Chap 012

Chapter 12 - Multinational Accounting: Issues in Financial Reporting and Translation of Foreign Entity State ents
CHAPTER 12 MULTINATIONAL ACCOUNTING: ISSUES IN FINANCIAL REPORTING AND TRANSLATION OF FOREIGN ENTITY STATEMENTS ANSWERS TO QUESTIONS Q12-1 Expected benefits of adopting a single set of high-quality accounting standards include: 1. Continued expansion of capital markets across national borders. 2. Faster a ailability of financial statements that pro ide needed information to in estors in countries !here standards ha e not pre iously focused on information needs of in estors. ". #ore rapid de elopment of stable$ liquid capital markets. %. &ncreased economic gro!th. '. &mpro e ability of in estors to e aluate opportunities across national borders. (. &mpro e the efficient use of global capital. ). *educe reporting costs for corporations that !ish to access capital in markets outside of their home country. +. &ncrease confidence of financial statement users in the quality of financial reporting. Q12-2 ,he &-./ is an independent$ pri ately funded accounting standards-setting body. the mission of the &-./ is to de elop a single set of high-quality$ understandable$ and enforceable global accounting standards. ,he &-./ is composed of 1% members !ho each ser e a fi e-year term sub0ect to one reappointment. #embers are required to se er all employment relationships that might compromise their independent 0udgement in setting accounting standards. ,he &-./ is based in 1ondon. Q12-3 ,he &-./ solicits input from the public !hen e aluating potential standards and publishes a discussion paper and2or an exposure draft !hich are sub0ect to comment before issuing a final standard. Q12-4 &F*. are already mandated or permitted in o er 133 countries around the !orld. /eginning !ith 233'$ the European 4nion mandated the use of &F*. for companies listing on stock exchanges in the E4$ although the E4 also continues to accept statements prepared according to 4. 5--6. /eginning in 233+$ foreign pri ate issuers !ho list their shares on 4. stock exchanges may use &F*. in their financial statements !ithout reconciliation to 4. 5--6. Q12-5 ,he .EC is considering allo!ing 4. companies to use &F*. in their financial reports. ,he .EC held roundtable discussions in 7ecember 233). -mong those participating in the roundtable$ there !as o er!helming support for adopting for the use of a single of global standards$ and the ma0ority of the panellists agreed that &F*. ultimately !ill be the standard. ,here !as general agreement among roundtable participants that the .EC should specify a date by !hich 4. issuers !ould be required to prepare financial statements in accordance !ith &F*.. ,he target date most often mentioned should con ersion be required is 2311$ to coincide !ith the adoption of &F*. by a number of other countries including Canada and &ndia.
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Q12-6 &mpro e global competiti e position of 4. corporations. &ncrease the quality of information a ailable to in estors. *educe costs of compliance for companies that are currently using multiple reporting frame!orks. Enhance global capital markets. Companies !ould ha e easier access to raising capital in the global markets. /ecause .EC no! permits foreign pri ate issuers to file their financial reports using &F*. !ithout reconciliation$ not allo!ing 4. companies to report under &F*. could result in 4. companies bearing costs not incurred by foreign pri ate issuers. Enhance comparability across companies for users. .EC chairman Cox noted that t!o-thirds of 4. in estors o!n securities of foreign companies$ a "3 percent increase in the last fi e years. Q12-7 a. 1ocal currency unit. ,he local currency unit 81C49 is the currency used locally: that is$ the currency used in the country in !hich the company is located. b. *ecording currency. ,he recording currency is the currency used to record the economic acti ities in the 0ournals and ledger of the business entity. ,he recording currency is typically the local currency$ but may be some other currency. c. *eporting currency. ,he reporting currency is the currency used on the financial statements of the business entity. ,ypically$ the reporting currency is the same as the recording currency. Q12-8 ,he functional currency is normally the currency in !hich the foreign entity performs most of its cash functions. ;o!e er$ for entities operating in highly inflationary economies$ the functional currency is designated as the 4... dollar regardless of the actual currency used for cash functions. ,he definition of a highly inflationary economy is one that has a cumulati e inflation of approximately 133 percent or more o er a "-year period. FAS 52 pro ides six indicators to be used to determine a foreign entity<s functional currency: 819 cash flo!s$ 829 sales prices$ 8"9 sales markets$ 8%9 expenses$ 8'9 financing$ and 8(9 intercompany transactions and arrangements. &f most of these indicators take place in the foreign currency unit$ then the FC4 is the functional currency. &f most take place in the 4... dollar$ then the dollar is the functional currency. Q12-! ;armoni=ation means to standardi=e the accounting principles used around the !orld. For example$ the 4... does not allo! a company to re alue its o!n assets for the effects of inflation. .e eral countries do$ ho!e er$ allo! for this re aluation and subsequent depreciation on the re aluation. 7ifferences in accounting principles from country to country make it difficult to compare business entities doing business in different countries. ,he harmoni=ation of accounting principles around the !orld !ould eliminate many of the problems of combining and consolidating multinational entities. - 4... company !ith international in estments could then be assured of essentially the same accounting principles being applied: therefore$ re enues$ profits$ and in estments in these foreign in estments could effecti ely be compared and contrasted.
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Q12-1" >hen the local currency is the foreign entity<s functional currency$ the translation method is used to con ert the foreign entity<s financial statements into 4... dollars$ the parent company<s reporting currency. ,he translation method uses the current exchange rate for con erting all assets and liabilities. ,he appropriate historical exchange rate is used to con ert the Canadian entity<s stockholders< equity accounts. ,he !eighted a erage exchange rate is used to con ert the Canadian entity<s income statement accounts. ,he change in the translation ad0ustment during the period is reported as an element of other comprehensi e income on the .tatement of Comprehensi e &ncome$ and is then accumulated !ith the other elements of comprehensi e income and reported !ithin the stockholders? equity section of the consolidated balance sheet. ,he translation ad0ustment may ha e a debit or credit balance$ depending on the relati e change in the exchange rate since the parent acquired the subsidiary. Q12-11 *emeasurement is used !hen the 4... dollar is the functional currency of the foreign entity. Furthermore$ FAS 52 requires that the financial statements of foreign entities operating in highly inflationary economies be remeasured as if the functional currency !ere the reporting currency. *emeasurement requires the use of the current exchange rate to con ert all monetary assets and liabilities. ,he historical exchange rate is used to con ert nonmonetary assets and the stockholders< equity accounts. ,he appropriate historical rate is the rate on the later of the t!o follo!ing dates: 819 the day the foreign entity obtained the asset or the day the foreign entity made a transaction affecting the stockholders< equity section such as selling additional stock or declaring di idends$ or 829 the day the 4... parent company purchased the foreign affiliate. &n the case of a pooling of interests$ the appropriate historical rate is the rate for the day the foreign affiliate transacted to obtain the asset or transacted in a stockholders< equity item. ,he !eighted a erage exchange rate for the period co ered by the income statement is used for re enues or expenses incurred e enly o er the period except for those expenses that are allocations of balance sheet items$ such as depreciation$ cost of goods sold 8in entories9$ or !rite-offs of good!ill. For cost allocations$ the same rate used on the balance sheet to con ert the items to 4... dollars is used on the income statement. Q12-12 ,ranslation ad0ustments are the balancing items to make the debit and credit items equal in the translated trial balance measured in 4... dollars. ,he parent company records its share of the translation ad0ustment in its books through an ad0usting entry. ,he change during the period in the translation ad0ustment is reported as a component of other comprehensi e income in the .tatement of Comprehensi e &ncome. ,he accumulated other comprehensi e income is reported as a separate item of stockholders? equity in the balance sheet. ,he cumulati e translation ad0ustment may ha e a debit balance or credit balance. - debit balance usually means that the current exchange rate is less than the historical rate used to translate the stockholders? equity accounts. ,his means the dollar is strengthening relati e to the foreign currency. - credit balance usually results !hen the dollar is !eakening relati e to the foreign currency$ and the current exchange rate is higher than the historical exchange rate. Q12-13 ,he remeasurement gain or loss first appears as the trial balance balancing item in the income statement section of the foreign affiliate<s trial balance. ,he parent company recogni=es its share of the remeasurement gain through an ad0usting entry. ,ypically$ the remeasurement gain is sho!n in the @Ather &ncome@ section of the consolidated income statement.
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Q12-14 ,he stockholders< equity accounts are translated at the historical rate in effect the date the parent company acquired the foreign affiliate because this aids in the elimination entry process used to prepare the consolidated statements. ,he in estment account on the parent company<s books includes the initial in estment measured in terms of the exchange rate on the date the parent purchased the foreign affiliate. ,hus$ the basic eliminating entry to eliminate the in estment account against the capital stock and additional paid-in capital includes accounts !ith the same currency measurement rate. ,he retained earnings include the effects of re enue and expense transactions$ all measured at different rates o er time. ,he beginning translated retained earnings$ as measured in 4... dollars$ is taken from last year<s ending retained earnings. Bet income is obtained from the income statement and di idends are translated using the exchange rate in effect the date the di idends are declared. Q12-15 ,he current rate method uses the current exchange rate to translate the foreign affiliate<s assets and liabilities. ,he !eighted-a erage exchange rate is used to translate the foreign affiliate<s re enues and expenses. ,his means that the relationships !ithin the assets and liabilities of the foreign affiliate<s balance sheet are not changed in the translation process. For example$ the current ratio in 4... dollar statements !ill be the same as in the foreign currency statements. ,his results from the use of a constant translation multiplier !ithin the financial statements. ;o!e er$ this relationship does not hold !hen computing ratios using a balance sheet account and an income statement account: for example$ return on equity. ,hese ratios include accounts !ith different translation exchange rates. Q12-16 ,he excess of cost o er book alue has t!o effects: 819 the portion amorti=ed for the period is reported in the income statement$ and 829 the unamorti=ed balance is reported in the balance sheet. >hen the local currency unit is the functional currency$ the translation method is used to con ert the foreign entity<s financial statements into 4... dollars. FAS 52 requires that the differential be e aluated in terms of the foreign currency unit. ,herefore$ the period<s amorti=ation$ measured in the foreign currency$ is translated at the !eighted a erage exchange rate. ,he remaining unamorti=ed differential is translated at the current exchange rate at the end of the period. ,he different exchange rates used typically result in a difference !hen measured in 4... dollars. ,his difference becomes part of the translation ad0ustment. Q12-17 ,he change during the period in the translation ad0ustment is reported as a component of other comprehensi e income. ,he translation ad0ustment is part of the accumulated other comprehensi e income that is reported in the stockholders? equity section of the consolidated balance sheet. Q12-18 Bot all foreign subsidiaries are consolidated. ,he parent must be able to exercise control o er the foreign subsidiary<s operating and financial policies before consolidation is proper. ,his may not be the case if the foreign subsidiary is located in a country in !hich the go ernment places significant restrictions on di idend declarations$ input from non-local management$ or other operating or financing aspects of the business. Q12-1! - recent -ccounting ,rends and ,echniques indicated that approximately one-quarter of the foreign subsidiaries of 4... companies are not consolidated: instead$ they are reported as a long-term in estment on the 4... company<s financial
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statements$ usually under the equity method. ,he cost method is used to account for the foreign in estment$ ho!e er$ if the 4... in estor is not able to exercise significant influence o er the foreign in estee<s operating and financial policies. Q12-2"# ,he issue !ith intercompany transactions is !ith regard to the amount of unreali=ed profit. ,he unreali=ed profit determined at the time of the initial intercompany transaction is a function of the currency exchange rate at that time. -s the rate changes$ the underlying accounts may be translated at different exchange rates$ thus affecting the computation of unreali=ed intercompany profit. FAS 52 states that the intercompany profit should be eliminated based on the exchange rate at the date the intercompany transaction occurred. ,his eliminates any potential problems from subsequent changes in exchange rates.
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SOLUTIONS TO CASES
C12-1 C$%&'()*$+ $, US GAAP '+- IFRS Research 6rice!aterhouseCoopers offers a publication on its >eb site$ Similarities and differences: A comparison of IFRS and US GAAP$ that pro ides a topic-based comparison. -ccess this publication on the >eb at http:22!!!.p!c.com2gx2eng2about2s cs2corporatereporting2.and7C3). pdf. An pages %-11$ there is a table of differences bet!een 4. 5--6 and &F*. by reporting issue. ,here is also a reference to the pages in the document !here each of these items is explained in more detail. .elect any three of the items and read about the nature of the differences. 6repare a short paper approximately t!o to three pages long that defines the nature of the differences and discusses !hat you ha e learned.
Solutions will vary by student depending on the particular items he or she selects. C12-2 S.(/0./(1 $, .21 IAS Research Solution ,he &-./ >eb site is !!!.iasb.org. -t the top of the page$ click on the link About Us. /riefly describe the structure of the &-./. ,he &nternational -ccounting .tandards Committee 8&-.C9 Foundation is the parent entity of the &-./. ,he &-.C Foundation is an independent organi=ation. ,he &-.C Foundation trustees appoint the &-./ members$ exercise o ersight$ and raise funds to support the organi=ation. ,he &-.C Foundation also appoints the .tandards -d isory Council$ !hich ad ises the &-./ and the &nternational financial *eporting &nterpretations Committee. ,he &-./ has the sole responsibility for setting accounting standards. ,hese standards are called &nternational Financial *eporting .tandards 8&F*.9. D13)41('.)$+* ,he &-./ >eb site is !!!.iasb.org. -ccess the >eb site and click on the link at the top of the page for Current 6ro0ects. An the Current 6ro0ects page$ click on the &-./ link. Dou may also access this page directly at http:22!!!.iasb.org2CurrentE6ro0ects2&-./E6ro0ects2&-./E>orkE6lan.htm . >hat are three pro0ects on the acti e agenda that are being addressed by the &-./F >hat is the timetable identified for milestones on each of the pro0ectsF >hat is the status of the Conceptual Frame!ork pro0ectF
C12-3 IAS Research
Solutions will vary by student depending on the particular items he or she selects. C12-4 D1.1(%)+)+5 ' F/+0.)$+'3 C/((1+06 ,he choice of a functional currency is based on the currency used for six criteria
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pro ided in FAS S.'.1%1+. N$7 52$ as follo!s: 819 cash flo!s$ 829 sales prices$ 8"9 sales markets$ 8%9 expenses$ 8'9 financing$ and 8(9 intercompany transactions and arrangements. ,he choice of a functional currency is made by management after a sub0ecti e e aluation of these criteria. ;o!e er$ the 4... dollar is specified as the functional currency in cases in !hich the foreign affiliate of a 4... company is located in a country experiencing high inflation 8approximately 133 percent or more o er a three-year period9. Foreign Entity<s *eporting Currency 1. -rgentinean peso Foreign Entity<s Functional Currency 4... dollar 6rocess of *estatement into 4... 7ollars *emeasurement
N$.1: ,his case sho!s that the 4... dollar is the specified functional currency for foreign subsidiaries located in countries !ith highly inflationary economies.
2.
#exican pesos
Either peso or dollar$ management may select either.
Either
N$.1: ,his case indicates that the criteria are not al!ays absolute. #anagement probably !ould select the specific functional currency on the basis of financial effects$ such as effect on earnings per share. ". %. /ritish pound .!iss franc /ritish pound European euro ,ranslation *emeasurement from franc to euro: then translation from euro to dollars
N$.1: ,his case sho!s that the local currency of the country in !hich the foreign affiliate is located may not be the foreign affiliate<s functional currency: instead$ a third currency presents the functional currency.
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C12-5
P()+0)&31* $, C$+*$3)-'.)+5 '+- T('+*3'.)+5 F$(1)5+ A00$/+.* 8AICPA A-'&.1-9
a. ,he rules for consolidating a foreign subsidiary are essentially the same as for a domestic subsidiary. ,he key element is the degree of control 6etie 6roducts has o er the financial and operating policies of Cream$ 1td. ,ypically$ a G3 percent stock o!nership le el !ould assure the parent company<s control of the subsidiary. &t is possible$ ho!e er$ that the country of Holay may ha e se ere restrictions on the decision-making abilities of non-Holay in estors$ or that Holay may ha e restricti e la!s regulating commerce !ithin Holay. 6etie 6roducts< management must e aluate their ability to control the foreign subsidiary. &f they do possess the necessary le el of control$ the foreign subsidiary should be consolidated. &f not$ then the foreign subsidiary is reported as an in estment on the parent company<s financial statements. b. ,ranslation means that the local currency unit is functional. ,he foreign subsidiary<s assets and liabilities are translated using the current exchange rate at the end of 23I). ,he stockholders< equity accounts are translated at appropriate historical rates. ,he income statement accounts are translated at the !eighted a erage exchange rate during 23I). ,he appropriate exchange rates for each of the 13 items are presented belo!: 1. Current exchange rate at 7ecember "1$ 23I) 2. Current exchange rate at 7ecember "1$ 23I) ". Current exchange rate at 7ecember "1$ 23I) %. Current exchange rate at 7ecember "1$ 23I) '. Current exchange rate at 7ecember "1$ 23I) (. ;istorical exchange rate at January$ 23I% ). /eginning *etained Earnings is carried for!ard as a composite from prior years< operations. ,he beginning *etained Earnings is the prior period<s ending *etained Earnings. +. - erage exchange rate for 23I) 8assumes re enues earned e enly throughout year9 G. - erage exchange rate for 23I) 13. - erage exchange rate for 23I)
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C12-6 T('+*3'.)+5 '+- R1%1'*/()+5 F)+'+0)'3 S.'.1%1+.* $, F$(1)5+ S/4*)-)'()1* 8AICPA A-'&.1-9
a. ,he ob0ecti es of translating a foreign subsidiary<s financial statements are to: 1. 6ro ide information that is generally compatible !ith the expected economic effects of a rate change on a subsidiary<s cash flo!s and equity. 2. *eflect the subsidiary<s financial results and relationships in single currency financial statements$ as measured in its functional currency and in conformity !ith generally accepted accounting principles. b. -pplying different exchange rates to the arious financial statement accounts causes the restated financial statements to be unbalanced. K4nbalanced? means that the debits !ill not equal the credits in the subsidiary<s trial balance prepared in 4... dollars. ,he amount required to bring the restated financial statements into balance is termed the gain or loss from the translation or remeasurement. ,he gain or loss from remeasuring >ahl -<s financial statements is reported in the consolidated income statement. ,he gain or loss arising from translating >ahl F<s financial statements 8described as a translation ad0ustment9 is reported as a component of comprehensi e income and then accumulated !ith other comprehensi e income items and reported under stockholders< equity in the consolidated balance sheet. c. ,he functional currency is the foreign currency or the parent<s currency that most closely correlates !ith the follo!ing economic indicators: 1. Cash flo! indicators 2. .ales price indicators ". .ales market indicators %. Expense indicators '. Financing indicators (. &ntercompany transactions and arrangement indicators d. -ll accounts relating to >ahl -<s equipment L the equipment$ accumulated depreciation$ and depreciation expense accounts L are remeasured by using the exchange rate pre ailing bet!een the 4... and -ustralian dollars at the later of the t!o follo!ing dates: 819 the date at !hich >ahl Co. acquired its in estment in >ahl -$ or 829 the date8s9 the equipment !as purchased by >ahl -. ,his exchange rate is referred to as the historical rate. -ll accounts relating to >ahl F<s equipment are translated by using the current exchange rates pre ailing bet!een the 4... dollar and the European euro. For the equipment cost and the accumulated depreciation$ the current exchange rate at 7ecember "1$ 23I'$ should be used for translation. 7epreciation expense is translated at an appropriate !eighted a erage exchange rate for 23I'.
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C12-7 T('+*3'.)$+ A-:/*.%1+. '+- C$%&(121+*);1 I+0$%1 a. .tatement of income for the year$ for the subsidiary .ubsidiary .tatement of &ncome Dear Ended 7ecember "1$ 23II .ales Cost of .ales 5ross 6rofit Aperating Expenses &ncome from Aperations Consolidated Bet &ncome to Controlling &nterest b.
M '(3$333 82+'$3339 M 2)'$333 81%3$3339 M 1"'$333 M 1"'$333
.tatement of comprehensi e income for the year$ for the subsidiary .ubsidiary .tatement of Comprehensi e &ncome Dear Ended 7ecember "1$ 23II Consolidated Bet &ncome to Controlling &nterest Ather Comprehensi e &ncome: ,ranslation -d0ustment Comprehensi e &ncome M 1"'$333 812$3339 M 12"$333
c.
/alance sheet as of 7ecember "1$ for the subsidiary .ubsidiary /alance .heet 7ecember "1$ 23II Cash *ecei ables &n entories 6roperty$ 6lant$ and Equipment 8net9 ,otal -ssets M '3$333 2%$)33 (3$"33 "2+$333 M %("$333 M 1($333 1+1$333 133$333 2'+$333 8G2$3339 M %("$333
-ssets
1iabilities and .tockholders? Equity Current 6ayables 1ong-,erm 6ayables Capital .tock *etained Earnings -ccumulated Ather Comprehensi e &ncome: ,ranslation -d0ustment ,otal 1iabilities and .tockholders? Equity
Bote: ,he end-of-year retained earnings 8M2'+$3339 is comprised of the January 1 balance of M1"'$333$ plus net income of M1"'$333$ less di idends of M12$333.
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C12-7 8continued9 d.
FAS S.'.1%1+. N$7 13" allo!s for either the one-statement format for the combined statement of income and comprehensi e income$ or the t!ostatement format for a statement of income and a separate statement of comprehensi e income. /oth formats must include all the elements of comprehensi e income. ,he one-statement format presents the other comprehensi e income elements immediately belo! net income. ,he t!o-statement format presents a separate statement of income as !as done prior to FAS 13". ,he statement of income ends !ith net income. ,hen$ a separate statement of comprehensi e income begins !ith net income$ follo!ed !ith the elements of other comprehensi e income$ and ends !ith comprehensi e income.
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C12-8 C2'+51* )+ .21 C/%/3'.);1 T('+*3'.)$+ A-:/*.%1+. A00$/+.
Johnson N Johnson Company applied the concepts presented in the chapter for translating the trial balances of its foreign subsidiaries. ,he resulting cumulati e translation ad0ustment has changed dramatically from a credit balance of M1"% million at the end of 23I1 to a debit balance of M""+ million at the end of 23I". ,he translation ad0ustment is related to the translated net asset balance 8assets minus liabilities9 of the foreign subsidiaries. .e eral factors could account for the decrease in the net assets of Johnson N Johnson<s foreign subsidiaries$ as follo!s: 1. ,he foreign subsidiaries could be increasing their local liabilities$ i.e.$ taking out more local debt. 2. ,he foreign subsidiaries could be decreasing their local assets$ i.e.$ not maintaining their physical capital through rein estment. ". ,he direct exchange rate of the dollar ersus the local currency units of the countries in !hich the company has foreign subsidiaries has been decreasing o er time 8i.e.$ the dollar had strengthened ersus the local currency units9. Ouestion -7 can be used to demonstrate these factors. *emember that it is assumed that the translated stockholders< equity$ other than the accumulated other comprehensi e income 8-AC&9 from the translation ad0ustment$ remained constant at M'33 million for each of the three years. ,he follo!ing condensed balance sheets can be presented: 23I1 ,ranslated /alance .heets of -ll Foreign .ubsidiaries Bet assets M("% .tockholders? equity: Ather than -AC& -AC& ,ranslation -d0ustment 23I2 ,ranslated /alance .heets of -ll Foreign .ubsidiaries Bet assets M"'% .tockholders? equity: Ather than -AC& -AC& ,ranslation -d0ustment 23I" ,ranslated /alance .heets of -ll Foreign .ubsidiaries Bet assets M1(2 .tockholders? equity: Ather than -AC& -AC& ,ranslation -d0ustment M '33 8""+9 M '33 81%(9 M '33 1"%
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C12-8 8continued9
&f the direct exchange rate decreased o er the t!o-year period$ the translated net assets !ould decrease$ thus causing a decrease 8debit change9 in the translation ad0ustment. ,he direct exchange rate !ould decrease if the dollar !ere strengthening ersus the local currency units of the countries in !hich the company had foreign subsidiaries. Ather causes for the decrease in the translated net assets !ould be a decrease in local assets$ or an increase in local liabilities. Johnson N Johnson Company did make se eral changes in its foreign in estment portfolio during 23I2 and 23I" that !ould ha e resulted in a change in the combined stockholders< equity of the company<s foreign in estments. 7uring 23I"$ the company acquired approximately M2(( million in European companies. &n 23I2$ the company acquired approximately M%) million in Japanese companies. ,he company completed relati ely minor sales of foreign subsidiaries and operations during 23I2 and 23I". ,hus$ it appears that the ma0or reasons for the significant debit change in the accumulated other comprehensi e income L translation ad0ustment account o er the t!o-year period !as that the foreign subsidiaries !ere increasing their local debt$ and that the 4... dollar !as strengthening ersus the local currency units of the foreign countries in !hich Johnson N Johnson Company had subsidiaries. - more specific analysis !ould require kno!ledge of the amount of the foreign in estments in each country$ the balance of the local assets and local liabilities of each of the foreign subsidiaries$ and the kno!ledge of the exchange rates for the dollar ersus the foreign currencies of the countries in !hich the company has in ested.
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C12-! P($* '+- C$+* $, F$(1)5+ I+;1*.%1+.
,he focus of this case is to consider the ariables in ol ed !ith the business decision of expanding a company<s production and2or marketing in estment in a foreign country. #any of the ariables !ould be similar to those considered in the decision to increase a company<s physical capital in the 4... /ut$ some additional ariables should be considered for the foreign country such as: home-country la!s$ the political and economic en ironment$ the accounting and tax la!s$ the status of labor organi=ation$ the cost-of-li ing and pre ailing !ages$ the supply of trained labor forces 8including local management personnel9$ and the different cultural aspects that might impact on obtaining the factors of production or on the markets for the company<s goods. .ome companies make in estment in foreign production facilities in order to ha e a production capability closer to a foreign market. ,hus transportation costs of the finished goods are decreased$ !hile the company is able to increase o erall re enue and income. #any companies go to non-4... production sources because of the lo!er costs for labor. ,hus$ if the company produces a labor-intensi e product$ the economics of the decision may fa or foreign production. &n addition$ as tariffs are reduced$ 4... companies may find it more ad antageous to mo e their production facilities to non4... locations. Ane possible outcome is that the costs of the finished goods to 4... consumers !ould be lo!er for goods manufactured outside the 4... ;o!e er$ an argument often raised in the political arena is that unemployed 4... consumers !ould not be able to purchase the products. ,he 4... go ernment has proposed retraining programs for dislocated !orkers !ho lose their 0obs because the company has closed the 4... production facility. .tudents should be encouraged to de elop some ne! and no el approaches to sol ing the problem of the general change in the types of ne! 0obs being created in the 4... economy.
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C12-1" D1.1(%)+)+5 '+ E+.).6<* F/+0.)$+'3 C/((1+06 #E#A ,o: 5arry 6arise$ CFA$ #axima Corporation
From: CCCCCCCCCCCCCCC 7epartment *e:
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Controller?s
Functional Currency of 1u= #axima
-ccording to F-./ .tatement Bo. '2$ the functional currency for a company is the primary currency that is generated by cash inflo!s and used for cash outflo!s. Further$ it is the currency the country that is primary economic en ironment of the company?s business operations as indicated by items such as sales$ and expense$ and financing acti ities. /ecause 1u= #axima initially did business exclusi ely !ith #axima Corporation and these transactions !ere denominated in the 4... dollar$ its functional currency !as originally determined to be the 4... dollar. ;o!e er$ it appears that changes in 1u= #axima?s operation o er the past fi e years may result in a change in the functional currency from the 4... dollar to the #exican peso. -ppendix - of F-./ '2 pro ides indicators that should be considered in determining a foreign subsidiary?s functional currency. -mong the indicators that may be rele ant for e aluating the functional currency of 1u= #axima are sales$ expense$ and financing indicators. .ales market indicators P 1u= #axima no! sells a significant amount of product in #exico and .outh -merica. ,hese transactions are denominated in the peso. Expense indicators P 1u= #axima obtains a significant amount of materials from local suppliers. Financing indicators P 1u= #axima obtained long-term debt financing and a line of credit from banks in #exico. ,o the extent indicators are mixed and 1u= #axima also has sales$ expenses$ and financing transactions denominated in the 4... dollar$ F-./ '2 states that management should make the final determination as to the functional currency. F-./ '2 also indicates that$ !hile it is desirable for the functional currency to be used consistently$ if economic facts change$ it may be appropriate to change the determination of the functional currency. #anagement should assess all aspects of 1u= #axima?s operation to determine the most appropriate and rele ant functional currency for this subsidiary. &f a decision is made to change the functional currency from the 4. .. dollar to the #exican peso$ 1u= #axima?s current financial statements should be con erted to 4... dollars using the current rate translation method. -ny ad0ustment that occurs as a result of translating nonmonetary assets using the current rate method should be reported as a component of other comprehensi e income.
12-1#
C12-1" 8continued9 -uthoritati e support for the abo e memo can be found in the follo!ing references: F-./ '2$ 6ar. '$ 6ar. G$ 6ar. %1$ 6ar. %2$ 6ar. %( .uggested Ouery: functional currencyQ C12-11 A00$/+.)+5 ,$( .21 T('+*3'.)$+ A-:/*.%1+. #E#A ,o: *enee Roll$ Controller From: CCCCCCCCCCC CCCCCCCCCCCCCCC$ C6-
*e: ,ranslation -d0ustment for Ralencia subsidiary .ince .onoma has sold "3S of the in estment in our .panish subsidiary$ the balance of the cumulati e translation ad0ustment$ included in consolidated stockholders? equity$ should be reduced proportionately. F-./ .tatement Bo. '2 normally does not require that changes in the translation ad0ustment be included in earnings. 6rior to the liquidation of an in estment in a subsidiary$ the F-./ belie es that the effects of such translation ad0ustments are uncertain and should not be included in income. ;o!e er$ !hen there is a sale or liquidation of a subsidiary$ the amount of the translation ad0ustment that is included in equity should be remo ed from equity and should be reported as part of the gain or loss in the period in !hich the transaction occurs. -lthough .onoma has not completely liquidated the in estment in Ralencia$ the company is still required to recogni=e a portion of the translation ad0ustment in computing the gain or loss. -ccording to F&B ")$ a pro rata portion of the accumulated translation ad0ustment that is attributable to the subsidiary must be included in the calculation of the gain or loss on the sale of a portion of the subsidiary. ,herefore$ the gain on the sale of the Ralencia in estment should be reduced by "3S of the 8debit balance9 cumulati e translation ad0ustment related to this in estment. .onoma should disclose the amount by !hich the gain is decreased because of the ad0ustment for the cumulati e translation ad0ustment. &n the presentation of comprehensi e income$ the ad0ustment to the translation ad0ustment should be identified as a reclassification ad0ustment so that the same amount is not included in both net income and in comprehensi e income.
12-1$
C12-11 8continued9
-uthoritati e support for the abo e memo can be found in the follo!ing references: F-./ '2$ 6ar. 1%$ 6ar. "1$ 6ar. 111 F-./ 1"3$ 6ar. 1G F&B ")$ 6ar. 2 .uggested Ouery: translation ad0ustmentQ sale
12-1%
SOLUTIONS TO E=ERCISES
E12-1 M/3.)&31-C2$)01 T('+*3'.)$+ '+- R1%1'*/(1%1+. 8AICPA A-'&.1-9 Foreign Currency is Functional Currency 1. a. M21'$333 b. 4... 7ollar is Functional Currency M22'$333 8M133$333 E M'3$333 E M"3$333 E M%'$3339 2. c. %33$333 1C4 x M.%% T M1)($333 d. 123$333 1C4 x M.'3 +3$333 1C4 x M.%% 233$333 1C4 x M.%% T M (3$333 T "'$233 T ++$333 M1+"$233 T M11"$""" T '($2'3 M1(G$'+" T M 11$"(%
".
a.
&ndirect rates used 2(3$333 1C4 2 1.+ 1C4 T M1%%$%%%
c.
1)3$333 1C4 2 1.' 1C4 G3$333 1C4 2 1.( 1C4
%. '. (. ).
d. a. a. a.
2'$333 1C4 2 2 1C4 T M12$'33
b. d. c.
2'$333 1C4 2 2.2 1C4
M)''$333 8-ll assets are translated at current rate9
d.
M++3$333 8M+'$333 E M)33$333 E M2'$333 E M)3$3339
12-1&
E12-2M/3.)&31-C2$)01 Q/1*.)$+* $+ T('+*3'.)$+ '+- F$(1)5+ C/((1+06 T('+*'0.)$+* 8AICPA A-'&.1-9 Foreign Currency is Functional Currency 1. b. M13$333 M123$333 T 221'2I2 M alue 8113$3339 T 122"12I1 M alue M 13$333 T Foreign exchange gain 2. d. M1)$333 M1"$333 T 6read0usted foreign exchange loss %$333 T Foreign currency transaction loss 8M(3$333 - M(%$3339 M1)$333 T Foreign exchange loss ". c. M21$333 M1'$333 T 6read0usted foreign exchange loss ($333 T Foreign currency transaction loss 8M133$333 - M13($3339 M21$333 T Foreign exchange loss %. a. a. b. d.
4... 7ollar is Functional Currency M%3$333 M13$333 T Foreign currency transaction gain "3$333 T *emeasurement gain M%3$333 T Foreign exchange gain M13$333 M1"$333 T 6read0usted foreign exchange loss %$333 T Foreign currency transaction loss 8)$3339 T *emeasurement gain M13$333 T Bet foreign exchange loss M%1$333 M1'$333 T 6read0usted foreign exchange loss ($333 T Foreign currency transaction loss 23$333 T *emeasurement gain M%1$333 T Bet foreign exchange loss
>hen the remeasurement method is used$ monetary accounts are restated at the exchange rate at the balance sheet date$ !hile nonmonetary accounts are restated using the exchange rate8s9 at the date8s9 the transaction8s9 occurred !hich are reflected in the account balance. &n this question$ bonds payable and accrued liabilities are both monetary accounts and !ould be restated using the balance sheet exchange rate. ,rading securities represent a nonmonetary account. ,rading securities !ould be restated using the balance sheet rate because the account balance is stated at the market alues at the balance sheet date. &n entories are also a nonmonetary asset. .ince they are stated at cost$ a historical exchange rate !ould be used to restate in entories.
12-1'
E12-2 8continued9 '.
b. ,he current rate method of translation allo!s the use of a !eighted a erage exchange rate for re enues and expenses that occur throughout the year. .ince both sales and !ages expense occur throughout the year$ a !eighted a erage exchange rate can be used for translation. a. For hedges of net in estments in a foreign entity$ the amount of the change in fair alue of the hedging instrument is recorded to other comprehensi e income that then becomes part of the accumulated other comprehensi e income. ,he change in the translation ad0ustment during the period is reported as a component of other comprehensi e income and then carried for!ard to be accumulated in the stockholders? equity section of the balance sheet !ith the other components of other comprehensi e income. ,herefore$ in this case in !hich a hedge of a net in estment in a foreign entity is used$ the exchange gain on the hedge is reported along !ith the change in the translation ad0ustment.
(.
E12-3 M'.02)+5 >16 T1(%* 1. 2. ". %. '. (. ). +. G. 13. 11. 12. ; 5 F 7 E / C / 7 E J C
12-2(
E12-4 M/3.)&31-C2$)01 Q/1*.)$+* $+ T('+*3'.)$+ '+- R1%1'*/(1%1+. 1. / &n estment cost 1ess: /ook and fair alues of sub<s net assets (+3$333 ringitts x M.21 x .G3 T 5ood!ill
M1(3$333 12+$'23 M "1$%+3
2.
C 5ood!ill &mpairment
7ollars M13$'33 1$133 8*# '$333 x M.229
*ingitts *# '3$333 8M13$'33 2 M.219 '$333 8*# '3$333 2 139
". %. '. (.
7 C
&mpairment loss T M13$'33 2 13 T M1$3'3 U 2'$333 x M1.2% T M"1$333 U '$333 x M1."3 T M($'33 &n estment cost on January 1$ 23I' 1ess: /ook and fair alues of sub?s net assets: U "33$333 x M1.23 5ood!ill 7ollars M%2$333 %$"%3 8U "$'33 x M1.2%9 M")$((3 M%1$'+3 8U "1$'33 x M1."29 M%32$333 "(3$333 M %2$333 Euros U "'$333 8M %2$333 2 M1.239 "$'33 8U "'$333 2 139 U "1$'33
5ood!ill &mpairment /alance ,ranslated balance
,ranslation ad0ustment: M%1$'+3 minus M")$((3 T M"$G23 P use for question ). ). / ,ranslation ad0ustment from translating the trial balance ,ranslation ad0ustment from translating good!ill ,otal translation ad0ustment
M12$333cr "$G23cr M1'$G23cr
12-21
E12-5 T('+*3'.)$+
*oad,ime Company ,rial /alance ,ranslation 7ecember "1$ 23I1 .!iss Francs Cash -ccounts *ecei able 8net9 *ecei able from 6opular Creek &n entory 6lant and Equipment Cost of 5oods .old 7epreciation Expense Aperating Expense 7i idends 6aid ,otal 7ebits -ccumulated 7epreciation -ccounts 6ayable /onds 6ayable Common .tock .ales ,otal -ccumulated Ather Comprehensi e &ncome L ,ranslation -d0ustment 8credit9 ,otal Credits .Fr )$333 23$333 '$333 2'$333 133$333 )3$333 13$333 "3$333 1'$333 .Fr 2+2$333 .Fr 13$333 12$333 '3$333 (3$333 1'3$333 .Fr 2+2$333 ,ranslation *ate .+3 .+3 .+3 .+3 .+3 .)' .)' .)' .)) .+3 .+3 .+3 .)" .)' 4... 7ollars M '$(33 1($333 %$333 23$333 +3$333 '2$'33 )$'33 22$'33 11$''3 M21G$('3 M +$333 G$(33 %3$333 %"$+33 112$'33 M21"$G33 '$)'3 M21G$('3
12-22
E12-6 P($$, $, T('+*3'.)$+ A-:/*.%1+. a.
6opular Creek Corporation and .ubsidiary 6roof of ,ranslation -d0ustment Dear Ended 7ecember "1$ 23I1 .Fr ,ranslation *ate .)" 4... 7ollars M %"$+33
Bet assets at beginning of year -d0ustment for changes in net asset position during year: Bet income for year 7i idends paid Bet assets translated at: *ates during year *ates at end of year Change in other comprehensi e income translation ad0ustment during year net increase -ccumulated other comprehensi e income L translation ad0ustment L January 1 Change in other comprehensi e income L translation ad0ustment 7ecember "1 8credit9 b.
.Fr (3$333
%3$333 81'$3339 .Fr +'$333
.)' .)) .+3
"3$333 811$''39 M (2$2'3 (+$333
M '$)'3 -3-
M '$)'3
,he change in the translation ad0ustment of M'$)'3 is included as a credit in the other comprehensi e income on the .tatement of Comprehensi e &ncome. ,he other comprehensi e income is then accumulated and reported in the stockholders? equity section of the consolidated balance sheet.
.upporting computations: Bet income: .ales C5. 7epreciation Aper. Expenses Bet &ncome .Fr 1'3$333 Bet -ssets /alance .heet$ 122"12I1 M(+$333 Common .tock *et. Earn.Q -AC& ,otal M %"$+33 1+$%'3 '$)'3 M (+$333 M -3"3$333 811$''39 M 1+$%'3
8)3$3339 813$3339 8"3$3339 ,otal .Fr %3$333
M(+$333
*etained earnings$ 1212I1 Bet income 7i idends Q*etained earnings$ 122"12I1
12-2!
E12-7 R1%1'*/(1%1+. *oad,ime Company ,rial /alance *emeasurement 7ecember "1$ 23I1 .!iss Francs Cash -ccounts *ecei able 8net9 *ecei ables from 6opular Creek &n entory 6lant and Equipment Cost of 5oods .old 7epreciation Expense Aperating Expense 7i idends 6aid ,otal *emeasurement 1oss ,otal 7ebits -ccumulated 7epreciation -ccounts 6ayable /onds 6ayable Common .tock .ales ,otal Credits .Fr )$333 23$333 '$333 2'$333 133$333 )3$333 13$333 "3$333 1'$333 .Fr 2+2$333 *ate .+3 .+3 .+3 .)) .)% 8a9 .)% .)' .)) 4... 7ollars M '$(33 1($333 %$333 1G$2'3 )%$333 '2$333 )$%33 22$'33 11$''3 M212$"33 1$333 M21"$"33 M )$%33 G$(33 %3$333 %"$+33 112$'33 M21"$"33 4... 7ollars M -3)1$2'3 M )1$2'3 81G$2'39 M '2$333
.Fr 13$333 12$333 '3$333 (3$333 1'3$333 .Fr 2+2$333 .!iss Francs .Fr -3G'$333 .Fr G'$333 82'$3339 .Fr )3$333
.)% .+3 .+3 .)" .)'
8a9 Cost of 5oods .old: /eginning &n entory 6urchases 5oods - ailable for .ale 1ess: Ending &n entory Cost of 5oods .old
*ate .)' .)' .))
12-2"
E12-8# P($$, $, R1%1'*/(1%1+. G')+ ?L$**@ a.
6opular Creek Corporation and .ubsidiary 6roof of *emeasurement 1oss Dear Ended 7ec. "1$ 23I1 .chedule 1 .tatement of Bet #onetary 6osition End of Dear .Fr )$333 23$333 '$333 .Fr "2$333 .Fr 12$333 '3$333 .Fr8(2$3339 /eginning of Dear .Fr (3$333 .Fr (3$333 .Fr -3-3.Fr -3.Fr (3$333 .Fr "3$333 .Fr 8G3$3339
#onetary -ssets: Cash -ccounts *ecei able 8net9 *ecei ables from 6opular Creek ,otal 1ess #onetary 1iabilities: -ccounts 6ayable /onds 6ayable ,otal Bet #onetary -ssets Bet #onetary 1iabilities Change in net monetary in estment during 23I1
.chedule 2 -nalysis of Changes in #onetary -ccounts .Fr .Fr (3$333 Exchange *ate .)" 4... 7ollars M %"$+33
Exposed net monetary asset 6osition P January 1 -d0ustments for changes in the net monetary position during the year: &ncreases: From operations: .ales From other sources 7ecreases: From operations: 6urchases Cash expenses From di idends From purchase of plant and equipment Bet monetary position prior to remeasurement at year-end rates Exposed net monetary liability 6osition P 7ecember "1 *emeasurement loss
1'3$333 -38G'$3339 8"3$3339 81'$3339 8133$3339
.)'
112$'33 -38)1$2'39 822$'339 811$''39 8)%$3339 M82"$3339
.)' .)' .)) .)%
.Fr8"3$3339
.+3
82%$3339 M 81$3339
12-2#
E12-8# 8continued9
N$.1: ,he issuance of the bonds payable has no effect on net monetary assets. Cash$ a monetary asset$ is increased and bonds payable$ a monetary liability$ is increased. ,he *emeasurement 1oss results from the decrease in the net monetary asset position during a period in !hich the exchange rate has increased. ,he end-ofperiod remeasured net liability position of M2%$333 is more than the net monetary liability position of M2"$333 remeasured using the rates in effect at the times of the transactions. b. ,he remeasurement loss is included in the period<s consolidated statement of income.
12-2$
E12-! T('+*3'.)$+ A).2 S.(1+5.21+)+5 U7S7 D$33'( a.
*oad,ime Company ,rial /alance ,ranslation 7ecember "1$ 23I1 .!iss Francs *ate .)" .)" .)" .)" .)" .)' .)' .)' .)% 4... 7ollars M '$113 1%$(33 "$('3 1+$2'3 )"$333 '2$'33 )$'33 22$'33 11$133 M23+$213 %$+'3 M21"$3(3 .)" .)" .)" .+3 .)' M )$"33 +$)(3 "($'33 %+$333 112$'33 M21"$3(3
Cash -ccounts *ecei able 8net9 *ecei able from 6opular Creek &n entory 6lant and Equipment Cost of 5oods .old 7epreciation Expense Aperating Expense 7i idends 6aid ,otal -ccumulated Ather Comprehensi e &ncome L ,ranslation -d0ustment 8debit9 ,otal 7ebits -ccumulated 7epreciation -ccounts 6ayable /onds 6ayable Common .tock .ales ,otal Credits
.Fr
)$333 23$333 '$333 2'$333 133$333 )3$333 13$333 "3$333 1'$333 .Fr 2+2$333
.Fr 2+2$333 .Fr 13$333 12$333 '3$333 (3$333 1'3$333 .Fr 2+2$333
NOT REQUIRED: 6roof of ,ranslation -d0ustment .Fr Bet assets at beginning of year .Fr (3$333 -d0ustment for changes in net asset position during year: Bet income for year %3$333 7i idends paid 81'$3339 Bet assets translated at: *ates during year *ates at end of year .Fr +'$333 Change in other comprehensi e &ncome L translation ad0ustment during year L net decrease -ccumulated other comprehensi e income L translation ad0ustment L January 1 -ccumulated other comprehensi e income L translation ad0ustment L 7ecember "1 8debit9
,ranslation *ate .+3 .)' .)% .)"
4... 7ollars M %+$333 "3$333 811$1339 M (($G33 8(2$3'39 M %$+'3 -3M %$+'3
12-2%
E12-! 8continued9
b. &n Exercise 12-'$ the 4... dollar !eakened against the .!iss franc: i.e.$ the direct exchange rate increased during the 23I1 year. ,hus$ the M11$333 credit translation ad0ustment !as the balancing item because the translated net assets of the foreign subsidiary !ere higher at the end of the year than the net assets at the beginning of the year ad0usted for changes in the net assets that occurred during the year 8income less di idends9. &n Exercise 12-G$ the 4... dollar strengthened against the .!iss franc during the year: i.e.$ the direct exchange rate decreased during the year. ,hus$ the M%$+'3 debit translation ad0ustment !as the balancing item in Exercise 12-G because the translated net assets at the end of the year !ere lo!er than the translated net assets at the beginning of the year as ad0usted for changes during the year. ,he periodic change in the translation ad0ustment of M%$+'3 is reported as a component of other comprehensi e income on the .tatement of Comprehensi e &ncome$ and is then accumulated !ith other comprehensi e income items and reported in the stockholders? equity section of the consolidated balance sheet.
12-2&
E12-1" R1%1'*/(1%1+. A).2 S.(1+5.21+)+5 U7S7 D$33'( a.
*oad,ime Company ,rial /alance *emeasurement 7ecember "1$ 23I1 .!iss Francs *ate .)" .)" .)" .)% .)) 8a9 .)) .)' .)% 4... 7ollars M '$113 1%$(33 "$('3 1+$'33 ))$333 '2$)'3 )$)33 22$'33 11$133 M212$G13 ''3 M21"$%(3 M )$)33 +$)(3 "($'33 %+$333 112$'33 M21"$%(3
Cash -ccounts *ecei able 8net9 *ecei able from 6opular Creek &n entory 6lant and Equipment Cost of 5oods .old 7epreciation Expense Aperating Expense 7i idends 6aid ,otal *emeasurement 1oss ,otal 7ebits -ccumulated 7epreciation -ccounts 6ayable /onds 6ayable Common .tock .ales ,otal Credits
.Fr
)$333 23$333 '$333 2'$333 133$333 )3$333 13$333 "3$333 1'$333 .Fr 2+2$333
.Fr 13$333 12$333 '3$333 (3$333 1'3$333 .Fr 2+2$333
.)) .)" .)" .+3 .)'
8a9 Cost of 5oods .old: /eginning &n entory 6urchases 5oods - ailable for .ale 1ess: Ending &n entory Cost of 5oods .old
.!iss Francs .Fr -3G'$333 .Fr G'$333 82'$3339 .Fr )3$333
*ate .+3 .)' .)%
4... 7ollars M -3)1$2'3 M )1$2'3 81+$'339 M '2$)'3
12-2'
E12-1" 8continued9 b.
&n Exercise 12-'$ the 4... dollar !eakened against the .!iss franc: i.e.$ the direct exchange rate increased during the 23I1 year. ,he M1$333 remeasurement loss resulted from the decrease in the net monetary items during a period in !hich the exchange rate increased. &n Exercise 12-13$ the 4... dollar strengthened against the .!iss franc during the year. Bote that the remeasurement gain or loss is computed only on monetary items. &n E12-13$ the net monetary items decreased during the year. ,hus$ the M''3 remeasurement loss in E12-13 results from the fact that the remeasured net monetary liability position at the end of the year is greater than the net monetary position prior to remeasurement at year-end rates. ,his is sho!n in the proof belo! !hich !as not required for the exercise. NOT REQUIRED: 6roof of *emeasurement 1oss .chedule 1 .tatement of Bet #onetary 6osition End of Dear #onetary -ssets: Cash -ccounts *ecei able 8net9 *ecei ables from 6opular Creek ,otal 1ess #onetary 1iabilities: -ccounts 6ayable /onds 6ayable ,otal Bet #onetary -ssets 1212I1 Bet #onetary 1iabilities 122"12I1 Change in net monetary in estment during 23I1 .Fr )$333 23$333 '$333 .Fr "2$333 .Fr 12$333 '3$333 .Fr8(2$3339 /eginning of Dear .Fr (3$333 .Fr (3$333 .Fr -3-3.Fr -3.Fr (3$333 .Fr "3$333 .Fr 8G3$3339
12-!(
E12-1" 8continued9
NOT REQUIRED: 6roof of *emeasurement 1oss 8continued9 .chedule 2 -nalysis of Changes in #onetary -ccounts .Fr .Fr (3$333 Exchange *ate .+3 4... 7ollars M %+$333
Exposed net monetary asset 6osition L January 1 -d0ustments for changes in the net monetary position during the year: &ncreases: From operations: .ales From other sources 7ecreases: From operations: 6urchases Cash expenses From di idends From purchase of plant and equipment Bet monetary position prior to remeasurement at year-end rates Exposed net monetary liability 6osition--7ecember "1 *emeasurement loss
1'3$333 -38G'$3339 8"3$3339 81'$3339 8133$3339
.)'
112$'33 -38)1$2'39 822$'339 811$1339 8))$3339 M821$"'39
.)' .)' .)% .))
.Fr 8"3$3339
.)"
821$G339 M 8''39
E12-11 R1%1'*/(1%1+. '+- T('+*3'.)$+ $, C$*. $, G$$-* S$3a. *emeasurement: /eginning &n entory 6urchases 5oods - ailable 1ess Ending &n entory Cost of 5oods .old .panish 6esetas 6 223$333 +%($333 6 1$3(($333 81+3$3339 6 ++($333 4... 7ollars M 1$'%3 ($)(+ M +$"3+ 81$%)(9 M ($+"2
*ate M3.33)3 M3.33+3 M3.33+2
b. ,ranslation: Cost of 5oods .old
.panish 6esetas 6 ++($333
*ate M3.33+3
4... 7ollars M )$3++
12-!1
E12-12 EB/).6-M1.2$- E+.()1* ,$( ' F$(1)5+ S/4*)-)'(6 a. Cash &n estment in ,hames Company *ecei e di idend: M1G$(+3 T V1'$333 x M1.(% x .+3 &n estment in ,hames Company &ncome from .ubsidiary *ecord equity accrual: M%+$333 T M(3$333 x .+3 Ather Comprehensi e &ncome L ,ranslation -d0ustment &n estment in ,hames Company 6arent<s share of subsidiary<s translation ad0ustment: M'$123 T M($%33 x .+3 c. &ncome .tatement: 7ifferential Jan. 1$ 23I+ 813-year life9 -morti=ation for 23I+ *emaining balance /alance .heet: *emaining balance on 7ec. "1 translated at year-end rate 7ifference to translation ad0ustment /ritish 6ounds
1G$(+3
1G$(+3
b.
%+$333
%+$333
'$123
'$123
Exchange *ate 1.(3 1.("
4... 7ollars M%+$333 8%$+G39 M%"$113
V"3$333 8"$3339 V2)$333
V2)$333
1.('
%%$''3 M 1$%%3
Bote that the amount of the differential necessary for the balance sheet is M%%$''3$ !hile the amount$ !ithout any ad0ustment$ !ould be M%"$113. ,herefore$ the differential portion of the parent company?s in estment must be increased by M1$%%3 through a debit to the &n estment in ,hames Company account and a corresponding credit to the Ather Comprehensi e &ncome L ,ranslation -d0ustment account. ,he differential ad0ustment ad0usts to the amount needed for the balance sheet. &n estment in ,hames Company Ather Comprehensi e &ncome L ,ranslation -d0ustment *ecogni=e translation ad0ustment for increase in differential. d. &ncome from .ubsidiary &n estment in ,hames Company -morti=ation of trademark for 23I1: M%$+G3 T V"$333 x M1.(" 1$%%3 1$%%3
%$+G3
%$+G3
12-!2
E12-12 8continued9 e.
Ather comprehensi e income reports the periodic change in the translation ad0ustment. For 23I+$ this !ould be the sum of a debit of M'$123 !hich is the parent company?s portion of the translation ad0ustment resulting from translating the subsidiary?s trial balance$ less the M1$%%3 translation ad0ustment that is made only by the parent company due to the ad0ustment of the differential. ,herefore$ other comprehensi e income !ould report M"$(+3 8M"$(+3 T M'$123 - M1$%%39 due to foreign translations.
12-!!
E12-13 a.
E,,10.* $, ' C2'+51 )+ .21 EC02'+51 R'.1 L T('+*3'.)$+ '+O.21( C$%&(121+*);1 I+0$%1
7irect and indirect exchange rates: January 1$ 23I( 7ecember "1$ 23I( 7ecember "1$ 23I) 7irect 8M2* 19 M.3"""" T * 1 M.32+') T * 1 M .32' T * 1 &ndirect 8*2M19 * "3 T M1 * "' T M1 * %3 T M1
,he dollar strengthened during 23I( because the number of rupees one 4... dollar could acquire at the end of the year 8"'9 is greater than the number of rupees that could be acquired at the beginning of the year 8"39: therefore$ the alue of the dollar has increased relati e to the rupee during 23I(. ,he dollar continued to strengthen during 23I). b. ,ranslated 7ecember "1$ 23I($ balance sheet: .ubsidiary?s ,rial /alance 8in rupees9 * 133$333 %'3$333 (+3$333 1$333$333 * 2$2"3$333 7irect Exchange *ate M.32+') M.32+') M.32+') M.32+') ,ranslated ,rial /alance 8in M9 M 2$+') 12$+') 1G$%2+ 2+$')3 M("$)12 2$G3" M(($(1' * 2(3$333 1$2'3$333 '33$333 223$333 * 2$2"3$333 M.32+') M.32+') M.3"""" M.3"3G'Q M )$%2+ "'$)1" 1($((' ($+3G M(($(1'
Cash *ecei ables &n entory Fixed assets ,otal -ccumulated other comprehensi e income L translation ad0ustment 8debit9 ,otal debits Current payables 1ong-term debt Common stock *etained earnings ,otal credits
QM.3"3G' T a erage of beginning and ending exchange rates$ rounded to % decimal points: M.3"3G%' T W8M.3"""" E M.32+')9 2 2X 8Bot required: 6roof of translation ad0ustment 8debit9 of M2$G3"9 *upees * '33$333 223$333 * )23$333 ,ranslation *ate M.3"""" M.3"3G' M.32+') 7ollars M1($((' ($+3G M2"$%)% 823$')39 M 2$G3%Q
Bet assets$ 1212I( -d0ustment for changes in net assets during year: Bet income Bet assets translated at: *ates during year *ate at end of year Change in translation ad0ustment during year 8debit9
Q7ifference of M1 8M2$G3% - M2$G3"9 due to rounding of exchange rates.
12-!"
E12-13 8continued9 c. ,ranslated 7ecember "1$ 23I)$ balance sheet: .ubsidiary?s ,rial /alance 8in rupees9 * +3$333 ''3$333 )23$333 G33$333 * 2$2'3$333 7irect Exchange *ate M.32' M.32' M.32' M.32' ,ranslated ,rial /alance 8in M9 M 2$333 1"$)'3 1+$333 22$'33 M'($2'3 '$("' M(1$++' * "%3$333 1$133$333 '33$333 "13$333 * 2$2'3$333 M.32' M.32' M.3"""" 8a9 M +$'33 2)$'33 1($((' G$223 M(1$++'
Cash *ecei ables &n entory Fixed assets ,otal -ccumulated other comprehensi e income L translation ad0ustment 8debit9 ,otal debits Current payables 1ong-term debt Common stock *etained earnings ,otal credits
8a9 ,he retained earnings in dollars !ould begin !ith the 7ecember "1$ 23I(<s$ dollar balance 8M($+3G9 that !ould be carried for!ard. ,o this !ould be added 23I)<s net income of * G3$333$ !hich is the change in retained earnings in rupees multiplied by the a erage 23I) exchange rate of M.32()G W8M.32+') E M.32'922X !hich equals M2$%11. ,herefore$ translated retained earnings on 7ecember "1$ 23I)$ is MG$223 8MG$223 T M($+3G E M2$%119. 8Bot required: 6roof of translation ad0ustment 8debit9 of M'$("'9 *upees * )23$333 ,ranslation *ate M.32+') M.32()G 7ollars M23$')3 2$%11 M22$G+1 M.32' 823$2'39
Bet assets$ 1212I) -d0ustment for changes in net assets during year: Bet income G3$333 Bet assets translated at: *ates during year Ather comprehensi e income L *ate at end of year * +13$333 Change in other comprehensi e &ncome L translation ad0ustment during year 8debit9 -ccumulated other comprehensi e &ncome L translation ad0ustment$ 1212I)
M 2$)"1 2$G3%
12-!#
-ccumulated other comprehensi e &ncome L translation ad0ustment$122"12I) 8debit9 E12-13 8continued9 d.
M '$("'
,he M2$)"1 change in the accumulated other comprehensi e income L translation ad0ustment during 23I) !ould be reported as a component of other comprehensi e income on 23I)<s statement of other comprehensi e income.
12-!$
E12-14 a.
C$%&/.'.)$+ $, G')+ $( L$** $+ S'31 $, A**1. 46 F$(1)5+ S/4*)-)'(6
Journal entries$ in pesos$ regarding the land: 1212I1 122"12I2 1and Cash Cash 1and 5ain on .ale of 1and 6 2$333$333 6 "$333$333 6 2$333$333 6 2$333$333 6 1$333$333
b.
-mount of transaction gain 8M+"$"""9$ and remeasurement loss 8M""$"""9: Bote that under remeasurement the nonmonetary items are not ad0usted for changes in the exchange rate. ,herefore$ land !ill be based on its historical cost of 6 2$333$333 x M.13$ the direct exchange rate on 1212I1$ !hich equals a remeasured basis for the land of M233$333. ,he direct exchange rate on 1212I1 is M.13 8M1 T 6 139: on 122"12I1 is M.3G3G3G 8M1 T 6 119: and on 122"12I2 is M.3+"""" 8M1 T 6 129. ,he appropriate exchange rate to use to remeasure the gain on the sale of the land is M.+"""" because the transaction is significant to the subsidiary$ solitary to the operations$ and occurred on a specific date$ the last day of the year. *emeasured 7ecember "1$ 23I2 balance sheet: .ubsidiary?s ,rial /alance 8in pesos9 6 "$333$333 6 "$333$333 7irect Exchange *ate M.3+"""" *emeasured ,rial /alance 8in M9 M2'3$333 M2'3$333 ""$""" M2+"$""" M233$333 +"$""" M2+"$"""
Cash ,otal *emeasurement loss ,otal debits Common stock 5ain on sale of land ,otal credits
6 2$333$333 6 1$333$333 6 "$333$333
M.13 M.3+""""
,he effect on the parent company?s net income 8M'3$333 T M+"$""" P M""$"""9 is the same as if the transactions had been transacted in 4... dollars$ !hich is an ob0ecti e of the remeasurement method. ,he equi alent 0ournal entries to those in part a. of the problem$ if transacted in 4... dollars$ !ould be: 1212I1 122"12I2 1and 86 2$333$333 x M.139 Cash Cash 86 "$333$333 x M.3+"""9 1and 5ain on .ale of 1and M233$333 M2'3$333 M233$333 M233$333 M '3$333
12-!%
E12-14 8continued9 c.
-mount of transaction gain 8M+"$"""9$ and other comprehensi e income effect in 23I2 8M1'$1'19: ,o compute the change in the translation ad0ustment for 23I2$ !hich is an element of other comprehensi e income for 23I2$ it is necessary to prepare the translated trial balance as of the end of 23I1$ as follo!s: ,ranslated 7ecember "1$ 23I1$ balance sheet: .ubsidiary?s ,rial /alance 8in pesos9 6 2$333$333 6 2$333$333 7irect Exchange *ate M.3G3G3G ,ranslated ,rial /alance 8in M9 M1+1$+1+ M1+1$+1+
1and ,otal -ccumulated other comprehensi e income L translation ad0ustment 8debit9 ,otal debits Common stock ,otal credits
1+$1+2 M233$333 6 2$333$333 6 2$333$333 M.13 M233$333 M233$333
Bote that the translation ad0ustment account has a debit balance of M1+$1+2 as of the end of 23I1. ,he next step is to translate the subsidiary?s 122"12I2 trial balance. ,ranslated 7ecember "1$ 23I2$ balance sheet: .ubsidiary?s ,rial /alance 8in pesos9 6 "$333$333 6 "$333$333 7irect Exchange *ate M.3+"""" ,ranslated ,rial /alance 8in M9 M2'3$333 M2'3$333
Cash ,otal -ccumulated other comprehensi e incomeP translation ad0ustment 8debit9 ,otal debits Common stock 5ain on sale of land ,otal credits
""$""" M2+"$""" 6 2$333$333 6 1$333$333 6 "$333$333 M.13 M.3+"""" M233$333 +"$""" M2+"$"""
,he change in the translation ad0ustment during 23I2 is M1'$1'1 8M1'$1'1 T M""$""" - M1+$1+29$ !hich is reported on 23I2<s statement of comprehensi e income. ,he stockholders? equity section of the 122"12I2 consolidated balance sheet !ould report the accumulated other comprehensi e income !hich includes the accumulated translation ad0ustment$ as of 122"12I2$ in the amount of M""$"""
12-!&
E12-15# I+.1(0$%&'+6 T('+*'0.)$+*
&nitial in entory transfer date 8M1.(3 T V19: .elling price 8V)$'33 T M12$333 2 M1.(39 Cost to parent &ntercompany profit /alance sheet date 8M1.)3 T V19: &n entory translation 8M12$)'3 T V)$'33 x M1.)39 a. M12$)'3
#easured in 4... 7ollars
#easured in /ritish 6ounds
M12$333 8+$3339 M %$333
V)$'33
M12$)'3
V)$'33
&n entory of 4nited$ 1td.$ reported in 4... dollar trial balance of consolidation !orkpaper. 8M12$)'3 T V)$'33 x M1.)39 8M+$)'3 T M12$)'3 - M%$333 intercompany profit9
b.
M +$)'3
12-!'
SOLUTIONS TO PRO LEMS
P12-16 P'(1+. C$%&'+6 D$/(+'3 E+.()1* '+- T('+*3'.)$+ a. 6 1212I1 133S &n estment cost /ook alue of in estment on January 1$ 23I1 7ifferential Canadian 7ollars &ncome .tatement: 7ifferential at date of acquisition: 6lant and equipment ,rademark -morti=ation this period: 6lant and equipment 813 years9 ,rademark 813 years9 *emaining balance: 6lant and equipment ,rademark /alance .heet: *emaining balance on 122"12I1 translated at year-end exchange rates: 6lant and equipment ,rademark 7ifference to AC&L translation ad0ustment: 6lant and equipment ,rademark Canadian 7ollars CM1'3$333 G3$333 CM (3$333 Exchange *ate Exchange *ate .+3 .+3 4... 7ollars M123$333 )2$333 M %+$333 4... 7ollars
B/
CM13$333
CM'3$333
.+3 .+3 .)' .)'
M+$333
M%3$333
81$3339 CM G$333
8'$3339 CM%'$333
8)'39 M)$2'3
8"$)'39 M"($2'3
CM G$333
CM%'$333
.)3 .)3
M($"33
M"1$'33
M G'3
M %$)'3
Bote that the differential ad0ustment is from the amounts of M)$2'3 for plant and equipment and from M"($2'3 for trademark. ,he required amounts for the consolidated balance sheet are M($"33 for plant and equipment$ and M"1$'33 for trademark. ,herefore$ in each of these cases$ the differential ad0ustment !ill reduce the amount of the differential component in the in estment account$ requiring a credit to the &n estment in Borth /ay Company account !ith a corresponding debit to the Ather Comprehensi e &ncome L ,ranslation -d0ustment account. ,he differential ad0ustment ad0usts to the correct amount necessary to prepare the consolidated balance sheet.
12-"(
P12-16 8continued9 b.
Entries on 6ar Company<s books during 23I1: 819 &n estment in Borth /ay Company Cash -cquire Borth /ay Company. 829 &n estment in Borth /ay Company &ncome from .ubsidiary Equity in income of subsidiary: M1'$333 T CM23$333 x .)' a erage exchange rate 8"9 Foreign Currency 4nits 8CM9 &n estment in Borth /ay Company 7i idend from foreign subsidiary: M($333 T CM+$333 x .)' 8%9 &ncome from .ubsidiary &n estment in Borth /ay Company -morti=ation of differential: 6lant and equipment M )'3 ,rademark "$)'3 ,otal M%$'33 8'9 Ather Comprehensi e &ncome P ,ranslation -d0ustment &n estment in Borth /ay Company *ecogni=e translation ad0ustment on differential: 6lant and equipment M G'3 ,rademark %$)'3 ,otal M'$)33 123$333 123$333
1'$333
1'$333
($333
($333
%$'33
%$'33
'$)33
'$)33
N$.1: ,he amount of the differential is being decreased as a result of the translation ad0ustment. ,herefore$ the in estment account must be credited to reflect this decrease in the portion allocated to the differential.
12-"1
P12-16 8continued9 c.
6ar Company and Borth /ay Company 6roof of ,ranslation -d0ustment Dear Ended 7ecember "1$ 23I1 Canadian 7ollars CM G3$333 Exchange *ate .+3 4... 7ollars M)2$333
Bet assets at beginning of year$ 1212I1 -d0ustment for changes in assets position during year: Bet income for year 7i idends paid Bet assets translated at rates in effect for those items Bet assets at end of year
23$333 8+$3339
.)' .)'
1'$333 8($3339 M+1$333
CM132$333
.)3
)1$%33
Change in other comprehensi e income L translation ad0ustment during year L net decrease 8debit9 7ecember "1$ 23I1 8(9 Ather Comprehensi e &ncome L ,ranslation -d0ustment &n estment in Borth /ay Company 6arent<s share 8133S9 of translation ad0ustment from translation of subsidiary<s accounts.
M G$(33
G$(33
G$(33
d.
Equi alent 4... dollar alue of CM+$333 on 7ecember "1$ 23I1: CM+$333 x M.)3 Equi alent 4... dollar alue of CM+$333 at date of receipt: CM+$333 x M.)' Foreign Currency ,ransaction 1oss
M'$(33 ($333 M %33
7ecember "1$ 23I1 8)9 Foreign Currency ,ransaction 1oss Foreign Currency 4nits 8CM9 *ecogni=e exchange loss on foreign currency units held.
%33
%33
12-"2
P12-17 a.
T('+*3'.)$+E D$/(+'3 E+.()1*E C$+*$3)-'.1- C$%&(121+*);1 I+0$%1E '+- S.$0F2$3-1(*G EB/).6 Rikix &nc. ,rial /alance ,ranslation 7ecember "1$ 23I' &tem /alance Hroner BHr 1'3$333 233$333 2)3$333 (33$333 %13$333 133$333 '3$333 %3$333 BHr 1$+23$333 BHr 1'3$333 G3$333 1G3$333 %'3$333 2'3$333 (G3$333 BHr 1$+23$333 Exchange *ate .21 .21 .21 .21 .23 .23 .23 .1G .21 .21 .21 .1+ .1+ .23 /alance 7ollars M "1$'33 %2$333 '($)33 12($333 +2$333 23$333 13$333 )$(33 M")'$+33 M "1$'33 1+$G33 "G$G33 +1$333 %'$333 1"+$333 M"'%$"33 21$'33 M")'$+33
Cash -ccounts *ecei able 8net9 &n entory 6roperty$ 6lant$ and Equipment Cost of 5oods .old Aperating Expenses 7epreciation Expense 7i idends 6aid ,otal 7ebits -ccumulated 7epreciation -ccounts 6ayable Botes 6ayable Common .tock *etained Earnings .ales ,otal -ccumulated Ather Comprehensi e &ncome L ,ranslation -d0ustment 8credit9 ,otal Credits
12-"!
Entries for 23I': January 1 &n estment in Rikix Company Common Cash 6urchase of Rikix &nc. July 1 Cash &n estment in Rikix Company Common 7i idend recei ed from foreign subsidiary: M)$(33 T BHr%3$333 x M.1G 1'1$233
1'1$233
)$(33
)$(33
7ecember "1 &n estment in Rikix Company Common &ncome from .ubsidiary Equity in net income of foreign subsidiary: M2($333 T &ncome of BHr1"3$333 x M.23 &n estment in Rikix Company Common Ather Comprehensi e &ncome L ,ranslation -d0ustment 6arent<s share of translation ad0ustment from translation of subsidiary<s accounts: M21$'33 x 1.33 &ncome from .ubsidiary &n estment in Rikix Company Common -morti=ation of differential: 6roperty$ plant$ and equipment 6atent ,otal L see supporting schedule 2
2($333
2($333
21$'33 21$'33
"$(33
"$(33
M2$333 1$(33 M"$(33 %$323 %$323
&n estment in Rikix Company Common Ather Comprehensi e &ncome L ,ranslation -d0ustment ,ranslation ad0ustment applicable to the differential: 6roperty$ plant$ and equipment M2$G33 6atent 1$123 ,otal L see supporting schedule 2 M%$323
12-""
P12-17 8continued9
.chedule 1: 7etermining the differential for 23I': &n estment cost at January 1$ 23I' 1ess: /ook alue of net assets acquired on January 1$ 23I' 8BHr)33$333 x M.1+9 7ifferential 7ifferential allocated to: 6roperty$ plant$ and equipment 6atent ,otal M 1'1$233 812($3339 M 2'$233 M 1+$333 )$233 M 2'$233
.chedule 2: 7etermining the differential amorti=ation for 23I': Bor!egian Hroner BHr 133$333 813$3339 BHr G3$333 ,ranslation *ate .1+ .23 4... 7ollars M1+$333 82$3339 M1($333
6roperty$ plant$ and equipment: &ncome statement: 7ifference at beginning of year -morti=ation for 23I' 8BHr133$333 2 13 years9 *emaining balances /alance sheet: *emaining balance on 7ecember "1$ 23I'$ translated at year-end exchange rate 7ifference to other comprehensi e income L translation ad0ustment 6atent: &ncome statement: 7ifference at beginning of year -morti=ation for 23I' 8BHr%3$333 2 ' years9 *emaining balances /alance sheet: *emaining balance on 7ecember "1$ 23I'$ translated at year-end exchange rate 7ifference to other comprehensi e income L translation ad0ustment
BHr G3$333
.21
1+$G33 M 2$G33
BHr %3$333 8+$3339 BHr "2$333
.1+ .23
M )$233 81$(339 M '$(33
BHr "2$333
.21
($)23 M 1$123
Bote that the property$ plant$ and equipment portion of the differential must be increased from M1($333 to M1G$333$ requiring a debit of M2$G33 to the in estment account. ,he portion of the differential attributable to patent must be increased from M'$(33 to M($)23$ requiring a debit of M1$123 to the in estment account. ,he corresponding credit is to the Ather Comprehensi e &ncome P ,ranslation -d0ustment account 8M%$323 T M2$G33 E M1$1239.
12-"#
,aft?s consolidated comprehensi e income for 23I': 1. 2. ". %. &ncome from ,aft?s operations for 23I'$ exclusi e of income from the Bor!egian subsidiary -dd: &ncome from the Bor!egian subsidiary for 23I' 7educt: -morti=ation of differential for 23I' ,aft?s Bet &ncome -dd: ,ranslation -d0ustment 8M21$'33 E M%$3239 ,aft?s Consolidated Comprehensi e &ncome M 2)'$333 2($333 8"$(339 M 2G)$%33 2'$'23 M "22$G23
d.
,aft?s consolidated stockholders? equity at 7ecember "1$ 23I': 1. 2. ". %. ,aft?s stockholders? equity at Jan. 1$ 23I' -dd: Bet income for 23I' 7educt: 7i idends declared by ,aft during 23I' -dd: -ccumulated other comprehensi e income: Foreign currency translation ad0ustment Consolidated .tockholders? Equity at 7ec. "1$ 23I' M"$'33$333 2G)$%33 8133$3339 2'$'23 M"$)22$G23
12-"$
P12-18 a.
R1%1'*/(1%1+.E D$/(+'3 E+.()1*E C$+*$3)-'.1- N1. I+0$%1E '+S.$0F2$3-1(*G EB/).6
.chedule remeasuring the trial balance into 4... dollars: &tem /alance Hroner BHr 1'3$333 233$333 2)3$333 (33$333 %13$333 133$333 '3$333 %3$333 BHr 1$+23$333 Exchange *ate .21 .21 .23' .1+Q 8a9 .23 .1+Q .1G /alance 7ollars M "1$'33 %2$333 ''$"'3 13+$333 )'$%'3 23$333 G$333 )$(33 M"%+$G33 G33 M"%G$+33 M 2)$333 1+$G33 "G$G33 +1$333 %'$333 1"+$333 M"%G$+33
Cash -ccounts *ecei able 8net9 &n entory 6roperty$ 6lant$ and Equipment Cost of 5oods .old Aperating Expenses 7epreciation Expense 7i idends 6aid ,otal *emeasurement 1oss ,otal 7ebits -ccumulated 7epreciation -ccounts 6ayable Botes 6ayable Common .tock *etained Earnings .ales ,otal Credits
BHr
1'3$333 G3$333 1G3$333 %'3$333 2'3$333 (G3$333 BHr 1$+23$333
.1+Q .21 .21 .1+Q .1+Q .23
Q .1+ T exchange rate at January 1$ 23I'$ the date the subsidiary !as acquired by ,aft Company 8a9 Cost of goods sold: /eginning in entory 8C5. of BHr%13$333 E ending in entory of BHr2)3$333 minus purchases of BHr%23$333 T /eg. &n .9 6urchases Cost of goods a ailable 1ess ending in entory Cost of goods sold Bor!egian Hroner Exchange *ate 4... 7ollar
BHr 2(3$333 %23$333 BHr (+3$333 82)3$3339 BHr %13$333
.1+ .23 .23'
M %($+33 +%$333 M1"3$+33 8''$"'39 M )'$%'3
12-"%
Journal entries for 23I': January 1 &n estment in Rikix Company Common Cash 6urchase of Rikix$ &nc. July 1 Cash &n estment in Rikix Company Common 7i idend recei ed from foreign subsidiary: M)$(33 T BHr%3$333 x M.1G 1'1$233
1'1$233
)$(33
)$(33
7ecember "1 &n estment in Rikix Company Common &ncome from .ubsidiary Equity in net income of foreign subsidiary: &ncome from the Bor!egian sub: .ales M1"+$333 1ess: Cost of goods sold 8)'$%'39 Aperating expenses 823$3339 7epreciation expense 8G$3339 &ncome M ""$''3 1ess: *emeasurement loss 8G339 &ncome recorded by ,aft M "2$('3 &ncome from .ubsidiary &n estment in Rikix Company Common -morti=ation of the differential 8.ee .chedule 1 belo!9.
"2$('3
"2$('3
"$2%3
"$2%3
.chedule 1: 7etermining and amorti=ing the differential for 23I': &n estment cost at January 1$ 23I' /ook alue of net assets acquired on January 1$ 23I' 8BHr)33$333 x M.1+9 7ifferential 7ifferential allocated to: 6roperty$ plant$ and equipment 6atent ,otal -morti=ation for 23I': 6roperty$ plant$ and equipment 8M1+$333 2 13 years9 6atent 8M)$233 2 ' years9 ,otal M1'1$233 812($3339 M 2'$233 M 1+$333 )$233 M 2'$233
M M
1$+33 1$%%3 "$2%3
12-"&
Consolidated net income for 23I': 1. &ncome from ,aft<s operations for 23I'$ exclusi e of income from the Bor!egian subsidiary 2. -dd: &ncome from the Bor!egian subsidiary ". 7educt: -morti=ation of differential for 23I' Consolidated net income for 23I' M2)'$333 "2$('3 8"$2%39 M"3%$%13
d.
Consolidated stockholders< equity at 7ecember "1$ 23I': 1. ,aft<s stockholders< equity at January 1$ 23I' 2. -dd: Consolidated net income for 23I' ". 7educt: 7i idends declared by ,aft during 23I' Consolidated stockholders< equity at 7ecember "1$ 23I' M"$'33$333 "3%$%13 8133$3339 M"$)3%$%13
P12-1! P($$, $, T('+*3'.)$+ A-:/*.%1+. Bor!egian Hroner Bet assets at beginning of year -d0ustments for changes in net assets position during 23I': Bet income 7i idends paid Bet assets translated at: *ates during year *ates at end of year BHr )33$333 Exchange *ate .1+ 4... 7ollars M12($333
1"3$333 8%3$3339
.23 .1G
2($333 8)$(339
BHr )G3$333
.21
M1%%$%33 1('$G33 M 21$'33 -3M 21$'33
Change in other comprehensi e income L translation ad0ustment during year -ccumulated other comprehensi e income L translation ad0ustment L January 1 -ccumulated other comprehensi e income L translation ad0ustment L 7ecember "1 8credit9
12-"'
P12-2"# R1%1'*/(1%1+. G')+ $( L$** 6roof of remeasurement loss for 23I':
Bor!egian Hroner Exposed net monetary liability position at January 1 -d0ustments for changes in net monetary position during 23I': &ncreases: From operations: .ales 7ecreases: From operations: 6urchases Aperating expenses From di idends Bet monetary asset position prior to remeasurement at year-end rates Exposed net monetary asset position at 7ecember "1 *emeasurement loss BHr )3$333 BHr 8(3$3339
Exchange *ate .1+
4... 7ollars M813$+339
BHr (G3$333
.23
1"+$333
8%23$3339 8133$3339 8%3$3339
.23 .23 .1G
8+%$3339 823$3339 8)$(339
M 1'$(33 .21 81%$)339 M G33
12-#(
P12-21 T('+*3'.)$+ '+- C'30/3'.)$+ $, T('+*3'.)$+ A-:/*.%1+. a. 7a.il a Company ,rial /alance ,ranslation 7ecember "1$ 23I%
*eals Cash -ccounts *ecei able 8net9 &n entory 6repaid &nsurance 6lant and Equipment &ntangible -ssets Cost of 5oods .old &nsurance Expense 7epreciation Expense -morti=ation Expense Aperating Expense 7i idends 6aid ,otal -ccumulated Ather Comprehensi e &ncome L ,ranslation -d0ustment 8debit9 ,otal 7ebits -ccumulated 7epreciation -ccounts 6ayable &ncome ,ax 6ayable &nterest 6ayable Botes 6ayable /onds 6ayable Common .tock -dditional 6aid-&n Capital *etained Earnings .ales ,otal Credits .chedule 7i idends -pril ) 7i idends Actober G /*1 133$333 2%$333 2)$333 1$133 23$333 123$333 +3$333 1'3$333 '3$333 '33$333 /*1 1$3)2$133 ')$)33 +2$333 G'$333 2$%33 "'3$333 "3$333 2"3$333 "$233 "2$'33 12$333 1'2$"33 2'$333 /*1 1$3)2$133 /*1
Exchange *ate .23 .23 .23 .23 .23 .23 .2' .2' .2' .2' .2' .ch. -
4... 7ollars M 11$'%3 1($%33 1G$333 %+3 )3$333 ($333 ')$'33 +33 +$12' "$333 "+$3)' ($2'3 M2")$1)3
"3$2'3 M 2()$%23 .23 .23 .23 .23 .23 .23 ."3 ."3 ."3 .2' M 23$333 %$+33 '$%33 223 %$333 2%$333 2%$333 %'$333 1'$333 12'$333 M2()$%23
/*1 /*1
13$333 1'$333 2'$333
.2+ .2"
M M
2$+33 "$%'3 ($2'3
12-#1
.chedule to compute the accumulated other comprehensi e income P translation ad0ustment as of 7ecember "1$ 23I%. *eals Exchange *ate ."3 .2' .2+ .2" .23 4... 7ollars M+%$333 1)$'33 82$+339 8"$%'39 MG'$2'3 ('$333 M"3$2'3
Bet assets at beginning of year -d0ustment for changes: Bet income for year 7i idends paid: -pril ) Actober G Bet assets translated at: *ates during year *ates at end of year -ccumulated other comprehensi e &ncome L translation ad0ustment 8debit9
/*1 2+3$333 )3$333 813$3339 81'$3339 /*1 "2'$333
-nother !ay of interpreting the direction 8debit or credit9 of the translation ad0ustment is to consider the translated balance sheets$ as follo!s: ,ranslated balance sheet$ 1212I% Bet assets M+%$333 .tockholders? equity M+%$333
,he translated balance sheet at the end of the year !ould be: ,ranslated balance sheet$ 122"12I% Bet assets M('$333 .tockholders? equity 8from 1212I%9 23I% &ncome 1ess di idends M1)$'33 8($2'39 11$2'3 M+%$333
-ccumulated other comprehensi e income L translation ad0ustment ,otal M('$333 ,otal
8"3$2'39 M('$333
,he debit balance of M"3$2'3 in the accumulated other comprehensi e income P translation ad0ustment$ is necessary to YbalanceZ the translated balance sheet.
12-#2
P12-22# R1%1'*/(1%1+. '+- P($$, $, R1%1'*/(1%1+. G')+ $( L$** a. 7a.il a Company ,rial /alance *emeasurement 7ecember "1$ 23I%
*eals Cash -ccounts *ecei able 8net9 &n entory 6repaid &nsurance 6lant and Equipment &ntangible -ssets Cost of 5oods .old &nsurance Expense 7epreciation Expense -morti=ation Expense Aperating Expense 7i idends 6aid ,otal 7ebits -ccumulated 7epreciation -ccounts 6ayable &ncome ,ax 6ayable &nterest 6ayable Botes 6ayable /onds 6ayable Common .tock -dditional 6aid-&n Capital *etained Earnings .ales ,otal *emeasurement 5ain ,otal Credits ')$)33 +2$333 G'$333 2$%33 "'3$333 "3$333 2"3$333 "$233 "2$'33 12$333 1'2$"33 2'$333 /*1 1$3)2$133 /*1 133$333 2%$333 2)$333 1$133 23$333 123$333 +3$333 1'3$333 '3$333 '33$333 /*1 1$3)2$133 /*1
Exchange *ate .23 .23 .2' ."3 .ch. ."3 .ch. / ."3 .ch. C ."3 .2' .ch. 7 .ch. E .23 .23 .23 .23 .23 ."3 ."3 ."3 .2'
4... 7ollars M 11$'%3 1($%33 2"$)'3 )23 13"$333 G$333 (2$2'3 G(3 G$(33 "$(33 "+$3)' ($2'3 M2+'$1%' M 2G$+'3 %$+33 '$%33 223 %$333 2%$333 2%$333 %'$333 1'$333 12'$333 M2))$2)3 )$+)' M2+'$1%'
12-#!
P12-22# 8continued9
.chedule 6lant and Equipment /efore January 1$ 23I% -pril )$ 23I%
*eals /*1 2'3$333 133$333 /*1 "'3$333
Exchange *ate ."3 .2+
4... 7ollars M )'$333 2+$333 M13"$333
.chedule / Cost of 5oods .old /eginning &n entoryQ 6urchases 5oods - ailable 1ess Ending &n entory
/*1 G'$333 2"3$333 /*1 "2'$333 8G'$3339 /*1 2"3$333
."3 .2' .2'
M 2+$'33 ')$'33 M +($333 82"$)'39 M (2$2'3
Q-cquired before January 1$ 23I%: use the exchange rate at date parent acquired subsidiary. .chedule C 7epreciation Expense /efore January 1$ 23I% -pril )$ 23I% .chedule 7 7i idends -pril )$ 23I% Act. G$ 23I% .chedule E -ccumulated 7epreciation /efore January 1$ 23I%: January 1$ 23I1 July 13$ 23I2 -pril )$ 23I%
/*1 2'$333 )$'33 /*1 "2$'33
."3 .2+
M M
)$'33 2$133 G$(33
/*1 13$333 1'$333 /*1 2'$333
.2+ .2"
M M
2$+33 "$%'3 ($2'3
/*1 +3$333 12$'33 )$'33 /*1 133$333
."3 ."3 .2+
M 2%$333 "$)'3 2$133 M 2G$+'3
12-#"
P12-22# 8continued9
b. 6roof of *emeasurement 5ain .chedule 1: .tatement of Bet #onetary 6osition: End of Dear #onetary -ssets: Cash -ccounts *ecei able 8net9 ,otal #onetary 1iabilities: -ccounts 6ayable &ncome ,axes 6ayable &nterest 6ayable Botes 6ayable /onds 6ayable ,otal Bet #onetary 1iabilities &ncrease in net monetary liabilities during 23I% .chedule 2: -nalysis of Changes in #onetary -ccounts: *eals /*1 8%'$1339 Exchange *ate ."3 4... 7ollars M81"$'"39 /*1 ')$)33 +2$333 /*1 1"G$)33 /*1 2%$333 2)$333 1$133 23$333 123$333 /*1 81G2$1339 /*1 8'2$%339 /eginning of Dear /*1 (2$333 +"$G33 /*1 1%'$G33 /*1 23$333 "3$333 1$333 23$333 123$333 /*1 81G1$3339
/*1 8%'$1339 /*1 8)$"339
Exposed net monetary liability position-January 1$ 23I% &ncreases From operations: .ales 7ecreases From operations: 6urchases Aperating expenses From di idends From purchases of plant and equipment Bet monetary position prior to remeasurement at year- end rates Exposed net monetary liability 6osition-7ecember "1$ 23I% *emeasurement gain
'33$333
.2' .2' .2' 13$333 x .2+ 1'$333 x .2" .2+
12'$333 8')$'339 8"+$3)'9 8($2'39 82+$3339
82"3$3339 81'2$"339 82'$3339 8133$3339
M81+$"''9 /*1 8'2$%339 .23 813$%+39 M )$+)'
12-##
P12-23 T('+*3'.)$+ a. >estern *anching Company ,rial /alance ,ranslation 7ecember "1$ 23I" -ustralian 7ollars Cash -ccounts *ecei able 8net9 &n entory 6lant and Equipment Cost of 5oods .old 7epreciation Expense Aperating Expense &nterest Expense 7i idends 7eclared ,otal -ccumulated Ather Comprehensi e &ncome L ,ranslation -d0ustment 8debit9 ,otal 7ebits -ccumulated 7epreciation -ccounts 6ayable 6ayable to -lamo$ &nc. &nterest 6ayable 12S /onds 6ayable 6remium on /onds Common .tock *etained Earnings .ales ,otal Credits -M %%$133 )2$333 +($333 2%3$333 ""3$333 2%$333 1"1$'33 '$)33 G$333 Exchange *ate .(3 .(3 .(3 .(3 .(' .(' .(' .(' .() 4... 7ollars M 2($%(3 %"$233 '1$(33 1%%$333 21%$'33 1'$(33 +'$%)' "$)3' ($3"3 M'G3$')3 1($)(3 M(3)$""3 .(3 .(3 .(3 .(3 .(3 .(3 .)3 .)3 .(' M "($333 "2$2+3 ($%+3 1$+33 (3$333 "$%23 ("$333 2+$333 ")($"'3 M(3)$""3
-MG%2$"33 -M (3$333 '"$+33 13$+33 "$333 133$333 '$)33 G3$333 %3$333 ')G$333 -MG%2$"33
12-#$
.chedule to pro e translation ad0ustment: -ustralian 7ollars Exchange *ate .)3 .(' .() .(3 4... 7ollars M G1$333 ')$3)3 8($3"39 M1%2$3%3 812'$2+39 M 1($)(3 -3M 1($)(3
Bet assets at beginning of year -d0ustments for changes: Bet income for year 7i idends paid Bet assets translated: *ates during year *ates at end of year Change in other comprehensi e &ncome L translation ad0ustment 8debit9 -ccumulated other comprehensi e &ncome L translation ad0ustmentE 121 -ccumulated other comprehensi e &ncome L translation ad0ustment$ 122"1
-M1"3$333 +)$+33 8G$3339 -M23+$+33
12-#%
P12-24 P'(1+. C$%&'+6 D$/(+'3 E+.()1* '+- T('+*3'.)$+ 6 1212x" +3S &n estment cost T Fair alue
-M233$333 x M.)3
M1%3$333
M1%3$333 [ M2+$333 [ M"G$233
[ *e aluation: 66E: -M%3$333 x M.)3 6atent: -M'($333 x M.)3 . /ook alue 8-M1"3$333 x .+39 x M.)3 T M )2$+33 -ustralian 7ollars -M%3$333 '($333 Exchange *ate .)3 .)3
/alance Jan. 1$ 23I" 7ifferential: /uildings and Equipment 6atent -morti=ation: /uildings and Equipment 813 years9 6atent 813 years9 *emaining /alance -d0usted balance 7ec. "1$ 23I" /uildings and Equipment 6atent 7ifferential ,ranslation -d0ustment: 6atent /uildings and Equipment ,otal 7ifferential ,ranslation -d0ustment
4... 7ollars M2+$333
M"G$233
8%$3339 8'$(339 -M+($%33 -M"($333 -M'3$%33
.(' .('
82$(339 M2'$%33 821$(339
8"$(%39 M"'$'(3
.(3 .(3
8"3$2%39
M '$"23 "$+33 M G$123
8N$.1: ,he differential translation ad0ustment is necessary to decrease the buildings and equipment component of the parent company?s differential from M2'$%33 to M21$(33$ and to decrease the patent component from M"'$'(3 to M"3$2%3. ,hus$ a credit !ill be made to the parent company?s in estment account for the total of MG$123 8M"$+33 E M'$"239 !ith a corresponding debit to the parent company?s Ather Comprehensi e &ncome P ,ranslation -d0ustment account.9
12-#&
P12-24 8continued9
6arent company 0ournal entries 23I": 819 &n estment in .ubsidiary Cash -cquire foreign in estment. Cash &n estment in .ubsidiary *ecei e di idend: -MG$333 x .+3 x M.() &n estment in .ubsidiary &ncome from .ubsidiary Equity accrual for percentage of subsidiary<s income: .ales Cost of goods sold 7epreciation expense Aperating expense &nterest expense &ncome - erage exchange rate 4... dollar equi alent 6arent<s percent Equity accrual 8%9 &ncome from .ubsidiary &n estment in .ubsidiary -morti=ation of differential: /uildings and equipment 6atent 1%3$333 1%3$333
829
%$+2%
%$+2%
8"9
%'$('(
%'$('(
-M -M')G$333 8""3$3339 82%$3339 81"1$'339 8'$)339 -M +)$+33 x .(' M ')$3)3 x .+3 M %'$('(
4...M M")($"'3 821%$'339 81'$(339 8+'$%)'9 8"$)3'9 M ')$3)3 M ')$3)3 x .+3 M %'$('( ($2%3
($2%3
T M2$(33 T "$(%3 M($2%3 G$123
8'9
Ather Comprehensi e &ncome L ,ranslation -d0ustment &n estment in .ubsidiary ,ranslation ad0ustment related to decrease in differential: /uildings and equipment T M"$+33 6atent T '$"23 MG$123 Ather Comprehensi e &ncome L ,ranslation -d0ustment &n estment in .ubsidiary 6arent company<s share of translation ad0ustment from subsidiary: M1"$%3+ T M1($)(3 x .+3
G$123
8(9
1"$%3+
1"$%3+
12-#'
P12-24 8continued9
Entries posted to ,-accounts 8not required9:
Ariginal cost 819 Equity accrual 8"9
&n estment in .ubsidiary 1%3$333 7i idends %'$('( -morti=ation ,ranslation ad0ustment related to differential 6arent?s share of subsidiary?s translation ad0ustment
829 %$+2% 8%9 ($2%3
8'9 G$123
CCCCCCC /alance$ 7ec. "1$ 23I" 1'2$3(%
8(9 1"$%3+
&ncome from .ubsidiary -morti=ation 8%9 ($2%3 Equity accrual /alance$ 7ecember "1$ 23I" 8"9 %'$('( "G$%1(
12-$(
P12-25 C$+*$3)-'.)$+ W$(F&'&1( ',.1( T('+*3'.)$+ >orkpaper elimination entries: E819 &ncome from .ubsidiary 7i idends 7eclared &n estment in .ubsidiary Eliminate income from subsidiary.
"G$%1(
%$+2% "%$'G2
E829
&ncome to Boncontrolling &nterest 7i idends 7eclared Boncontrolling &nterest -ssign income to noncontrolling interest: M11$%1% T M')$3)3 x .23 M1$23( T M($3"3 x .23 &n estment in >estern *anching Ather Comprehensi e &ncome P ,ranslation -d0ustment Eliminate other comprehensi e income from the subsidiary that had been recorded by the parent: M1"$%3+ T M1($)(3 x .+3 Boncontrolling &nterest Ather Comprehensi e &ncome to Boncontrolling &nterest -ssign a proportionate share of the subsidiary?s other comprehensi e income to the noncontrolling interest: M"$"'2 T M1($)(3 x .23 Common .tock *etained Earnings$ January 1 -ccumulated Ather Comprehensi e &ncome$ 81219 7ifferential &n estment in .ubsidiary Boncontrolling &nterest Eliminate in estment and establish noncontrolling interest<s share of beginning equity of subsidiary: M1+$233 T MG1$333 x .23 &n estment in .ubsidiary 7ifferential Eliminate differential translation ad0ustment.
11$%1%
1$23( 13$23+
E8"9
1"$%3+ 1"$%3+
E8%9
"$"'2 "$"'2
E8'9
("$333 2+$333 3 ()$233
1%3$333 1+$233
E8(9
G$123
G$123
12-$1
P12-25 8continued9 E8)9
6lant and Equipment 6atent 7ifferential -ssign differential$ net of differential ad0ustment: M2%$233 T M2+$333 - M"$+33 M""$++3 T M"G$233 - M'$"23 7epreciation Expense -morti=ation Expense -ccumulated 7epreciation 6atent -morti=ation of differential. 6ayable to -lamo *ecei able from >estern *anching Eliminate intercompany payable2recei able.
2%$233 ""$++3
'+$3+3
E8+9
2$(33 "$(%3
2$(33 "$(%3
E8G9
($%+3
($%+3
12-$2
P12-25 8continued9
-lamo$ &nc. and .ubsidiary Consolidation >orkpaper For the Dear Ending 7ecember "1$ 23I" 8after translation9 -lamo 1$333$333 "G$%1( 1$3"G$%1( (33$333 2+$333 >estern *anching ")($"'3 ")($"'3 21%$'33 1'$(33 819 "G$%1( Eliminations 7ebit Credit Consolidated 1$")($"'3 1$")($"'3 +1%$'33 %($233 "$(%3 2+G$%)' '$)3' 81$1'G$'239 21($+"3 811$%1%9 -323'$%1( 1)G$('( 23'$%1( "+'$3)2 8'3$3339 ""'$3)2 (%$%(3 1+"$233 8G9 8)9 2%$233 8"9 1"$%3+ 8(9 G$123 8'9 ()$233 8)9 ""$++3 22$'2+ G+)$3)2 1($)(3 2+2$323 819 "%$'G2 8'91%3$333 8(9 G$123 8)9 '+$3+3 8+9 "$(%3 1($)(3 ($%+3 1)G$(33 ((+$233
&tem .ales &ncome from .ubsidiary Credits Cost of 5oods .old 7epreciation Expense -morti=ation Expense Aperating Expense &nterest Expense 7ebits &ncome to Boncontrolling &nterest Bet &ncome$ carry for!ard *etained Earnings$ January 1 Bet &ncome$ from abo e 7i idends 7eclared *etained Earnings$ carry for!ard Cash -ccounts *ecei able 8net9 *ecei able from >estern *anching &n entory 6lant and Equipment &n estment in .ubsidiary 7ifferential 6atent -ccumulated Ather Comp. &ncome$ 8from belo!9 ,otal 7ebits
8+9 2$(33 8+9 "$(%3
23%$333 +'$%)' 2$333 "$)3' 8+"%$3339 8"1G$2+39
829 11$%1% 23'$%1( 1)G$('( 23'$%1( "+'$3)2 8'3$3339 ""'$3)2 "+$333 1%3$333 ($%+3 12+$333 '33$333 1'2$3(% ')$3)3 2+$333 ')$3)3 +'$3)3 8($3"39 )G$3%3 2($%(3 %"$233 '1$(33 1%%$333 ')$3)3 8'9 2+$333 ')$3)3 819 829 +'$3)3 %$+2% 1$23( ($3"3
"3$2%3 22$'2+ 1$1%+$22+
12-$!
P12-25 8continued9 &tem
-lamo G3$333 (3$333 2$333 '33$333 ""'$3)2
>estern *anching "($333 "2$2+3 ($%+3 1$+33 (3$333 "$%23 ("$333 )G$3%3
Eliminations 7ebit Credit 8+9 2$(33 8G9 ($%+3
Consolidated 12+$(33 G2$2+3 "$+33 (3$333 "$%23 '33$333 ""'$3)2 2'$3'( 1$1%+$22+ -3-
-ccumulated 7epreciation -ccounts 6ayable 6ayable to -lamo &nterest 6ayable 12S /onds 6ayable 6remium on /onds Common .tock *etained Earnings Boncontrolling &nterest Credits -ccumulated Ather Comp. &ncome$ 121 Ather Comp. &ncome P ,ranslation -d0.8dr9 Ather Comp. &ncome to Boncon. &nt. -ccumulated Ather Comp. &ncome$ 122"1$ 8debit9 carry up
8'9("$333 +'$3)3 8%9 "$"'2
($3"3 82913$23+ 8'91+$233 "3'$)13
G+)$3)2 -3822$'2+9
2+2$323 -381($)(39
"3'$)13 8'9 -3-
8"91"$%3+ 8%9 "$"'2
82'$++39 "$"'2 822$'2+9
822$'2+9
81($)(39
-3-
1($)(3
6roof of noncontrolling interest<s percentage of subsidiary<s stockholders< equity: .ubsidiary<s .tockholders< Equity: Common .tock *etained Earnings -ccumulated Ather Comprehensi e &ncome L ,ranslation -d0ustment .ubsidiary<s .tockholders< Equity Boncontrolling 6ercent Boncontrolling &nterest M ("$333 )G$3%3 81($)(39 M12'$2+3 x .23 M 2'$3'(
12-$"
P12-25 8continued9
Aptional$ alternate !orkpaper placement of accumulated other comprehensi e income belo! the income section -lamo$ &nc. and .ubsidiary Consolidation >orkpaper For the Dear Ending 7ecember "1$ 23I" 8after translation9 &tem .ales &ncome from .ubsidiary Credits Cost of 5oods .old 7epreciation Expense -morti=ation Expense Aperating Expense &nterest Expense 7ebits &ncome to Boncontrolling &nterest Bet &ncome$ carry for!ard -ccumulated Ather Comp. &ncome$ 121 Ather Comp. &ncome,ranslation -d0.8dr9 Ather Comp. &ncome to BC& -ccumulated Ather Comp. &ncome$ 122"1$ 8debit9 carry d!n. *etained Earnings$ January 1 Bet &ncome$ from abo e 7i idends 7eclared *etained Earnings$ carry for!ard -lamo 1$333$333 "G$%1( 1$3"G$%1( (33$333 2+$333 >estern *anching ")($"'3 ")($"'3 21%$'33 1'$(33 819"G$%1( Eliminations 7ebit Credit Consolidated 1$")($"'3 1$")($"'3 +1%$'33 %($233 "$(%3 2+G$%)' '$)3' 81$1'G$'239 21($+"3 811$%1%9 -323'$%1( -38"91"$%3+ 8%9 "$"'2 822$'2+9 81($)(39 -31($)(3 82'$++39 "$"'2 822$'2+9
8+9 2$(33 8+9 "$(%3
23%$333 +'$%)' 2$333 "$)3' 8+"%$3339 8"1G$2+39
82911$%1% 23'$%1( -3822$'2+9 ')$3)3 -381($)(39 ')$3)3 8'9 -3-
1)G$('( 23'$%1( "+'$3)2 8'3$3339 ""'$3)2
2+$333 ')$3)3 +'$3)3 8($3"39 )G$3%3
8'92+$333 ')$3)3 -3819 %$+2% 829 1$23( +'$3)3 ($3"3
1)G$('( 23'$%1( "+'$3)2 8'3$3339 ""'$3)2
12-$#
P12-25 8continued9
Aptional format &tem -lamo "+$333 1%3$333 ($%+3 12+$333 '33$333 1'2$3(% >estern *anching 2($%(3 %"$233 '1$(33 1%%$333 8G9 8)92%$233 8"91"$%3+ 8(9 G$123 8'9()$233 8)9""$++3 22$'2+ G+)$3)2 G3$333 (3$333 2$333 '33$333 ""'$3)2 1($)(3 2+2$323 "($333 "2$2+3 ($%+3 1$+33 (3$333 "$%23 ("$333 )G$3%3 -3819 "%$'G2 8'91%3$333 8(9 G$123 8)9 '+$3+3 8+9 "$(%3 1($)(3 ($%+3 Eliminations 7ebit Credit Consolidated (%$%(3 1+"$233 1)G$(33 ((+$233
Cash -ccounts *ecei able 8net9 *ecei able from >estern *anching &n entory 6lant and Equipment &n estment in .ubsidiary 7ifferential 6atent -ccumulated Ather Comp. &ncome$ 8from abo e9 ,otal 7ebits -ccumulated 7epreciation -ccounts 6ayable 6ayable to -lamo &nterest 6ayable 12S /onds 6ayable 6remium on /onds Common .tock *etained Earnings Boncontrolling &nterest ,otal Credits
"3$2%3 22$'2+ 1$1%+$22+ 12+$(33 G2$2+3 "$+33 (3$333 "$%23 '33$333 ""'$3)2 2'$3'( 1$1%+$22+
8+9 8G9 ($%+3
2$(33
8'9("$333 +'$3)3 8%9 "$"'2
($3"3 829 13$23+ 8'9 1+$233 "3'$)13
G+)$3)2
2+2$323
"3'$)13
N$.1: ,his optional presentation sho!s the accumulated other comprehensi e income section of the !orksheet immediately belo! the computation of net income. ,hus$ the placement of the accumulated other comprehensi e income section does not affect the computation of any !orksheet amounts. &t is 0ust a preference as to the organi=ation of the consolidation !orksheet. ,his alternate presentation also sho!s students that the consolidating !orksheet is a means to the end of computing the amounts that !ill be reported on the consolidated financial statements$ and that alternate !orksheet formats !ill be found in practice.
12-$$
P12-26# R1%1'*/(1%1+. a.
>estern *anching Company ,rial /alance *emeasurement 7ecember "1$ 23I" -ustralian 7ollars Exchange *ate .(3 .(3 .(' 1+3$333 x .)3 (3$333 x .)3 8a9 .)3 .(' .(' .() 4... 7ollars M 2($%(3 %"$233 ''$G33 1(+$333 21)$+33 1($+33 +'$%)' "$)3' ($3"3 M(2"$")3 M %2$333 "2$2+3 ($%+3 1$+33 (3$333 "$%23 ("$333 2+$333 ")($"'3 M(1"$""3 13$3%3 M(2"$")3
Cash -ccounts *ecei able 8net9 &n entory 6lant and Equipment Cost of 5oods .old 7epreciation Expense Aperating Expense &nterest Expense 7i idends 7eclared ,otal 7ebits -ccumulated 7epreciation -ccounts 6ayable 6ayable to -lamo$ &nc. &nterest 6ayable 12S /onds 6ayable 6remium on /onds Common .tock *etained Earnings .ales ,otal *emeasurement 5ain ,otal Credits
-M %%$133 )2$333 +($333 2%3$333 ""3$333 2%$333 1"1$'33 '$)33 G$333 -MG%2$"33 -M (3$333 '"$+33 13$+33 "$333 133$333 '$)33 G3$333 %3$333 ')G$333 -MG%2$"33
.)3 .(3 .(3 .(3 .(3 .(3 .)3 .)3 .('
8a9 Cost of 5oods .old: /eginning &n entory 6urchases 5oods - ailable #inus Ending &n entory Cost of 5oods .old
-ustralian 7ollars -M (($333 "'3$333 -M%1($333 8+($3339 -M""3$333
Exchange *ate .)3 .(' .('
4... 7ollars M %($233 22)$'33 M2)"$)33 8''$G339 M21)$+33
12-$%
P12-26# 8continued9
b. 6roof of *emeasurement 5ain: .chedule 1: .tatement of Bet #onetary 6osition End of Dear -M %%$133 )2$333 -M11($133 -M '"$+33 13$+33 "$333 133$333 '$)33 -M1)"$"33 -M8')$2339 -M822$+339 -M8+3$3339 /eginning of Dear
#onetary -ssets: Cash -ccounts *ecei able 8net9 ,otal #onetary Equities: -ccounts 6ayable 6ayable to 6arent Company &nterest 6ayable 12S /onds 6ayable 6remium on /onds ,otal Bet #onetary Equities 7ecrease in net monetary equities during year .chedule 2: -nalysis of Changes in #onetary -ccounts
Exposed Bet #onetary 1iability 6osition L January 1 &ncreases: From Aperations: .ales 7ecreases: From Aperations: 6urchases Cash Expense &nterest Expense From 7i idends From 6urchase of 6lant and Equipment Bet #onetary 6osition 6rior to *emeasurement at Dear-End *ate Exposed Bet #onetary 1iability 6osition L 7ecember "1 *emeasurement 5ain
-ustralian 7ollars -M 8+3$3339
Exchange *ate .)3
4... 7ollars M 8'($3339
')G$333
.('
")($"'3
8"'3$3339 81"1$'339 8'$)339 8G$3339 8(3$3339
.(' .(' .(' .() .)3
822)$'339 8+'$%)'9 8"$)3'9 8($3"39 8%2$3339 M 8%%$"(39
-M 8')$2339
.(3
8"%$"239 M 13$3%3
12-$&
P12-27 P'(1+. C$%&'+6 D$/(+'3 E+.()1* '+- R1%1'*/(1%1+. 6 1212x" +3S &n estment cost Fair alue
-M233$333 x M.)3 T
M1%3$333 M1%3$333 [ M2+$333 [ M"G$233 M )2$+33
[ *e aluation: 66E: -M%3$333 x M.)3 6atent: -M'($333 x M.)3 . /ook alue 8-M1"3$333 x .+39 x M.)3 T
6arent company 0ournal entries P 23I": 819 &n estment in .ubsidiary Cash -cquire foreign in estment. Cash &n estment in .ubsidiary *ecei e di idend: M%$+2% T -MG$333 x .+3 x M.() &n estment in .ubsidiary &ncome from .ubsidiary Equity accrual for percentage of subsidiary<s income: .ales Cost of goods sold 7epreciation expense Aperating expense &nterest expense *emeasurement gain .ubsidiary<s income 6arent<s percent Equity accrual 8%9 &ncome from .ubsidiary &n estment in .ubsidiary -morti=ation of differential: /uildings and Equipment 6atent 1%3$333 1%3$333
829
%$+2%
%$+2%
8"9
'3$3++
'3$3++
4...M M ")($"'3 821)$+339 81($+339 8+'$%)'9 8"$)3'9 13$3%3 M (2$(13 x .+3 M '3$3++ ($)23 T M2$+33 8M2+$333 2 139 T "$G23 8M"G$233 2 139 M($)23
($)23
12-$'
P12-27 8continued9
NOT REQUIRED: Entries posted to ,-accounts &n estment in .ubsidiary 1%3$333 7i idends '3$3++ -morti=ation
Ariginal cost Equity accrual
819 8"9
829 8%9
%$+2% ($)23
/alance$ 7ecember "1$ 23I"
1)+$'%% &ncome From .ubsidiary ($)23 Equity accrual
-morti=ation
8%9
8"9
'3$3++ %"$"(+
/alance$ 7ecember "1$ 23I"
12-%(
P12-28# C$+*$3)-'.)$+ W$(F&'&1( ',.1( R1%1'*/(1%1+. >orkpaper elimination entries: E819 &ncome from .ubsidiary 7i idends 7eclared &n estment in .ubsidiary Eliminate income from subsidiary. &ncome to Boncontrolling &nterest 7i idends 7eclared Boncontrolling &nterest -ssign income to noncontrolling interest: M12$'22 T M(2$(13 x .23 M1$23( T M($3"3 x .23 Common .tock *etained Earnings$ January 1 7ifferential &n estment in .ubsidiary Boncontrolling &nterest Eliminate beginning-of-period in estment balance and establish noncontrolling interest<s share of beginning equity of subsidiary: M1+$233 T MG1$333 x .23 6lant and Equipment 6atent 7ifferential -ssign differential. 7epreciation Expense -morti=ation Expense -ccumulated 7epreciation 6atent -morti=e differential. 6ayable to -lamo *ecei able from >estern *anching Eliminate intercompany payable2recei able.
%"$"(+
%$+2% "+$'%%
E829
12$'22
1$23( 11$"1(
E8"9
("$333 2+$333 ()$233
1%3$333 1+$233
E8%9
2+$333 "G$233
()$233
E8'9
2$+33 "$G23
2$+33 "$G23
E8(9
($%+3
($%+3
12-%1
P12-28Q 8continued9
-lamo$ &nc. and .ubsidiary Consolidation >orkpaper For the Dear Ending 7ecember "1$ 23I" 8after translation9 -lamo 1$333$333 %"$"(+ 1$3%"$"(+ (33$333 2+$333 13$3%3 "+($"G3 21)$+33 1($+33 8'9 2$+33 8'9 "$G23 >estern *anching ")($"'3 819%"$"(+ 13$3%3 1$"+($"G3 +1)$+33 %)$(33 "$G23 2+G$%)' '$)3' 81$1(%$'339 221$+G3 812$'229 -323G$"(+ 1)G$('( -3819 829 G3$(13 %$+2% 1$23( ($3"3 23G$"(+ "+G$32% 8'3$3339 ""G$32% (%$%(3 1+"$233 8(9 8%92+$333 819 "+$'%% 8"91%3$333 8%9 ()$233 8'9 "$G23 ($%+3 1+"$G33 (G($333 Eliminations 7ebit Credit Consolidated 1$")($"'3
&tem .ales &ncome from .ubsidiary *emeasurement 5ain Credits Cost of 5oods .old 7epreciation Expense -morti=ation Expense Aperating Expense &nterest Expense 7ebits &ncome to Boncontrolling &nterest Bet &ncome$ carry for!ard *etained Earnings$ January 1 Bet &ncome$ from abo e 7i idends 7eclared *etained Earnings$ carry for!ard Cash -ccounts *ecei able 8net9 *ecei able from >estern *anching &n entory 6lant and Equipment &n estment in .ubsidiary 7ifferential 6atent ,otal 7ebits
23%$333 +'$%)' 2$333 "$)3' 8+"%$3339 8"2"$)+39
82912$'22 23G$"(+ 1)G$('( 23G$"(+ "+G$32% 8'3$3339 ""G$32% "+$333 1%3$333 ($%+3 12+$333 '33$333 1)+$'%% 8"9()$233 8%9"G$233 (2$(13 2+$333 (2$(13 G3$(13 8($3"39 +%$'+3 2($%(3 %"$233 ''$G33 1(+$333 (2$(13 8"92+$333 (2$(13
GG1$32%
2G"$'(3
"'$2+3 1$1(2$+%3
12-%2
P12-28# 8continued9 &tem -ccumulated 7epreciation -ccounts 6ayable 6ayable to -lamo &nterest 6ayable 12S /onds 6ayable 6remium on /onds Common .tock *etained Earnings Boncontrolling &nterest ,otal Credits
-lamo G3$333 (3$333 2$333 '33$333 ""G$32%
>estern *anching %2$333 "2$2+3 ($%+3 1$+33 (3$333 "$%23 ("$333 +%$'+3
Eliminations 7ebit Credit 8'9 2$+33 8(9 ($%+3
Consolidated 1"%$+33 G2$2+3 "$+33 (3$333 "$%23 '33$333 ""G$32% 2G$'1( 1$1(2$+%3
8"9("$333 G3$(13
($3"3 82911$"1( 8"91+$233 2G%$%G3
GG1$32%
2G"$'(3
2G%$%G3
6roof of noncontrolling interest<s percentage of subsidiary<s stockholders< equity: .ubsidiary<s .tockholders< Equity: Common .tock *etained Earnings .ubsidiary<s .tockholders< Equity Boncontrolling 6ercent Boncontrolling &nterest M ("$333 +%$'+3 M1%)$'+3 x .23 M 2G$'1(
12-%!
P12-2! F$(1)5+ C/((1+06 R1%1'*/(1%1+. 8AICPA A-'&.1-9
Hiner Company<s Foreign .ubsidiary *emeasurement of .elected Captions into 4nited .tates 7ollars 7ecember "1$ 23I2$ and 7ecember "1$ 23I1 &ndirect Exchange *ate 1.) 1C4 T M1 2.3 1C4 T M1 2.3 1C4 T M1 1.) 1C4 T M1 2.3 1C4 T M1 1.' 1C4 T M1 1.) 1C4 T M1 .chedule 1 1.' 1C4 T M1 2.3 1C4 T M1 *emeasured into 4... 7ollars M23$'++ ")$'33 )'$333 )3$'++ 2'$333 2($(() %)$3'G +($333 (($(() 2'$333
/alance in 1C4s 7ecember "1$ 23I1 -ccounts *ecei able 8net9 &n entories$ at cost 6roperty$ 6lant$ and Equipment 8net9 1ong-,erm 7ebt Common .tock 7ecember "1$ 23I2 -ccounts *ecei able 8net9 &n entories$ at cost 6roperty$ 6lant$ and Equipment 8net9 1ong-,erm 7ebt Common .tock "'$333 1C4 )'$333 1'3$333 123$333 '3$333 %3$333 +3$333 1("$333 133$333 '3$333
.chedule 1: Computation of ,ranslation of 6roperty$ 6lant and Equipment 8Bet9 into 4nited .tates 7ollars on 7ecember "1$ 23I2 /alance in 1C4s 1and purchased on January 1$ 23I1 6lant and equipment purchased on January 1$ 23I1: Ariginal cost 7epreciation for 23I1 7epreciation for 23I2 6lant and equipment purchased on July %$ 23I2: Ariginal cost 7epreciation for 23I2 2%$333 1C4 1%3$333 1C4 81%$3339 81%$3339 112$333 1C4 "3$333 1C4 8"$3339 2)$333 1C4 1("$333 1C4 &ndirect Exchange *ate 2.3 1C4 T M1 2.3 1C4 T M1 2.3 1C4 T M1 2.3 1C4 T M1 2.3 1C4 T M1 1.' 1C4 T M1 1.' 1C4 T M1 1.' 1C4 T M1 *emeasured into 4... 7ollars M12$333 M)3$333 8)$3339 8)$3339 M'($333 M23$333 82$3339 M1+$333 M+($333
12-%"
P12-3" F$(1)5+ C/((1+06 T('+*3'.)$+
Hiner Company<s Foreign .ubsidiary ,ranslation of .elected Captions into 4nited .tates 7ollars 7ecember "1$ 23I2$ and 7ecember "1$ 23I1 /alance in 1C4s 7ecember "1$ 23I1 -ccounts *ecei able 8net9 &n entories$ at cost 6roperty$ 6lant$ and Equipment 8net9 1ong-,erm 7ebt Common .tock 7ecember "1$ 23I2 -ccounts *ecei able 8net9 &n entories$ at cost 6roperty$ 6lant$ and Equipment 8net9 1ong-,erm 7ebt Common .tock "'$333 1C4 )'$333 1'3$333 123$333 '3$333 %3$333 +3$333 1("$333 133$333 '3$333 &ndirect Exchange *ate 1.) 1C4 T M1 1.) 1C4 T M1 1.) 1C4 T M1 1.) 1C4 T M1 2.3 1C4 T M1 1.' 1C4 T M1 1.' 1C4 T M1 1.' 1C4 T M1 1.' 1C4 T M1 2.3 1C4 T M1 ,ranslated into 4... 7ollars M 23$'++ %%$11+ ++$2"' )3$'++ 2'$333 2($(() '"$""" 13+$(() (($(() 2'$333
P12-31 M'.02)+5 >16 T1(%* 1. E 2. & ". H %. ; '. (. F ). J +. / G. 1 13. C
12-%#
1P12-32 T('+*3'.)$+ C2$)01* *equirement 1: a. 8)9 b. 8'9 c. 8(9 d. 8)9 e. 8)9 f. 8'9 g. 819 h. 8)9 i. 8+9 0. k. 8)9 8'9
1C4 .+" 7ecember "1$ 23I%: end of current year 1C4 .+' - erage for year 23I% for re enues 1C4 .+% Bo ember 1$ 23I%: declaration date 1C4 .+" 7ecember "1$ 23I%: end of current year 1C4 .+" 7ecember "1$ 23I%: end of current year 1C4 .+' - erage for year 23I% for expenses 1C4 .)% June 1($ 23I1: date foreign company purchased 1C4 .+" 7ecember "1$ 23I%: end of current year /alance computed at end of 7ecember "1$ 23I%$ includes carry for!ard from prior periods 1C4 .+" 7ecember "1$ 23I%: end of current year 1C4 .+' - erage for year 23I% for expenses
*equirement 2: a. 7irect exchange rate 87E*9 for January 1$ 23I%: 7E* T M1 2 1C4 .+3 7E* T M1.2' b. 4... dollar ersus 1C4 in 23I%: Indirect Exchange *ate (LCU / !" 1C4 .+3 1C4 .+" Direct Exchange *ate ( / LCU !" M1.2' M1.23%+
Exchange rates on January 1$ 23I% Exchange rates on 7ecember "1$ 23I%
7uring 23I%$ the direct exchange rate has decreased reflecting that it costs less 4... currency for one foreign currency unit at the end of the year as compared !ith the beginning of the year. ,herefore$ the 4... dollar has strengthened during the year 23I%. -lternati ely$ the indirect exchange rate has increased indicating it costs more in 1C4 to acquire M1 at 7ecember "1$ 23I%$ than at January 1$ 23I%.
12-%$
P12-33 P($$, $, T('+*3'.)$+ A-:/*.%1+. a.
#a#i Co. 1td. 6roof of ,ranslation -d0ustment Dear Ended 7ecember "1 ,ranslation #I6 *ate M.3+) M.3G3 M.3G1' M '3$32' 2%$"33 81"$)2'9 (3$(33 (%$("'
Bet assets at beginning of year -d0ustment for changes in net assets position during year: Bet income for year 7i idends Bet assets translated at: *ates during year *ates at end of year Change in other comprehensi e income-translation ad0ustment during year 8net increase9 -ccumulated other comprehensi e income-translation ad0ustment$ 121 8credit9
')'$333 2)3$333 81'3$3339
(G'$333
M.3G"
%$3"' "$2'3 )$2+'
-ccumulated other comprehensi e income-translation ad0ustment$ 122"1 8credit9
Bote that the proof begins !ith the net assets at the beginning of the year. ,he proof sho!s the change in the other comprehensi e income during the year of M%$3"'. &t is a credit or net increase in -AC& because it must offset an increase 8debit9 in the net assets from M(3$(33 to M(%$("' during the year. - mnemonic here is to remember that the debits must equal the credits. &f you !ere to pro e the total -AC& of M)$2+'$ then the proof should begin !ith the net assets at the time the subsidiary !as acquired and then make the ad0ustments in net income$ di idends$ and other changes in net assets o er the years since acquisition$ at the appropriate exchange rates. Ar$ the change in this year of M%$32' credit can simply be added to the beginning of the period -AC& credit balance of M"$2'3. b. ,he 4... dollar !eakened against the #exican peso during the year sho!n by the increase in the direct exchange rate indicating it costs more 4... currency to acquire one #exican peso at the end of the year 8M.3G"9 as opposed to the 4... currency cost of one #exican peso at the beginning of the year 8M.3+)9.
12-%%
P12-33 8continued9
-nother !ay of ie!ing the proof of the ending balance in -AC& is: ,ranslated /alance .heet$ 121 Bet assets ,otal M'3$32' M'3$32' .tock and *E -AC& 8gi en9 M%($))' 8plug9 "$2'3 M'3$32'
,ranslated /alance .heet$ 122"1 Bet assets M(%$("' .tock and *E M%($))' 8from 1219 *etained earnings change: 8M2%$"33 P M1"$)2'9 13$')' -AC& 8plug9 )$2+' M(%$("'
,otal
M(%$("'
12-%&

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Chapter 12 - Multinational Accounting: Issues in Financial Reporting and Translation of Foreign Entity State ents

C12-3 IAS Research

Either peso or dollar$ management may select either.

P()+0)&31* $, C$+*$3)-'.)+5 '+- T('+*3'.)+5 F$(1)5+ A00$/+.* 8AICPA A-'&.1-9

M '(3$333 82+'$3339 M 2)'$333 81%3$3339 M 1"'$333 M 1"'$333

C12-8 C2'+51* )+ .21 C/%/3'.);1 T('+*3'.)$+ A-:/*.%1+. A00$/+.

C12-! P($* '+- C$+* $, F$(1)5+ I+;1*.%1+.

From: CCCCCCCCCCCCCCC 7epartment *e:

Functional Currency of 1u= #axima

&ndirect rates used 2(3$333 1C4 2 1.+ 1C4 T M1%%$%%%

1)3$333 1C4 2 1.' 1C4 G3$333 1C4 2 1.( 1C4

2'$333 1C4 2 2 1C4 T M12$'33

2'$333 1C4 2 2.2 1C4

M)''$333 8-ll assets are translated at current rate9

M++3$333 8M+'$333 E M)33$333 E M2'$333 E M)3$3339

E12-2 8continued9 '.

E12-3 M'.02)+5 >16 T1(%* 1. 2. ". %. '. (. ). +. G. 13. 11. 12. ; 5 F 7 E / C / 7 E J C

M1(3$333 12+$'23 M "1$%+3

7ollars M13$'33 1$133 8*# '$333 x M.229

*ingitts *# '3$333 8M13$'33 2 M.219 '$333 8*# '3$333 2 139

5ood!ill &mpairment /alance ,ranslated balance

M12$333cr "$G23cr M1'$G23cr

E12-6 P($$, $, T('+*3'.)$+ A-:/*.%1+. a.

%3$333 81'$3339 .Fr +'$333

.)' .)) .+3

"3$333 811$''39 M (2$2'3 (+$333

8)3$3339 813$3339 8"3$3339 ,otal .Fr %3$333

*etained earnings$ 1212I1 Bet income 7i idends Q*etained earnings$ 122"12I1

.)% .+3 .+3 .)" .)'

*ate .)' .)' .))

E12-8# P($$, $, R1%1'*/(1%1+. G')+ ?L$**@ a.

1'3$333 -38G'$3339 8"3$3339 81'$3339 8133$3339

112$'33 -38)1$2'39 822$'339 811$''39 8)%$3339 M82"$3339

.)' .)' .)) .)%

E12-! T('+*3'.)$+ A).2 S.(1+5.21+)+5 U7S7 D$33'( a.

,ranslation *ate .+3 .)' .)% .)"

E12-1" R1%1'*/(1%1+. A).2 S.(1+5.21+)+5 U7S7 D$33'( a.

.Fr 13$333 12$333 '3$333 (3$333 1'3$333 .Fr 2+2$333

.)) .)" .)" .+3 .)'

.!iss Francs .Fr -3G'$333 .Fr G'$333 82'$3339 .Fr )3$333

*ate .+3 .)' .)%

4... 7ollars M -3)1$2'3 M )1$2'3 81+$'339 M '2$)'3

1'3$333 -38G'$3339 8"3$3339 81'$3339 8133$3339

112$'33 -38)1$2'39 822$'339 811$1339 8))$3339 M821$"'39

.)' .)' .)% .))

*ate M3.33)3 M3.33+3 M3.33+2

b. ,ranslation: Cost of 5oods .old

.panish 6esetas 6 ++($333

4... 7ollars M )$3++

Exchange *ate 1.(3 1.("

4... 7ollars M%+$333 8%$+G39 M%"$113

V"3$333 8"$3339 V2)$333

Q7ifference of M1 8M2$G3% - M2$G3"9 due to rounding of exchange rates.

-ccumulated other comprehensi e &ncome L translation ad0ustment$122"12I) 8debit9 E12-13 8continued9 d.

C$%&/.'.)$+ $, G')+ $( L$** $+ S'31 $, A**1. 46 F$(1)5+ S/4*)-)'(6

6 2$333$333 6 1$333$333 6 "$333$333

1+$1+2 M233$333 6 2$333$333 6 2$333$333 M.13 M233$333 M233$333

E12-15# I+.1(0$%&'+6 T('+*'0.)$+*

#easured in 4... 7ollars

#easured in /ritish 6ounds

M12$333 8+$3339 M %$333

SOLUTIONS TO PRO LEMS

.+3 .+3 .)' .)'

1'$333 8($3339 M+1$333

P()+0)&31* $, C$+$3)-'.)+5 '+- T('+3'.)+5 F$(1)5+ A00$/+.* 8AICPA A-'&.1-9

C12-8 C2'+51* )+ .21 C/%/3'.);1 T('+3'.)$+ A-:/.%1+. A00$/+.

ingitts # '3$333 8M13$'33 2 M.219 '$333 8*# '3$333 2 139

E12-6 P($$, $, T('+3'.)$+ A-:/.%1+. a.

etained earnings$ 1212I1 Bet income 7i idends Qetained earnings$ 122"12I1

C$%&/.'.)$+ $, G')+ $( L$ $+ S'31 $, A1. 46 F$(1)5+ S/4*)-)'(6

E12-15# I+.1(0$%&'+6 T('+'0.)$+

R1%1'/(1%1+.E D$/(+'3 E+.()1E C$+$3)-'.1- N1. I+0$%1E '+S.$0F2$3-1(G EB/).6

/1 2+3$333 )3$333 813$3339 81'$3339 /1 "2'$333

eals /1 2'3$333 133$333 /*1 "'3$333

/1 G'$333 2"3$333 /1 "2'$333 8G'$3339 /*1 2"3$333

/1 2'$333 )$'33 /1 "2$'33

/1 13$333 1'$333 /1 2'$333

/1 +3$333 12$'33 )$'33 /1 133$333

/1 8%'$1339 /1 8)$"339