Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement. The differential allocation and amortization for 20X1 in a schedule containing both Canadian dollars and U.S. dollars.

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Answer 1

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 12, Problem 12.16P

a

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The differential allocation and amortization for 20X1 in a schedule containing both Canadian dollars and U.S. dollars.

a

Expert Solution

Answer to Problem 12.16P

The differential allocation and amortization for 20X1

Items	Canadian Dollars	Exchange rate	U.S. Dollars
Plant and equipment	9,000	0.70	6,300
Trademark	45,000	0.70	31,500

Explanation of Solution

Items	Canadian Dollars	Exchange rate	U.S. Dollars
Income statement:
Differential at date of acquisition:
Plant and equipment	10,000	0.80	8,000
Less: Amortization (10,000 / 10 years)	(1,000)	0.75	(750)
Remaining balance	9,000		7,250

Trademark	50,000	0.80	40,000
Less: Amortization ($10,000 / 10 years)	(5,000)	0.75	(3.750)
Remaining balance	45,000		36,250

Balance sheet:
Remaining balance on December 31, 20X1:
Plant and equipment	9,000	0.70	6,300
Trademark	45,000	0.70	31,500

b

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The entries that would be recorded in 20X1 for investment in SB when full adjusted equity method is used.

b

Expert Solution

Answer to Problem 12.16P

Explanation of Solution

Parent company journal entries 20X1

Particulars	Debit $	Credit $
1. Purchase of investment in SB
Investment in SB	120,000
Cash		120,000
(Paid cash to acquire foreign investment)

2. To record equity accrual for P’s share of SB’s income
Investment in SB company	15,000
Income in Subsidiary		15,000
(Investment in SB is recognized)

3. To record dividends declared and paid by SB
Cash	6,000
Investment in SB company		6,000
(Cash received on account of dividends)

4. To record amortization of differential
Income from Subsidiary	4,500
Investment in SB company		4,500
(Amortization of differential recognized)

5. To recognize translation adjustment on differential
Other comprehensive income − translation adjustment	5,700
Investment in SB company		5,700
(Translation adjustment recognized)

Acquired investment in foreign subsidiary
Equity in income of subsidiary recognized $15,000 = C$20,000 × .75
Received dividends from foreign subsidiary $6,000 = C$8,000 × .75
Amortization of differential in plant and equipment and trademark recognized

Plant and Equipment	$750
Trademark	$3,750
Total	4,500

Translation adjustment in buildings and equipment and trademark recognized

Plant and Equipment	$950
Trademark	$4,750
Total	5,700

c

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The schedule showing the proof of the translation adjustment for SB and necessary entry P would record for its share in translation adjustment.

c

Expert Solution

Answer to Problem 12.16P

The translation adjustment $9,600

Particulars	Debit $	Credit $
Other comprehensive income − translation adjustment	9,600
Investment in SB company		9,600
(Translation adjustment recognized)

Explanation of Solution

P and SB Company

Proof of translation adjustment

Year ended December 31, 20X1

Items	Canadian dollars	Exchange rate	U.S. Dollars
Net assets at the beginning of year 1/1/20X1	90,000	0.80	72,000
Adjustment for changes in assets position during the year:
Net income for the year	20,000	0.75	15,000
Dividends paid	(8,000)	0.75	(6,000)

Net assets translated at rates in effect			81,000
Net assets at end of year	102,000	0.70	71,400
Change in other comprehensive income- translation adjustment during year − net decrease (debit)			9,600

d

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The entry required by P to restate the C $8,000 in foreign currency units account into its year-end U.S. dollar equivalent value.

d

Expert Solution

Answer to Problem 12.16P

Particulars	Debit $	Credit $
Foreign currency transaction loss	400
Foreign currency units (C$)		400
(Exchange loss on foreign currency unit recognized)

Explanation of Solution

Items	Amount $
Equivalent U.S. dollar value of C$8,000 × $.70	5,600
Less: equivalent U.S. dollar value on date of receipt C$8,000 × $.75	6,000
Foreign currency transaction loss	400

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Answer 2

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 12, Problem 12.16P

a

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The differential allocation and amortization for 20X1 in a schedule containing both Canadian dollars and U.S. dollars.

a

Expert Solution

Answer to Problem 12.16P

The differential allocation and amortization for 20X1

Items	Canadian Dollars	Exchange rate	U.S. Dollars
Plant and equipment	9,000	0.70	6,300
Trademark	45,000	0.70	31,500

Explanation of Solution

Items	Canadian Dollars	Exchange rate	U.S. Dollars
Income statement:
Differential at date of acquisition:
Plant and equipment	10,000	0.80	8,000
Less: Amortization (10,000 / 10 years)	(1,000)	0.75	(750)
Remaining balance	9,000		7,250

Trademark	50,000	0.80	40,000
Less: Amortization ($10,000 / 10 years)	(5,000)	0.75	(3.750)
Remaining balance	45,000		36,250

Balance sheet:
Remaining balance on December 31, 20X1:
Plant and equipment	9,000	0.70	6,300
Trademark	45,000	0.70	31,500

b

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The entries that would be recorded in 20X1 for investment in SB when full adjusted equity method is used.

b

Expert Solution

Answer to Problem 12.16P

Explanation of Solution

Parent company journal entries 20X1

Particulars	Debit $	Credit $
1. Purchase of investment in SB
Investment in SB	120,000
Cash		120,000
(Paid cash to acquire foreign investment)

2. To record equity accrual for P’s share of SB’s income
Investment in SB company	15,000
Income in Subsidiary		15,000
(Investment in SB is recognized)

3. To record dividends declared and paid by SB
Cash	6,000
Investment in SB company		6,000
(Cash received on account of dividends)

4. To record amortization of differential
Income from Subsidiary	4,500
Investment in SB company		4,500
(Amortization of differential recognized)

5. To recognize translation adjustment on differential
Other comprehensive income − translation adjustment	5,700
Investment in SB company		5,700
(Translation adjustment recognized)

Acquired investment in foreign subsidiary
Equity in income of subsidiary recognized $15,000 = C$20,000 × .75
Received dividends from foreign subsidiary $6,000 = C$8,000 × .75
Amortization of differential in plant and equipment and trademark recognized

Plant and Equipment	$750
Trademark	$3,750
Total	4,500

Translation adjustment in buildings and equipment and trademark recognized

Plant and Equipment	$950
Trademark	$4,750
Total	5,700

c

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The schedule showing the proof of the translation adjustment for SB and necessary entry P would record for its share in translation adjustment.

c

Expert Solution

Answer to Problem 12.16P

The translation adjustment $9,600

Particulars	Debit $	Credit $
Other comprehensive income − translation adjustment	9,600
Investment in SB company		9,600
(Translation adjustment recognized)

Explanation of Solution

P and SB Company

Proof of translation adjustment

Year ended December 31, 20X1

Items	Canadian dollars	Exchange rate	U.S. Dollars
Net assets at the beginning of year 1/1/20X1	90,000	0.80	72,000
Adjustment for changes in assets position during the year:
Net income for the year	20,000	0.75	15,000
Dividends paid	(8,000)	0.75	(6,000)

Net assets translated at rates in effect			81,000
Net assets at end of year	102,000	0.70	71,400
Change in other comprehensive income- translation adjustment during year − net decrease (debit)			9,600

d

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The entry required by P to restate the C $8,000 in foreign currency units account into its year-end U.S. dollar equivalent value.

d

Expert Solution

Answer to Problem 12.16P

Particulars	Debit $	Credit $
Foreign currency transaction loss	400
Foreign currency units (C$)		400
(Exchange loss on foreign currency unit recognized)

Explanation of Solution

Items	Amount $
Equivalent U.S. dollar value of C$8,000 × $.70	5,600
Less: equivalent U.S. dollar value on date of receipt C$8,000 × $.75	6,000
Foreign currency transaction loss	400

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Answer 3

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 12, Problem 12.16P

a

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The differential allocation and amortization for 20X1 in a schedule containing both Canadian dollars and U.S. dollars.

a

Expert Solution

Answer to Problem 12.16P

The differential allocation and amortization for 20X1

Items	Canadian Dollars	Exchange rate	U.S. Dollars
Plant and equipment	9,000	0.70	6,300
Trademark	45,000	0.70	31,500

Explanation of Solution

Items	Canadian Dollars	Exchange rate	U.S. Dollars
Income statement:
Differential at date of acquisition:
Plant and equipment	10,000	0.80	8,000
Less: Amortization (10,000 / 10 years)	(1,000)	0.75	(750)
Remaining balance	9,000		7,250

Trademark	50,000	0.80	40,000
Less: Amortization ($10,000 / 10 years)	(5,000)	0.75	(3.750)
Remaining balance	45,000		36,250

Balance sheet:
Remaining balance on December 31, 20X1:
Plant and equipment	9,000	0.70	6,300
Trademark	45,000	0.70	31,500

b

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The entries that would be recorded in 20X1 for investment in SB when full adjusted equity method is used.

b

Expert Solution

Answer to Problem 12.16P

Explanation of Solution

Parent company journal entries 20X1

Particulars	Debit $	Credit $
1. Purchase of investment in SB
Investment in SB	120,000
Cash		120,000
(Paid cash to acquire foreign investment)

2. To record equity accrual for P’s share of SB’s income
Investment in SB company	15,000
Income in Subsidiary		15,000
(Investment in SB is recognized)

3. To record dividends declared and paid by SB
Cash	6,000
Investment in SB company		6,000
(Cash received on account of dividends)

4. To record amortization of differential
Income from Subsidiary	4,500
Investment in SB company		4,500
(Amortization of differential recognized)

5. To recognize translation adjustment on differential
Other comprehensive income − translation adjustment	5,700
Investment in SB company		5,700
(Translation adjustment recognized)

Acquired investment in foreign subsidiary
Equity in income of subsidiary recognized $15,000 = C$20,000 × .75
Received dividends from foreign subsidiary $6,000 = C$8,000 × .75
Amortization of differential in plant and equipment and trademark recognized

Plant and Equipment	$750
Trademark	$3,750
Total	4,500

Translation adjustment in buildings and equipment and trademark recognized

Plant and Equipment	$950
Trademark	$4,750
Total	5,700

c

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The schedule showing the proof of the translation adjustment for SB and necessary entry P would record for its share in translation adjustment.

c

Expert Solution

Answer to Problem 12.16P

The translation adjustment $9,600

Particulars	Debit $	Credit $
Other comprehensive income − translation adjustment	9,600
Investment in SB company		9,600
(Translation adjustment recognized)

Explanation of Solution

P and SB Company

Proof of translation adjustment

Year ended December 31, 20X1

Items	Canadian dollars	Exchange rate	U.S. Dollars
Net assets at the beginning of year 1/1/20X1	90,000	0.80	72,000
Adjustment for changes in assets position during the year:
Net income for the year	20,000	0.75	15,000
Dividends paid	(8,000)	0.75	(6,000)

Net assets translated at rates in effect			81,000
Net assets at end of year	102,000	0.70	71,400
Change in other comprehensive income- translation adjustment during year − net decrease (debit)			9,600

d

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The entry required by P to restate the C $8,000 in foreign currency units account into its year-end U.S. dollar equivalent value.

d

Expert Solution

Answer to Problem 12.16P

Particulars	Debit $	Credit $
Foreign currency transaction loss	400
Foreign currency units (C$)		400
(Exchange loss on foreign currency unit recognized)

Explanation of Solution

Items	Amount $
Equivalent U.S. dollar value of C$8,000 × $.70	5,600
Less: equivalent U.S. dollar value on date of receipt C$8,000 × $.75	6,000
Foreign currency transaction loss	400

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Answer 4

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 12, Problem 12.16P

a

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The differential allocation and amortization for 20X1 in a schedule containing both Canadian dollars and U.S. dollars.

a

Expert Solution

Answer to Problem 12.16P

The differential allocation and amortization for 20X1

Items	Canadian Dollars	Exchange rate	U.S. Dollars
Plant and equipment	9,000	0.70	6,300
Trademark	45,000	0.70	31,500

Explanation of Solution

Items	Canadian Dollars	Exchange rate	U.S. Dollars
Income statement:
Differential at date of acquisition:
Plant and equipment	10,000	0.80	8,000
Less: Amortization (10,000 / 10 years)	(1,000)	0.75	(750)
Remaining balance	9,000		7,250

Trademark	50,000	0.80	40,000
Less: Amortization ($10,000 / 10 years)	(5,000)	0.75	(3.750)
Remaining balance	45,000		36,250

Balance sheet:
Remaining balance on December 31, 20X1:
Plant and equipment	9,000	0.70	6,300
Trademark	45,000	0.70	31,500

b

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The entries that would be recorded in 20X1 for investment in SB when full adjusted equity method is used.

b

Expert Solution

Answer to Problem 12.16P

Explanation of Solution

Parent company journal entries 20X1

Particulars	Debit $	Credit $
1. Purchase of investment in SB
Investment in SB	120,000
Cash		120,000
(Paid cash to acquire foreign investment)

2. To record equity accrual for P’s share of SB’s income
Investment in SB company	15,000
Income in Subsidiary		15,000
(Investment in SB is recognized)

3. To record dividends declared and paid by SB
Cash	6,000
Investment in SB company		6,000
(Cash received on account of dividends)

4. To record amortization of differential
Income from Subsidiary	4,500
Investment in SB company		4,500
(Amortization of differential recognized)

5. To recognize translation adjustment on differential
Other comprehensive income − translation adjustment	5,700
Investment in SB company		5,700
(Translation adjustment recognized)

Acquired investment in foreign subsidiary
Equity in income of subsidiary recognized $15,000 = C$20,000 × .75
Received dividends from foreign subsidiary $6,000 = C$8,000 × .75
Amortization of differential in plant and equipment and trademark recognized

Plant and Equipment	$750
Trademark	$3,750
Total	4,500

Translation adjustment in buildings and equipment and trademark recognized

Plant and Equipment	$950
Trademark	$4,750
Total	5,700

c

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The schedule showing the proof of the translation adjustment for SB and necessary entry P would record for its share in translation adjustment.

c

Expert Solution

Answer to Problem 12.16P

The translation adjustment $9,600

Particulars	Debit $	Credit $
Other comprehensive income − translation adjustment	9,600
Investment in SB company		9,600
(Translation adjustment recognized)

Explanation of Solution

P and SB Company

Proof of translation adjustment

Year ended December 31, 20X1

Items	Canadian dollars	Exchange rate	U.S. Dollars
Net assets at the beginning of year 1/1/20X1	90,000	0.80	72,000
Adjustment for changes in assets position during the year:
Net income for the year	20,000	0.75	15,000
Dividends paid	(8,000)	0.75	(6,000)

Net assets translated at rates in effect			81,000
Net assets at end of year	102,000	0.70	71,400
Change in other comprehensive income- translation adjustment during year − net decrease (debit)			9,600

d

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The entry required by P to restate the C $8,000 in foreign currency units account into its year-end U.S. dollar equivalent value.

d

Expert Solution

Answer to Problem 12.16P

Particulars	Debit $	Credit $
Foreign currency transaction loss	400
Foreign currency units (C$)		400
(Exchange loss on foreign currency unit recognized)

Explanation of Solution

Items	Amount $
Equivalent U.S. dollar value of C$8,000 × $.70	5,600
Less: equivalent U.S. dollar value on date of receipt C$8,000 × $.75	6,000
Foreign currency transaction loss	400

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Answer 5

Chapter 12, Problem 12.16P

a

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The differential allocation and amortization for 20X1 in a schedule containing both Canadian dollars and U.S. dollars.

a

Expert Solution

Answer to Problem 12.16P

The differential allocation and amortization for 20X1

Items	Canadian Dollars	Exchange rate	U.S. Dollars
Plant and equipment	9,000	0.70	6,300
Trademark	45,000	0.70	31,500

Explanation of Solution

Items	Canadian Dollars	Exchange rate	U.S. Dollars
Income statement:
Differential at date of acquisition:
Plant and equipment	10,000	0.80	8,000
Less: Amortization (10,000 / 10 years)	(1,000)	0.75	(750)
Remaining balance	9,000		7,250

Trademark	50,000	0.80	40,000
Less: Amortization ($10,000 / 10 years)	(5,000)	0.75	(3.750)
Remaining balance	45,000		36,250

Balance sheet:
Remaining balance on December 31, 20X1:
Plant and equipment	9,000	0.70	6,300
Trademark	45,000	0.70	31,500

b

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The entries that would be recorded in 20X1 for investment in SB when full adjusted equity method is used.

b

Expert Solution

Answer to Problem 12.16P

Explanation of Solution

Parent company journal entries 20X1

Particulars	Debit $	Credit $
1. Purchase of investment in SB
Investment in SB	120,000
Cash		120,000
(Paid cash to acquire foreign investment)

2. To record equity accrual for P’s share of SB’s income
Investment in SB company	15,000
Income in Subsidiary		15,000
(Investment in SB is recognized)

3. To record dividends declared and paid by SB
Cash	6,000
Investment in SB company		6,000
(Cash received on account of dividends)

4. To record amortization of differential
Income from Subsidiary	4,500
Investment in SB company		4,500
(Amortization of differential recognized)

5. To recognize translation adjustment on differential
Other comprehensive income − translation adjustment	5,700
Investment in SB company		5,700
(Translation adjustment recognized)

Acquired investment in foreign subsidiary
Equity in income of subsidiary recognized $15,000 = C$20,000 × .75
Received dividends from foreign subsidiary $6,000 = C$8,000 × .75
Amortization of differential in plant and equipment and trademark recognized

Plant and Equipment	$750
Trademark	$3,750
Total	4,500

Translation adjustment in buildings and equipment and trademark recognized

Plant and Equipment	$950
Trademark	$4,750
Total	5,700

c

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The schedule showing the proof of the translation adjustment for SB and necessary entry P would record for its share in translation adjustment.

c

Expert Solution

Answer to Problem 12.16P

The translation adjustment $9,600

Particulars	Debit $	Credit $
Other comprehensive income − translation adjustment	9,600
Investment in SB company		9,600
(Translation adjustment recognized)

Explanation of Solution

P and SB Company

Proof of translation adjustment

Year ended December 31, 20X1

Items	Canadian dollars	Exchange rate	U.S. Dollars
Net assets at the beginning of year 1/1/20X1	90,000	0.80	72,000
Adjustment for changes in assets position during the year:
Net income for the year	20,000	0.75	15,000
Dividends paid	(8,000)	0.75	(6,000)

Net assets translated at rates in effect			81,000
Net assets at end of year	102,000	0.70	71,400
Change in other comprehensive income- translation adjustment during year − net decrease (debit)			9,600

d

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The entry required by P to restate the C $8,000 in foreign currency units account into its year-end U.S. dollar equivalent value.

d

Expert Solution

Answer to Problem 12.16P

Particulars	Debit $	Credit $
Foreign currency transaction loss	400
Foreign currency units (C$)		400
(Exchange loss on foreign currency unit recognized)

Explanation of Solution

Items	Amount $
Equivalent U.S. dollar value of C$8,000 × $.70	5,600
Less: equivalent U.S. dollar value on date of receipt C$8,000 × $.75	6,000
Foreign currency transaction loss	400

Answer 6

Chapter 12, Problem 12.16P

a

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The differential allocation and amortization for 20X1 in a schedule containing both Canadian dollars and U.S. dollars.

a

Expert Solution

Answer to Problem 12.16P

The differential allocation and amortization for 20X1

Items	Canadian Dollars	Exchange rate	U.S. Dollars
Plant and equipment	9,000	0.70	6,300
Trademark	45,000	0.70	31,500

Explanation of Solution

Items	Canadian Dollars	Exchange rate	U.S. Dollars
Income statement:
Differential at date of acquisition:
Plant and equipment	10,000	0.80	8,000
Less: Amortization (10,000 / 10 years)	(1,000)	0.75	(750)
Remaining balance	9,000		7,250

Trademark	50,000	0.80	40,000
Less: Amortization ($10,000 / 10 years)	(5,000)	0.75	(3.750)
Remaining balance	45,000		36,250

Balance sheet:
Remaining balance on December 31, 20X1:
Plant and equipment	9,000	0.70	6,300
Trademark	45,000	0.70	31,500

Answer 7

Chapter 12, Problem 12.16P

a

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The differential allocation and amortization for 20X1 in a schedule containing both Canadian dollars and U.S. dollars.

Answer 8

a

Expert Solution

Answer to Problem 12.16P

The differential allocation and amortization for 20X1

Items	Canadian Dollars	Exchange rate	U.S. Dollars
Plant and equipment	9,000	0.70	6,300
Trademark	45,000	0.70	31,500

Answer 9

a

Expert Solution

Answer 10

a

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

Items	Canadian Dollars	Exchange rate	U.S. Dollars
Income statement:
Differential at date of acquisition:
Plant and equipment	10,000	0.80	8,000
Less: Amortization (10,000 / 10 years)	(1,000)	0.75	(750)
Remaining balance	9,000		7,250

Trademark	50,000	0.80	40,000
Less: Amortization ($10,000 / 10 years)	(5,000)	0.75	(3.750)
Remaining balance	45,000		36,250

Balance sheet:
Remaining balance on December 31, 20X1:
Plant and equipment	9,000	0.70	6,300
Trademark	45,000	0.70	31,500

Answer 13

b

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The entries that would be recorded in 20X1 for investment in SB when full adjusted equity method is used.

b

Expert Solution

Answer to Problem 12.16P

Explanation of Solution

Parent company journal entries 20X1

Particulars	Debit $	Credit $
1. Purchase of investment in SB
Investment in SB	120,000
Cash		120,000
(Paid cash to acquire foreign investment)

2. To record equity accrual for P’s share of SB’s income
Investment in SB company	15,000
Income in Subsidiary		15,000
(Investment in SB is recognized)

3. To record dividends declared and paid by SB
Cash	6,000
Investment in SB company		6,000
(Cash received on account of dividends)

4. To record amortization of differential
Income from Subsidiary	4,500
Investment in SB company		4,500
(Amortization of differential recognized)

5. To recognize translation adjustment on differential
Other comprehensive income − translation adjustment	5,700
Investment in SB company		5,700
(Translation adjustment recognized)

Acquired investment in foreign subsidiary
Equity in income of subsidiary recognized $15,000 = C$20,000 × .75
Received dividends from foreign subsidiary $6,000 = C$8,000 × .75
Amortization of differential in plant and equipment and trademark recognized

Plant and Equipment	$750
Trademark	$3,750
Total	4,500

Translation adjustment in buildings and equipment and trademark recognized

Plant and Equipment	$950
Trademark	$4,750
Total	5,700

Answer 14

b

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The entries that would be recorded in 20X1 for investment in SB when full adjusted equity method is used.

Answer 15

b

Expert Solution

Answer to Problem 12.16P

Answer 16

b

Expert Solution

Answer 17

b

Expert Solution

Answer 18

Expert Solution

Answer 19

Explanation of Solution

Parent company journal entries 20X1

Particulars	Debit $	Credit $
1. Purchase of investment in SB
Investment in SB	120,000
Cash		120,000
(Paid cash to acquire foreign investment)

2. To record equity accrual for P’s share of SB’s income
Investment in SB company	15,000
Income in Subsidiary		15,000
(Investment in SB is recognized)

3. To record dividends declared and paid by SB
Cash	6,000
Investment in SB company		6,000
(Cash received on account of dividends)

4. To record amortization of differential
Income from Subsidiary	4,500
Investment in SB company		4,500
(Amortization of differential recognized)

5. To recognize translation adjustment on differential
Other comprehensive income − translation adjustment	5,700
Investment in SB company		5,700
(Translation adjustment recognized)

Acquired investment in foreign subsidiary
Equity in income of subsidiary recognized $15,000 = C$20,000 × .75
Received dividends from foreign subsidiary $6,000 = C$8,000 × .75
Amortization of differential in plant and equipment and trademark recognized

Plant and Equipment	$750
Trademark	$3,750
Total	4,500

Translation adjustment in buildings and equipment and trademark recognized

Plant and Equipment	$950
Trademark	$4,750
Total	5,700

Answer 20

c

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The schedule showing the proof of the translation adjustment for SB and necessary entry P would record for its share in translation adjustment.

c

Expert Solution

Answer to Problem 12.16P

The translation adjustment $9,600

Particulars	Debit $	Credit $
Other comprehensive income − translation adjustment	9,600
Investment in SB company		9,600
(Translation adjustment recognized)

Explanation of Solution

P and SB Company

Proof of translation adjustment

Year ended December 31, 20X1

Items	Canadian dollars	Exchange rate	U.S. Dollars
Net assets at the beginning of year 1/1/20X1	90,000	0.80	72,000
Adjustment for changes in assets position during the year:
Net income for the year	20,000	0.75	15,000
Dividends paid	(8,000)	0.75	(6,000)

Net assets translated at rates in effect			81,000
Net assets at end of year	102,000	0.70	71,400
Change in other comprehensive income- translation adjustment during year − net decrease (debit)			9,600

Answer 21

c

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The schedule showing the proof of the translation adjustment for SB and necessary entry P would record for its share in translation adjustment.

Answer 22

c

Expert Solution

Answer to Problem 12.16P

The translation adjustment $9,600

Particulars	Debit $	Credit $
Other comprehensive income − translation adjustment	9,600
Investment in SB company		9,600
(Translation adjustment recognized)

Answer 23

c

Expert Solution

Answer 24

c

Expert Solution

Answer 25

Expert Solution

Answer 26

Explanation of Solution

P and SB Company

Proof of translation adjustment

Year ended December 31, 20X1

Items	Canadian dollars	Exchange rate	U.S. Dollars
Net assets at the beginning of year 1/1/20X1	90,000	0.80	72,000
Adjustment for changes in assets position during the year:
Net income for the year	20,000	0.75	15,000
Dividends paid	(8,000)	0.75	(6,000)

Net assets translated at rates in effect			81,000
Net assets at end of year	102,000	0.70	71,400
Change in other comprehensive income- translation adjustment during year − net decrease (debit)			9,600

Answer 27

d

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The entry required by P to restate the C $8,000 in foreign currency units account into its year-end U.S. dollar equivalent value.

d

Expert Solution

Answer to Problem 12.16P

Particulars	Debit $	Credit $
Foreign currency transaction loss	400
Foreign currency units (C$)		400
(Exchange loss on foreign currency unit recognized)

Explanation of Solution

Items	Amount $
Equivalent U.S. dollar value of C$8,000 × $.70	5,600
Less: equivalent U.S. dollar value on date of receipt C$8,000 × $.75	6,000
Foreign currency transaction loss	400

Answer 28

d

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The entry required by P to restate the C $8,000 in foreign currency units account into its year-end U.S. dollar equivalent value.

Answer 29

d

Expert Solution

Answer to Problem 12.16P

Particulars	Debit $	Credit $
Foreign currency transaction loss	400
Foreign currency units (C$)		400
(Exchange loss on foreign currency unit recognized)

Answer 30

d

Expert Solution

Answer 31

d

Expert Solution

Answer 32

Expert Solution

Answer 33

Explanation of Solution

Items	Amount $
Equivalent U.S. dollar value of C$8,000 × $.70	5,600
Less: equivalent U.S. dollar value on date of receipt C$8,000 × $.75	6,000
Foreign currency transaction loss	400

Answer 34

Ch. 12 - Prob. 12.1Q Ch. 12 - Prob. 12.2Q Ch. 12 - Prob. 12.3Q Ch. 12 - How widely used are IFRS? Can IFRS be used for...Ch. 12 - Prob. 12.5Q Ch. 12 - Prob. 12.6Q Ch. 12 - Prob. 12.7Q Ch. 12 - Prob. 12.8Q Ch. 12 - Prob. 12.9Q Ch. 12 - Prob. 12.10Q

Answer to Problem 12.16P

Explanation of Solution

Answer to Problem 12.16P

Explanation of Solution

Answer to Problem 12.16P

Explanation of Solution

Answer to Problem 12.16P

Explanation of Solution

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