The 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 $1.65/£ exchange rate at January 30, 2020.Credit balances are in parentheses.ParkerSales$ (70,000,000)34,000,000Cost of goods soldDepreciation20,000,000Other expenses6,000,000(2,887,500)Dividend incomeNet incomeRetained earnings, 1/1/20Net income, 2020Dividends, 1/30/20$ (12,887,500)$ (48,000,000)(12,887,500)4,500,000$ (56,387,500)$ 3,687,50010,000,000Retained earnings, 12/31/20CashAccounts receivableInventory30,000,000Investment in Suffolk83,200,000Plant and equipment (net)105,000,000Accounts payable(25,500,000)Long-term debt(50,000,000)Common stock(100,000,000)(56,387,500)Retained earnings, 12/31/20Parker'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 a schedule that details the change in Suffolk's cumulative translationadjustment (beginning net assets, income, dividends, etc.) for 2016 and 2017. 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$1,500,0005,200,000Accounts ReceivableInventory18,000,000Property, Plant, and Equipment (net)36,000,000Accounts Payable(1,450,000)Long-Term Debt(5,000,000)Common Stock(44,000,000)Retained Earnings, 1/1/20(8,000,000)Sales(28,000,000)Cost of Goods Sold16,000,000Depreciation2,000,000Other Expenses6,000,000Dividends, 1/30/201,750,000-0-Other than paying dividends, no intra-entity transactions occurred between the two companies. Relevant U.S. dollar exchange rates forthe British pound follow:20192020January 1$ 1.601.64January 30$ 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.

A cumulative translation adjustment is an entry in a translated balance sheet's accumulated other…

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 (ie, 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 Cost of goods sold $ (70,000,000) 34,000,000 Depreciation 20,000,000 Other expenses 6,000,000 (2,887,500) Dividend income Net income Retained earnings, 1/1/20 Net income, 2020 $ (12,887,500) $ (48,000,000) (12,887,500) 4,500,000 $ (56,387,500) Dividends, 1/30/20 Retained earnings, 12/31/20 Cash 3,687,500 Accounts receivable 10,000,000 Inventory 30,000,000 Investment in Suffolk $3,200,000 105,000,000 Plant and equipment (net) Accounts payable (25,500,000) Long-term debe (50,000,000) Common stock (100,000,000) Retained earnings, 12/31/20 (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 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 a schedule that details the change in Suffolk's cumulative translation adjustment (beginning net assets, income, dividends, etc.) for 2016 and 2017.

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q