchange rates presented:a. Translate Suffolk's December 31, 2020, trial balance from British pounds to U. S. Dollars. The British pound is Suffolk's functional currency.b. Prepare a schedule that details the change in Suffolk's cumulative translation adjustment (beginning net assets, income, dividents, etc) for 2019 and 2020. C. Prepare the December 31, 2020, consolidation worksheet for Parker and Suffolk.d. Prepare the 2020 consolidated income statement and the December 31, 2020, consolidated balance sheet. ### Exchange Rates and Financial Statement of Parker#### Exchange Rates for the British Pound (USD/GBP)For the fiscal years 2019 and 2020, the relevant U.S. dollar exchange rates for the British pound are as follows:| Year | January 1 | Average | December 31 ||------|------------|---------|--------------|| 2019 | $1.60 | $1.62 | $1.64 || 2020 | $1.64 | $1.66 | $1.68 |#### Financial Statement Snapshot as of December 31, 2020The financial statements provided below are before considering consolidation with Suffolk. It is important to note that the dividend income is converted to U.S. dollars using the exchange rate of $1.65/£ as of January 30, 2020. The amounts listed reflect the exchange rate mentioned, where necessary.**Parker**- **Income Statement:** - **Sales:** $(70,000,000) - **Cost of Goods Sold:** $34,000,000 - **Depreciation:** $20,000,000 - **Other Expenses:** $6,000,000 - **Dividend Income:** $(2,887,500) - **Net Income:** $(12,887,500)- **Retained Earnings:** - **Retained Earnings, January 1, 2020:** $(48,000,000) - **Net Income for 2020:** $(12,887,500) - **Dividends Paid on January 30, 2020:** $4,500,000 - **Retained Earnings, December 31, 2020:** $(56,387,500)- **Balance Sheet:** - **Assets:** - **Cash:** $3,687,500 - **Accounts Receivable:** $10,000,000 - **Inventory:** $30,000,000 - **Investment in Suffolk:** $83,200,000 - **Plant and Equipment (net):** $105,000,000 - **Liabilities:** - **Accounts Payable:** $(25,500,000) - **Long-term Debt:** $(50,000,000) - **Equity:** - **Common ### Acquisition of Suffolk PLC by Parker, Inc.#### OverviewOn January 1, 2019, Parker, Inc. (a U.S.-based firm) acquired 100 percent of Suffolk PLC, located in Great Britain, for a consideration of £52,000,000 British pounds (£), equivalent to fair value. The excess fair value over book value is attributable to land, a part of property, plant, and equipment, and is not subject to depreciation. Parker records its investment in Suffolk at cost.#### Suffolk's Balance Sheet (January 1, 2019)Suffolk reported the following balance sheet as of January 1, 2019:- **Cash:** $2,000,000- **Accounts Receivable:** $3,000,000- **Inventory:** $14,000,000- **Property, Plant, and Equipment (net):** $40,000,000- **Total Assets:** $59,000,000- **Accounts Payable:** $1,000,000- **Long-term Debt:** $8,000,000- **Common Stock:** $44,000,000- **Retained Earnings:** $6,000,000- **Total Liabilities and Equity:** $59,000,000#### Income and DividendsFor the year 2019, Suffolk reported an income of £2,000,000 and did not declare or pay any dividends.#### Trial Balance (December 31, 2020)Two years post-acquisition, on December 31, 2020, Suffolk submitted the following trial balance to Parker for consolidation:- **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,

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Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

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Parker's chief financial officer (CFO) wishes to determine the effects 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.

REQUIRED

Use Excel to comprete the following four parts:

Part 1: Given the relevant exchange rates presented:

a. Translate Suffolk's December 31, 2020, trial balance from British pounds to U. S. Dollars. The British pound is Suffolk's functional currency.

b. Prepare a schedule that details the change in Suffolk's cumulative translation adjustment (beginning net assets, income, dividents, etc) for 2019 and 2020.

C. Prepare the December 31, 2020, consolidation worksheet for Parker and Suffolk.

d. Prepare the 2020 consolidated income statement and the December 31, 2020, consolidated balance sheet.

### Exchange Rates and Financial Statement of Parker

#### Exchange Rates for the British Pound (USD/GBP)
For the fiscal years 2019 and 2020, the relevant U.S. dollar exchange rates for the British pound are as follows:

| Year | January 1 | Average | December 31 |
|------|------------|---------|--------------|
| 2019 | $1.60 | $1.62 | $1.64 |
| 2020 | $1.64 | $1.66 | $1.68 |

#### Financial Statement Snapshot as of December 31, 2020

The financial statements provided below are before considering consolidation with Suffolk. It is important to note that the dividend income is converted to U.S. dollars using the exchange rate of $1.65/£ as of January 30, 2020. The amounts listed reflect the exchange rate mentioned, where necessary.

**Parker**
- **Income Statement:**
- **Sales:** $(70,000,000)
- **Cost of Goods Sold:** $34,000,000
- **Depreciation:** $20,000,000
- **Other Expenses:** $6,000,000
- **Dividend Income:** $(2,887,500)
- **Net Income:** $(12,887,500)

- **Retained Earnings:**
- **Retained Earnings, January 1, 2020:** $(48,000,000)
- **Net Income for 2020:** $(12,887,500)
- **Dividends Paid on January 30, 2020:** $4,500,000
- **Retained Earnings, December 31, 2020:** $(56,387,500)

- **Balance Sheet:**
- **Assets:**
- **Cash:** $3,687,500
- **Accounts Receivable:** $10,000,000
- **Inventory:** $30,000,000
- **Investment in Suffolk:** $83,200,000
- **Plant and Equipment (net):** $105,000,000
- **Liabilities:**
- **Accounts Payable:** $(25,500,000)
- **Long-term Debt:** $(50,000,000)
- **Equity:**
- **Common

### Acquisition of Suffolk PLC by Parker, Inc.

#### Overview

On January 1, 2019, Parker, Inc. (a U.S.-based firm) acquired 100 percent of Suffolk PLC, located in Great Britain, for a consideration of £52,000,000 British pounds (£), equivalent to fair value. The excess fair value over book value is attributable to land, a part of property, plant, and equipment, and is not subject to depreciation. Parker records its investment in Suffolk at cost.

#### Suffolk's Balance Sheet (January 1, 2019)

Suffolk reported the following balance sheet as of January 1, 2019:

- **Cash:** $2,000,000
- **Accounts Receivable:** $3,000,000
- **Inventory:** $14,000,000
- **Property, Plant, and Equipment (net):** $40,000,000
- **Total Assets:** $59,000,000

- **Accounts Payable:** $1,000,000
- **Long-term Debt:** $8,000,000
- **Common Stock:** $44,000,000
- **Retained Earnings:** $6,000,000
- **Total Liabilities and Equity:** $59,000,000

#### Income and Dividends

For the year 2019, Suffolk reported an income of £2,000,000 and did not declare or pay any dividends.

#### Trial Balance (December 31, 2020)

Two years post-acquisition, on December 31, 2020, Suffolk submitted the following trial balance to Parker for consolidation:

- **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,

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b. Prepare a schedule that details the change in Suffolk's cumulative translation adjustment (beginning net assets, income, dividents, etc) for 2019 and 2020.

C. Prepare the December 31, 2020, consolidation worksheet for Parker and Suffolk.

d. Prepare the 2020 consolidated income statement and the December 31, 2020, 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 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
$ 1,000,000
Accounts receivable
Inventory
$2,000,000 Accounts payable
3,000,000 Long-term debt
14,000,000 Common stock
40,000,000 Retained earnings
$59,000,000
8,000,000
44,000,000
6,000,000
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
Average
$1.62
January 30
$ 1.61
1.65
December 31
$1.64
2019
$1.60
2020
1.64
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
Dividend income
(2,887,500)
Net inc
Retained earnings, 1/1/20
Net income, 2020
$ (12,887,500)
$ (48,000,000)
(12,887,500)
4,500,000
$ (56,387,500)
$ 3,687,500
Dividends, 1/30/20
Retained earnings, 12/31/20
Cash
Accounts receivable
10,000,000
Inventory
30,000,000
Investment in Suffolk
83,200,000
Plant and equipment (net)
105,000,000
Accounts payable
(25,500,000)
Long-term debt
(50,000,000)
Common stock
(100,000,000)
Retained earnings, 12/31/20
(56,387,500)
-0-

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