Chapter 12, Problem 12.28P

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.

The elimination entries required to prepare three-part consolidation worksheet as of December 31, 20X3.

Explanation of Solution

Particulars	Debit $	Credit $
1. To eliminate income from subsidiary
Income from subsidiary	43,368
Dividends declared		4,824
Investment in subsidiary		38,544
(Income from Subsidiary eliminated by reverse entry)
2. Assignment of income to non-controlling interest
Income to non-controlling interest	12,522
Dividends declared		1,206
Non-controlling interest		11,316
(Assignment of income to non-controlling interest)
3. Elimination of beginning investment
Common stock	63,000
Retained earnings January 1	28,000
Differential	67,200
Investment in subsidiary		140,000
Non-controlling interest		18,200
4. Assignment of differential
Plant and equipment	28,000
Patient	39,200
Differential		67,200
(differential on patient, plant and equipment assigned)
5. Amortization of differential
Depreciation expenses	2,800
Amortization expenses	3,920
Accumulated depreciation		2,800
Patient		3,920
(amortization of differential on patient, plant and equipment)
6. Eliminate intercompany payable and receivable
Payable to A	6,480
Receivable from WR		6,480
(intercompany receivable and payable eliminated by setoff)

Working notes:

1. Income from subsidiary eliminated by reversal $\$43,368=\$62,610\times .80$ , dividends declared $\$4,824=\$6,030\times .80$
2. Income assigned to non-controlling interest. income to non-controlling interest $\$12,522=\$62,610\times .20$ dividends declared $\$1,206=\$6,030\times .20$
3. Beginning investment in subsidiary eliminated
Investment in subsidiary $\$140,000=\$67,200+(\$63,000+28,000)\times .80$

Non-controlling interest $\$18,200=(\$63,000+28,000)\times .20$

4. Differential assigned to assets by debit entry and credit differential account.
5. Amortization of differential recognized by debiting depreciation and amortization and credit accumulated depreciation and patient.
6. Intercompany receivable and payable eliminated by setoff entry.

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 three-part consolidation worksheet as of December 31, 20X3.

Answer to Problem 12.28P

Retained earnings and net assets as per consolidation worksheet $339,024 and 1,162,840 respectively.

Explanation of Solution

A. Inc. and subsidiary

Consolidation worksheet

For year ending December 31, 20X3

			elimination
items	A	WR	Debit $	Credit $	Consolidation
Sales	1,000,000	376,350			1,376,350
Income from subsidiary	43,368		43,368
Re-measurement gain		10,040			10,040
	1,043,368	386,390			1386,390
Less:
Cost of goods sold	(600,000)	(217,800)			(817,800)
Depreciation expenses	(28,000)	(16,800)	2,800		(47,600)
Amortization expenses			3,920		(3,920)
Operating expense	(204,000)	(85,475)			(289,475)
Interest expense	(2,000)	(3,705)			(5,705)
Net income					221,890
Income to NCI			12,522		(12,522)
Net income carry forward	209,368	62,610	62,610	0	209,368
Retained earnings Jan 1	179,656	28,000	28,000		179,656
Net income	209,368	62,610	62,610	0	209,368
Less dividends declared	(50,000)	(6,030)		4,824
				1,206	(50,000)
Retained earnings DEC 31	339,024	84,580	90,610	6,030	339,024
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	55,900			183,900
Plant and equipment	500,000	168,000	28,000		696,000
Investment in subsidiary	178,544			38,544
				140,000
Differential			67,200	67,200
Patient			39,200	3,920	35,280
	991,024	293,560			1,162,840
Accumulated depreciation	90,000	42,000		2,800	134,800
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	339,024	84,580	90,610	6,030	339,024
NCI				11,316
				18,200	29,516
	991,024	293,560	294,490	294,490	1,162,840