Chapter 12, Problem 12.25P

a

To determine

Introduction: Translation adjustment is the most common method used and is applied when the local currency is the foreign entity’s functional currency. The subsidiary statement must be translated from its local currency to the parents’ functional currency. To translate the financial statements, the company will use the current rate, which is the exchange rate on balance sheet date, to convert the local currency. Because revenues and expenses are assumed to occur uniformly over the period, revenues and expenses on the income statement are translated using the average rate for the reporting period. Any translation adjustment that occurs is a component of comprehensive income. The method used to translate financial statement from the local currency to functional currency is called current rate method.

The elimination entries required for comprehensive consolidation worksheet for December 31, 20X3.

Explanation of Solution

Particulars	Amount $	Amount $
1.
Income from subsidiary	39,416
Dividends declared		4,824
Investment in subsidiary		34,592
(Income from subsidiary eliminated)
2.
Income to non-controlling interest	11,414
Dividends declared		1,206
Non-controlling interest		10,208
(assignment of income to non-controlling interest)
3.
Investment in WR	13,408
Other comprehensive income Translation Adj		13,408
(elimination of comprehensive income from subsidiary that had been recorded by parent)
4.
Non-controlling interest	3,352
Other comprehensive income to NCI		3,352
(Assignment of proportionate share of the subsidiary other comprehensive income to NCI)
5.
Common stock	63,000
Retained earnings January 1	28,000
Differential	67,200
Investment in subsidiary		140,000
Non-controlling interest		18,200
(elimination of beginning investment in subsidiary)
6.
Investment in subsidiary	9,120
Differential		9,120
(elimination of differential translation adjustment)
7.
Plant and equipment	24,200
Patient	33,880
Differential		58,080
(assignment of differential adjustment to plant and equipment, patient)
8.
Depreciation expenses	2,600
Amortization expenses	3,640
Accumulated depreciation		2,600
Patient		3,640
(amortization of differential)
9.
Payable to A	6,480
Receivable from WR		6,480
(elimination of intercompany receivable and payable)

Working notes:

1. Elimination of income from subsidiary, dividends declared $\$4,824=\$6,030\times .80$ by reversal.
2. Assignment of income to non-controlling interest $\$11,414=\$57,070\times .20$
Dividends declared $\$1,206=\$6,030\times .20$
3. Elimination of other comprehensive from subsidiary that had been recorded by the parent $\$13,408=\$16.760\times .80$
4. Assignment of proportionate share of the subsidiary’s other comprehensive income to the non-controlling interest $\$3,352=\$16.760\times .20$
5. Elimination of beginning investment, investment in subsidiary $\$140,000=\$67,200+(\$63,000+28,000)\times .80$
Non-controlling interest $\$18,200=(\$63,000+28,000)\times .20$
6. Amount of differential translation adjustment in investment in subsidiary eliminated
7. Amount of differential in Plant and Equipment, and patients assigned $Plantandequipment\$24,200=\$28,000-\$3,800$
$Patient\$33,880=\$39,200-\$5,320$
8. Amortization of differential on depreciation and patient
9. Elimination of intercompany receivable and payable by setoff.

b

To determine

Introduction: Translation adjustment is the most common method used and is applied when the local currency is the foreign entity’s functional currency. The subsidiary statement must be translated from its local currency to the parents’ functional currency. To translate the financial statements, the company will use the current rate, which is the exchange rate on balance sheet date, to convert the local currency. Because revenues and expenses are assumed to occur uniformly over the period, revenues and expenses on the income statement are translated using the average rate for the reporting period. Any translation adjustment that occurs is a component of comprehensive income. The method used to translate financial statement from the local currency to functional currency is called current rate method.

the comprehensive consolidation worksheet as of December 31, 20X3.

Answer to Problem 12.25P

The trial balance total after transaction adjustment December 31 20X4 $267,420

Explanation of Solution

A. Inc. and Subsidiary

Consolidation worksheet

For the year ended December 31, 20X2

			Eliminations
Item	A	WR	Debit $	Credit $	consolidation
Sales	1,000,000	376,350			1,376,350
Income from subsidiary	39,416		39,416
Less:
Cost of Sales	(600,000)	(241,500)			(814,500)
Depreciation expenses	(28,000)	(15,600)	2,600		(46,200)
Amortization expenses			3,640		(3,640)
Operating expenses	(204,000)	(85,475)			(289,475)
Interest expenses	(2,000)	(3,705)			(5,705)
Net income					216,830
Non-controlling interest			11,414		(11,414)
Net income C/F	205,416	57,070	57,070	0	205,416
Retained earnings Jan 1	179,656	28,000	28,000		179,656
Net income B/F	205,416	57,070	57,070	0	205,416
Less dividends declared	(50,000)	(6,030)		4,824
				1,206	(50,000)
Retained earnings	335,072	79,040	85,070	6,030	335,072
Cash	38,000	26,460			64,460
Accounts receivable	140,000	43,200			183,200
Receivable from WR	6,480			6,480
Inventory	128,000	51,600			179,600
Plant and equipment	500,000	144,000	24,000		668,200
Investment in subsidiary	152,064		13,408	34,592
			9,120	140,000
Differential			67,200	9,120
				58,080
Patient			33,880	3,640	30,240
Accumulated other comprehensive income	22,528	16,760		16,760	22,528
	987,072	282,020			1,148,228
Accumulated depreciation	90,000	36,000		2,600	128,600
Accounts payable	60,000	32,280			92,280
Payable to A		6,480	6,480
Interest payable	2,000	1,800			3,800
Bonds payable		60,000			60,000
Premium on bonds		3,420			3,420
Common stock	500,000	63,000	63,000		500,000
Retained earnings	335,072	79,040	85,070	6,030	335,072
NCI			3,352	10,208
				18,200	25,056
	987,072	282,020	305,710	305,710	1,148,228