Chapter 12, Problem 12.18P

a

To determine

Introduction:Re-measurement is restatement of the foreign entity’s financial statements from the local currency that the entity used into foreign entity’s functional currency. Re-measurement is required only when the functional currency is different from the currency used to maintain foreign entity’s books and records.

Preparation of schedule re-measuring the December 31, 20X5 trial balance from N kroner to U.S dollars.

Answer to Problem 12.18P

Total of trial balance after re measurement to U.S dollar for December 31, 20X5 is $349,800.

Explanation of Solution

Trial balance re measurement

For the year ended December 31, 20X5

Item	Kroner	exchange rate	U.S. Dollars
Cash	150,000	.21	31,500
Accounts receivable	200,000	.21	42,000
Inventory	270,000	.205	55,350
Property plant and equipment	600,000	.18	108,000
Cost of goods sold	410,000	(a)	75,450
Depreciation expense	50,000	.18	9,000
Operating expense	`100,000	.20	20,000
Dividends paid	40,000	.19	7,600
Total debit	NKr 1,820,000		348,900
Re measurement loss			900
			349,800
Accumulated depreciation	150,000	.18	27,000
Accounts payable	90,000	.21	18,900
notes payable	190,000	.18	39,900
Common stock	450,000	.18	81,000
Retained earnings	250,000	.18	45,000
Sales	690,000	.20	138,000
	1,820,000		349,800

Cost of goods sold:

Items	Kroner	exchange rate	U.S. Dollars
Beginning inventory	260,000	.18	46,800
Purchases	420,000	.20	84,000
Less ending inventory	(270,000)	.205	(55,350)
Cost of goods sold	410,000		75,450

  $Beginninginventory=CGS+endingInventory-purchases$

  $NKr260,000=410,000+270,000-420,000$

b

To determine

Introduction:Re-measurement is restatement of the foreign entity’s financial statements from the local currency that the entity used into foreign entity’s functional currency. Re-measurement is required only when the functional currency is different from the currency used to maintain foreign entity’s books and records.

The journal entries related to investment in N subsidiary assuming T uses fully adjusted equity method.

Explanation of Solution

Date	Particulars	Debit $	Credit $
Jan 1	Investment in S company Stock	151,200
	Cash		151,200
	(cash paid for purchase of investment from S)
July 1	Cash	7,600
	Investment in S company		7,600
	(Cash received on account of dividends)
Dec 31	Investment in V common stock	32,650
	Income from subsidiary		32,650
	(Income from subsidiary recognized)
	Income from subsidiary	3,240
	Investment in V company stock		3,240
	(amortization of differential recognized)

Working Notes:

1. Cash paid for purchase of investment in V company stock.
2. Received cash on account of dividends from V $\$7,600=NKr40,000\times \$.19$
3. Investment in V company recognized.

Income from Norwegian subsidiary

Items	Amount $
Sales	138,000
Less:
Cost of goods sold	(75,450)
Operating expenses	(20,000)
Depreciation Expenses	(9,000)
Income	33,550
Less re-measurement loss	(900)
Income recorded by T	32,650

4. Amortization of differential recognized

Schedule 1amortization of differential

Items	Amount $
Investment at January 1, 20X5	151,200
Less: book value of net assets acquired January 1 $NKr700,000\times \$.18$	(126,000)
Differential	25,200
Allocation of differential
Property plant and equipment	18,000
Patient	7,200
Total	25,200
Amortization for 20X5
Property plant and equipment $\$18,000÷10years$	1,800
Patients $\$7,200÷5years$	1,440
Total	3,240

c

To determine

Introduction:Re-measurement is restatement of the foreign entity’s financial statements from the local currency that the entity used into foreign entity’s functional currency. Re-measurement is required only when the functional currency is different from the currency used to maintain foreign entity’s books and records.

Preparation of schedule for consolidation of net income for 20X5.

Answer to Problem 12.18P

Consolidated net income for 20X5 $304,410.

Explanation of Solution

Consolidated net income

For the year ended December 31, 20X1

Items	Amount $
Income from T’s operation	275,000
Add: income from the Norwegian subsidiary	32,650
Less: amortization of differential for 20X5	(3,240)
Consolidated net income	204,410

d

To determine

Introduction:Re-measurement is restatement of the foreign entity’s financial statements from the local currency that the entity used into foreign entity’s functional currency. Re-measurement is required only when the functional currency is different from the currency used to maintain foreign entity’s books and records.

The consolidated stockholders’ equity for T at December 31, 20X5.

Answer to Problem 12.18P

Consolidated stockholder’s equity as at December 31, 20X5 $3,704,410.

Explanation of Solution

Computation of stockholders’ equity

Items	Amount $
T’s stockholders’ equity at January 1, 20X5	3,500,000
Add: consolidated net income for 20X5	304,410
Less: dividends declared by T during 20X5	(100,000)
Consolidated stockholders’ equity December 31, 20X5	3,704,410