Pat purchased a 40 percent interest in Sat of Germany for $ 810,000 on January 1, 2011. Theexcess cost over book value is due to a patent with a 10-year amortization period. A summaryof Sat’s net assets at December 31, 2010, and at December 31, 2011, after translation into U.S. dollars, is as follows: Capital Stock Retained Earnings Equity Adjustment Net AssetsDecember 31, 2010 $1,500,000 $300,000 $1,800,000Net income 232,500 232,500Dividends (144,000) (144,000)Translation adjustment $159,000 159,000December 31, 2011 $1,500,000 $388,500 $159,000 $2,047,500 Exchange rates for euros were $0.60 on January 1, 2011; $0.62 average for 2011; $0.64 when dividends were declared; and $0.65 at December 31, 2011. Sat’s functional currency is the euro.Required1. Calculate Pat’s income from Sat for 2011. 2. Determine the balance of Pat’s Investment in Sat account at December 31, 2011. 3. By reference to the data:Calculate the Euro equivalent of the $US accounts of Sat, justifying the exchange rate used,for the following:a) Net assets at January 1, 2011b) Net income for 2011c) Dividends for 2011d) Net assets at December 31, 2011
Pat purchased a 40 percent interest in Sat of Germany for $ 810,000 on January 1, 2011. The
excess cost over book value is due to a patent with a 10-year amortization period. A summary
of Sat’s net assets at December 31, 2010, and at December 31, 2011, after translation into
U.S. dollars, is as follows:
Capital Stock
December 31, 2010 $1,500,000 $300,000 $1,800,000
Net income 232,500 232,500
Dividends (144,000) (144,000)
Translation adjustment $159,000 159,000
December 31, 2011 $1,500,000 $388,500 $159,000 $2,047,500
Exchange rates for euros were $0.60 on January 1, 2011; $0.62 average for 2011; $0.64 when dividends were declared; and $0.65 at December 31, 2011. Sat’s functional currency is the euro.
Required
1. Calculate Pat’s income from Sat for 2011.
2. Determine the balance of Pat’s Investment in Sat account at December 31, 2011.
3. By reference to the data:
Calculate the Euro equivalent of the $US accounts of Sat, justifying the exchange rate used,
for the following:
a) Net assets at January 1, 2011
b) Net income for 2011
c) Dividends for 2011
d) Net assets at December 31, 2011
Step by step
Solved in 2 steps
