
Translate Simbel’s 2015 financial statements into US Dollar and prepare a consolidation worksheet for Cayce and its Egyptian subsidiary. Assume that the Egyptian pound is the subsidiary functional currency.

Explanation of Solution
Translate foreign currency financial statement and prepare consolidation worksheet:
Simbel’s financial statements are first translated into US Dollar after reclassification of 10,000 pounds expenditure for rent from rent expenses to prepaid rent and accordingly. The balances as follows:
Translation Worksheet | |||
Accounts | Pounds | Rate | Dollars |
Sales | 800,000 | 0.274 | (219,200) |
Cost of goods sold | 420,000 | 0.274 | 115,080 |
Salary expenses | 74,000 | 0.274 | 20,276 |
Rent expenses( Adjusted) | 36,000 | 0.274 | 9,864 |
Other expenses | 59,000 | 0.274 | 1,617 |
Gain on sale of fixed assets (10/1/2015)( Building) | (30,000) | 0.274 | (8,190) |
Net income | 241,000 | 0.273 | (66,004) |
(133,000) | |||
Net income | (241,000) | (66,004) | |
Dividend paid | 50,000 | 0.275 | 13,750 |
Retained earnings (12/31/2015) | (324,000) | (90,498) | |
Cash and receivables | 146,000 | 0.27 | 39,420 |
Inventory | 297,000 | 0.27 | 80,190 |
Prepaid rent ( adjusted) | 10,000 | 0.27 | 2,700 |
Fixed assets | 455,000 | 0.27 | 122,850 |
Total | 908,000 | 245,160 | |
Accounts Payable | (54,000) | ||
Notes Payable | (140,000) | ||
Common stock | (240,000) | ||
Additional paid in capital | (150,000) | ||
Retained earnings ( 12/31/2015) | (324,000) | (90,498) | |
Subtotal | (259,878) | ||
Cumulative translation adjustment ( negative) | 14,718 | ||
Total | 908,000 | (245,160) |
Table: (1)
Schedule 1: Translation of 1/1/2017 retained earnings:
Accounts | Pounds | Rate | Dollars |
Retained earnings ( 1/1/2014) | 0 | 0 | 0 |
Net income,2014 | (163,000) | 0.288 | (46,944) |
Dividend 6/1/2014 | 30,000 | 0.290 | 8,700 |
Retained earnings ( 1/1/2015) | 133,000 | (38,244) |
Table: (2)
Schedule 2: Calculation of cumulative Translation adjustment at 12/31/2015:
Accounts | Pounds | Rate | Dollars |
Net assets ( 1/1/2014) | (390,000) | 0.3 | (117,000) |
Net income,2014 | (163,000) | 0.288 | (46,944) |
Dividend 6/1/2014 | 30,000 | 0.290 | 8,700 |
Net assets 12/31/2014 | 523,000 | (155,244) | |
Net assets 12/31/2014 at current exchange rate | 146,440 | ||
Translation adjustment 2014 ( Negative) | 8,804 |
Table: (3)
Accounts | Pounds | Rate | Dollars |
Net assets ( 1/1/2015) | (523,000) | 0.280 | (146,440) |
Net income,2015 | (241,000) | (66004) | |
Dividend 6/1/2014 | 50,000 | 0.275 | 13750 |
Net assets 12/31/2015 | 714,000 | 198,694 | |
Net assets 12/31/2015 at current exchange rate | 192,780 | ||
Translation adjustment 2015 ( Negative) | 8,804 | ||
Cumulative Translation adjustment 12/31/2015 ( Negative) | (14,718) |
Table: (4)
Cayce and Simbel’s US Dollar accounts are then consolidated:
Consolidation Worksheet | |||||
Accounts | Cayce Dollar | Simbel Dollar | Adjustment and Elimination | Consolidation Balance | |
Debit | Credit | ||||
Sales | ($200,000) | ($219,200) | ($419,200) | ||
Cost of goods sold | $93,800 | $115,080 | $208,880 | ||
Salary expenses | $19,000 | $20,276 | $39,276 | ||
Rent expenses | $7,000 | $9,864 | $16,864 | ||
Other expenses | $21,000 | $16,166 | $37,166 | ||
Dividend income | ($13,750) | $0 | $13,750 | $0 | |
Gain (10/1/2015) | $0 | ($8,190) | ($8,190) | ||
Net income | ($72,950) | ($66,004) | ($125,204) | ||
Retained earnings (1/1/2015) | ($318,000) | ($38,244) | $38,244 | ($38,244) | ($356,244) |
Net income | ($72,950) | ($66,004) | ($125,204) | ||
Dividend paid | $24,000 | $13,750 | ($13,750) | $24,000 | |
Retained earnings (12/31/2015) | ($366,950) | ($90,498) | ($457,448) | ||
Cash and receivables | $110,750 | $39,420 | $150,170 | ||
Inventory | $98,000 | $80,190 | |||
Prepaid rent | $30,000 | $2,700 | |||
Investment | $126,000 | $0 | $38,244 | ($164,244) | $6 |
Fixed assets | $398,000 | $122,850 | $9,000 | $900 | $528,950 |
Total | $762,750 | $245,160 | $890,010 | ||
Accounts Payable | ($60,800) | $39,420 | ($75,380) | ||
Notes Payable | ($132,000) | ($37,800) | ($169,800) | ||
Common stock | ($120,000) | ($72,000) | $72,000 | ($120,000) | |
Additional paid in capital | ($83,000) | ($45,000) | $45,000 | ($83,000) | |
Retained earnings ( 12/31/2015) | ($366,950) | ($90,498) | ($457,448) | ||
Subtotal | ($259,878) | ||||
Cumulative translation adjustment ( negative) | $14,718 | $900 | $15,618 | ||
Total | $762,750 | ($245,160) | $217,138 | $217,138 | $890,010 |
Table: (5)
Explanation entries:
Date | Accounts title and Explanation | Post Ref. | Debit($) | Credit($) |
1. | Dividend income | 13,750 | ||
Dividend paid | 13,750 | |||
( To eliminate intercompany dividend payments recorded by parent as income) | ||||
2. | Common stock ( Simbel) | 72,000 | ||
Additional PIC ( Simbel) | 45,000 | |||
Retained earnings (1/1/2015)(Simbel) | 38,244 | |||
Fixed assets ( Revaluation) | 9,000 | |||
Investment in Simbel | 164,244 | |||
(To eliminate subsidiary’s | ||||
Table: (6)
The excess of cost over book value is calculated as follows:
Particulars | Amounts ( $) |
Purchase Price | 126,000 |
Book value,(1/1/2015): | |
Common stock | (72,000) |
Additional paid in capital | ( 45,000) |
Excess of purchase price over book value | 9,000 |
Table: (7)
The excess of cost over the book value is pounds 30,000. This US & will be
Explanatory entries:
Date | Accounts title and Explanation | Post Ref. | Debit($) | Credit($) |
3. | Investment in Simbel | 38,244 | ||
Retained earnings ( 1/1/2015) | 38,244 | |||
( To accrue 2015 increase in | ||||
4. | Cumulative Translation adjustment | 900 | ||
Fixed assets( realization) | 900 | |||
( To revalue the excess of cost over book value for the change in exchange rate since the date of acquisition with the consolidated cumulative transition adjustment) | ||||
Table: (8)
The revalution of ‘’excess’’ is calculated as follows:
Particulars | Amounts ( $) |
Excess of cost over book value US Dollar equivalent at 12/31/2015 | 8,100 |
US Dollar equivalent at 1/1/2015 | 9,000 |
Cumulative translation adjustment related to excess (1/31/2015) | (900) |
Table: (9)
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