Chapter 14 FOREIGN CURRENCY FINANCIAL STATEMENTS

Answers to Questions 1 A companys functional curr ncy is t! curr ncy of t! primary conomic n"ironm nt in #!ic! it op rat s$ It is normally t! curr ncy in #!ic! it r c i" s most of its paym nts from custom rs an% in #!ic! it pays most of its lia&iliti s$ Ot! r factors t!at ar consi% r % in % t rminin' t! functional curr ncy inclu% #! t! r its sal s pric s ar % t rmin % primarily &y local comp tition or local 'o" rnm nt r 'ulation inst a% of s!ort(run )c!an' rat c!an' s or #orl%#i% mar* ts$ T! functional curr ncy % t rmination +local curr ncy or par nt curr ncy or som ot! r curr ncy, is critical in % t rminin' #!at approac! to con" rtin' financial stat m nts to t! ultimat r portin' curr ncy is us %- t! curr nt rat or t! t mporal m t!o%$ If t! functional curr ncy is t! local curr ncy. t! curr nt rat m t!o% is us %$ If it is t! par nt curr ncy. t! t mporal m t!o% is us %$ If it is som ot! r curr ncy. t! n &ot! approac! s may n % to & us %$ 2 A !i'!ly inflationary conomy un% r GAA/ is on t!at !as cumulati" inflation of appro)imat ly 011 p rc nt or mor o" r a t!r (y ar p rio%$ T! functional curr ncy is assum % to & t! r portin' curr ncy +for U$S$ compani s. t! %ollar, #!ic! m ans t!at t! for i'n curr ncy financial stat m nts must & r m asur % into t! %ollar usin' t! t mporal m t!o%$ T! ff ct of t! !yp rinflation is t! n r fl ct % in t! curr nt y ars consoli%at % incom stat m nt #!ic! #oul% not & t! cas if t! curr nt rat m t!o% # r us %$ 2u%'m nt must & ) rcis % in applyin' t!is rul to a"oi% c!an'in' functional curr nci s fr 3u ntly %u to minor %iff r nc s in t! inflation rat $ T! functional curr ncy of a for i'n su&si%iary %o s not aff ct t! ori'inal r cor%in' of t! &usin ss com&ination$ T!is is & caus all ass ts. lia&iliti s. an% 3uiti s of t! for i'n su&si%iary ar con" rt % into U$S$ %ollars at t! curr nt )c!an' rat in ff ct on t! %at of consummation of t! &usin ss com&ination$ As a r sult. no sp cial proc %ur must & appli % at t! %at of ori'inal r cor%in' of a for i'n su&si%iary$ T! curr nt rat m t!o% is us % #! n t! for i'n su&si%iarys local curr ncy is % t rmin % to & t! su&si%iarys functional curr ncy$ T! su&si%iarys financial stat m nts must & translat % usin' t! curr nt rat m t!o% into t! r portin' ntitys curr ncy +typically t! par nts curr ncy,$ T! t mporal m t!o% is us % #! n t! for i'n su&si%iarys curr ncy is % t rmin % to & t! r portin' ntitys curr ncy +typically t! par nts curr ncy,$ T! su&si%iarys financial stat m nts must & r m asur % usin' t! t mporal m t!o% into t! r portin' ntitys curr ncy$ Sinc t! functional curr ncy is not t! par nts curr ncy. no %ir ct impact on t! r portin' ntitys +par nts, cas! flo#s is )p ct % %u to )c!an' rat c!an' s$ T! ff cts of )c!an' rat c!an' s ar r fl ct % in t! consoli%at % stat m nts accumulat % compr ! nsi" incom account inst a% of & in' inclu% % in t! incom stat m nt$ Sinc t! functional curr ncy is assum % to & t! r portin' ntitys +or par nts, curr ncy. a %ir ct impact on t! par nts cas! flo#s is )p ct % %u to )c!an' rat c!an' s$ T! ff cts of )c!an' rat c!an' s ar r fl ct % in t! consoli%at % incom stat m nt$ A for i'n su&si%iarys financial stat m nts coul% & &ot! translat % an% r m asur % if t! ntitys &oo*s ar maintain % in a %iff r nt curr ncy t!an t! functional curr ncy an% t! functional curr ncy is not t! r portin' ntitys local curr ncy$ In t!is cas . t! ntitys financial stat m nts must & r m asur % into t! functional curr ncy usin' t! t mporal m t!o%$ T! 'ain or loss on r m asur m nt is inclu% % in incom $ T! functional curr ncy financial stat m nts ar t! n translat % into t! r portin' ntitys curr ncy usin' t! curr nt rat m t!o%$ T! 'ain or loss on t! translation is inclu% % in accumulat % ot! r compr ! nsi" incom $ In t!is situation. t! consoli%at % financial stat m nts #oul% inclu% &ot! a

142

Foreign Currency Financial Statements

r m asur m nt 'ain or loss in incom an% t! a translation a%4ustm nt inclu% % in accumulat % ot! r compr ! nsi" incom $ 9 No. it #oul% not & appropriat to us t! annual a" ra' )c!an' rat $ T! or tically. t! )c!an' rat at t! %at ac! transaction occurs s!oul% & us %$ Gi" n t!at t!is is not practical. r asona&l assumptions ar ma% conc rnin' #!at )c!an' rat to us $ T! us of an a" ra' )c!an' rat is appropriat #! n sal s ar arn % " nly %urin' t! y ar an% )p ns s ar incurr % " nly %urin' t! y ar$ A r asona&l assumption for a !oli%ay tr 'ro# r #oul% & to us t! a" ra' )c!an' rat %urin' t! 3uart r from Octo& r t!rou'! 5 c m& r sinc t!os ar t! mont!s t!at tr s ar typically sol%$ For )p ns s. )aminin' t! mont!s t!at ar t! most la&or int nsi" +suc! as plantin'. f rtili6in' an% !ar" stin', an% usin' a r asona&l # i'!tin' of t!os mont!s )c!an' rat s #oul% & a r asona&l #ay of % t rminin' t! rat for t!os costs$ T! par nt purc!as % t! su&si%iary for an amount in )c ss of &oo* "alu $ T!is )c ss #as attri&uta&l to an unr cor% % pat nt$ R call t!at t! )c ss amount #oul% not & inclu% % on t! su&si%iarys &oo*s$ T! consoli%at % financial stat m nts. !o# " r. #oul% inclu% &ot! t! amorti6ation of t! pat nt an% t! pat nt$ Sinc t! curr nt rat m t!o% is & in' us %. t! impact of t! c!an' in )c!an' rat s on t! pat nt an% t! amorti6ation is inclu% % in t! translation a%4ustm nt to & inclu% % in consoli%at % compr ! nsi" incom $ T! su&si%iarys translation a%4ustm nt #oul% not inclu% t!is & caus t! pat nt #as not inclu% % in t! &oo*s$ T!us. t! consoli%at % translation a%4ustm nt is lar' r t!an t! su&si%iarys translation a%4ustm nt$ T! t mporal m t!o% r 3uir s r m asurin' )p ns s of a for i'n su&si%iary$ E)p ns s r lat % to mon tary it ms ar r m asur % at appropriat ly # i'!t % a" ra' )c!an' rat s for t! p rio%$ T!os typ s of )p ns s ar it! r pai% in cas! or r cor% % as lia&iliti s #!ic! #ill r 3uir t! " ntual paym nt of cas!$ T!os t!at r lat to nonmon tary it ms ar r m asur % at !istorical )c!an' rat s$ E)p ns s r lat % to nonmon tary it ms #oul% & t!os r lat % to in" ntory an% plant ass ts$ Un% r t! curr nt rat m t!o%. all accounts ar translat % at t! # i'!t % a" ra' rat $ If t! functional curr ncy is su&si%iarys local curr ncy. t! curr nt rat m t!o% is us %. an% t! 'ain or loss on t! ! %' of a n t in" stm nt in a for i'n su&si%iary is r port % in ot! r compr ! nsi" incom $ If t! functional curr ncy is t! par nts curr ncy. t! t mporal m t!o% is us %. an% t! 'ain or loss is inclu% % in curr nt p rio% incom $

10

11

12

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SOLUTIONS TO EXERCISES Solution E14-1 1 2 3 4 5 6 c a c a b b 7 8 9 c b a

Solution E14-2 [Based on AICPA] 1 2 3 c d d 4 5 b a

Solution E14-3 Pai Com an! an" Su#$i"ia%! Consolidated Balance Sheet at Januar !, "#!! Current assets [$3,###,### % $&&#,### ' (!##,###) $!.*+,] .and [$/##,### ' ("##,###) $!.*+,] Buildings 8 net [$!,"##,### ' ("+#,###) $!.*+,] E0uip1ent 8 net [$!,###,### ' (!##,###) $!.*+,] 2ood3ill [$&&#,### cost % (4+#,###) 5air 6alue $!.*+,] $",!-+,### !,!3#,### !,*!",+## !,!*+,### "4-,+## $*,33#,### Current liabilities [$*##,### ' (+#,###) $!.*+,] 7otes pa able [$!,###,### ' (!+#,###) $!.*+,] Capital stoc8 9etained earnings $ */",+## !,"4-,+## 3,###,### !,4##,### $*,33#,###

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144

Foreign Currency Financial Statements

Solution E14-4 Foreign currency statements In6entor 3ill be carried at the !#,### euros historical cost.

Remeasured statements (Temporal Method) In6entor 3ill be carried at cost o5 $+,3##.

Under translated statements (Current Rate Method) In6entor 3ill be carried at ear%end current rate o5 $*,###.

Solution E14-5 1 Patent at ac0uisition o5 Si1 Cost o5 Si1 Boo8 6alue ac0uired: (3+,###,### Euros $.#3#, Patent in dollars Patent in Euros ($!+#,###;$.#3#, 2 Patent a1orti<ation in dollars Patent a1orti<ation in Euros (+,###,###;!# ears, = +##,### Euros Patent a1orti<ation in $ (+##,### Euros $.#3" a6erage rate, 3 Entr to record patent a1orti<ation $!*,### 3,### !&,### 5ro1 !+#,### (!*,###, !34,### !&,### !+3,### $!,"##,### !,#+#,### $ !+#,### +,###,### Eu

!*,###

Inco1e 5ro1 Si1 In6est1ent in Si1 E0uit ad>ust1ent 5ro1 translation o5 Patent

?o record patent a1orti<ation and the e0uit ad>ust1ent translation o5 patent co1puted as 5ollo3s: Beginning patent +,###,### Euros $.#3# $ A1orti<ation (+##,###, .#3" 4,+##,### E0uit ad>ust1ent Ending patent 4,+##,### .#34 $

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Solution E14-6 Preli1inar co1putations Cost o5 in6est1ent in Sta Boo8 6alue ac0uired (&#,### ) $!.**, E@cess in dollars E@cess allocated to e0uip1ent (*,### ) $!.**, Patent 1 E0uit "#!! $!*3,/## !4&,4## $ !4,4## $ &,&*#

$ 4,44# $ !4,4## ad>ust1ent 5ro1 e@cess allocated to e0uip1ent on Aece1ber 3!, ears, $ ",### ) *,+*# 3,3## &,/*# &,&*# $ !##

Aepreciation o5 e@cess based on ) (*,###;3

Bndepreciated e@cess balance at ear%end based on ) (4,### ) $!.*4 current rate, Add: Aepreciation on e@cess based on ) 8 "#!! ",### ) $!.*+ a6erage rate .ess: Beginning e@cess based on B.S. dollars E0uit ad>ust1ent 5ro1 translation o5 e@cess allocated to e0uip1ent (loss, 2 E0uit

ad>ust1ent 5ro1 e@cess allocated to patent on Aece1ber 3!, "#!!. "*- ) $ 3,&4& 44! 4,3&# 4,44# +# ad>ust1ent

Patent (1ust be carried in ), $4,44#;$!.** = ",*-+ ) patent Patent a1orti<ation is ",*-+ ) ; !# ears = Bna1orti<ed e@cess balance at ear%end based on ) (",4#/ ) $!.*4 current rate, Add: A1orti<ation o5 patent based on ) ("*- ) $!.*+ a6erage rate, .ess: Beginning patent based on B.S. dollars E0uit ad>ust1ent 5ro1 translation o5 patent (loss, Not required: ?he entr to record the decrease in the e0uit related to e0uip1ent and patent 3ould be as 5ollo3s: Inco1e 5ro1 Sta E0uit ad>ust1ent 5ro1 translation (e0uip1ent, E0uit ad>ust1ent 5ro1 translation o5 patent In6est1ent in Sta $3,-4! !## +# $

$ $ $

3,/&!

?o ad>ust the inco1e 5ro1 Sta 5or depreciation on the e@cess allocated to e0uip1ent ($3,3##, and a1orti<ation o5 patent ($44!,, and to record a decrease in the e0uit ad>ust1ent 5ro1 translation 5or the 5oreign e@change rate changes.

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146

Foreign Currency Financial Statements

Solution E14-7 P%&limina%! 'om utation$ In6est1ent cost Boo8 6alue ac0uired (!,4##,### Eu $.-+ e@change rate, E@cess cost o6er boo8 6alue ac0uired E@cess allocated to under6alued land (4##,### Eu $.-+, E(uit! a")u$tm&nt *%om t%an$lation on &+'&$$ allo'at&" to lan" E@cess on land at Januar !, "#!! .ess: E@cess on land at Aece1ber 3!, "#!! (4##,### Eu $.-- current rate at ear%end, E0uit ad>ust1ent 5ro1 translation % gain (credit, Solution E14-8 [Based on AICPA] 1 a E@change loss o5 $!+,### less an e@change gain on the account pa able o5 $4,### ($*4,### original pa able % $*#,### ear%end ad>usted balance, = $!!,### loss. b ?ranslated at historical rate: "+,###;"." = $!!,3*4 d Aepreciation on the propert , plant, and e0uip1ent is co1puted as 5ollo3s:
Propert , Plant E@change Propert , Plant A1orti<ation Annual and E0uip1ent 9ate and E0uip1ent Period Aepreciation "#!! ",4##,### .CB !.* = $!,+##,### !# ears = $!+#,### "#!" !,"##,### .CB !./ = ***,**!# ears = **,** 3,*##,### .CB $",!**,**$"!*,**-

$!,3+#,### !,#+#,### $ 3##,### $ 3##,###

$ $

3##,### 3#/,### /,###

2 3

4 5

a +.- .CB to $!, the rate in e55ect 3hen the di6idend 3as paid. d .ong%ter1 recei6ables !,+##,### .CB !.+ = .ong%ter1 debt ",4##,### .CB !.+ = c All three accounts are translated at current rates. c Cu1ulati6e in5lation rate = (33# % !+#,;!+# = !"#C $!,###,### $!,*##,###

6 7

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SOLUTIONS TO PRO,LE-S Solution P14-1 1 Pa8Ds inco1e 5ro1 Sco 5or "#!! In6est1ent cost o5 4#C interest in Sco .ess: Boo8 6alue ac0uired ($",4##,### 4#C, Patent in dollars at ac0uisition Patent in euros at ac0uisition $!"#,###;$.*# e@change rate = E0uit in ScoDs inco1e ($3!#,### 4#C, Patent a1orti<ation 5or "#!! "##,### euros;!# ears $.*" a6erage rate Inco1e 5ro1 Sco 5or "#!! 2 In6est1ent in Sco at Aece1ber 3!, "#!! In6est1ent cost Add: Inco1e 5ro1 Sco .ess: Ai6idends ($!&",### 4#C, Add: E0uit ad>ust1ent 5ro1 translation ($"!",### 4#C, Add: E0uit ad>ust1ent 5ro1 patent co1puted as: Beginning balance $!"#,### .ess: Patent a1orti<ation !",4## .ess: Bna1orti<ed patent at ear end !!-,### In6est1ent in Sco Aece1ber 3!, "#!! 3 Proo5 o5 in6est1ent balance 7et assets at Aece1ber 3!, "#!! o5 $",-3#,### 4#C Add: Bna1orti<ed patent (!/#,### euros $.*+, In6est1ent balance $!,#&",### !!-,### $!,"#&,### $!,#/#,### !!!,*## (-*,/##, /4,/## $ $!,#/#,### (&*#,###, $ !"#,### "##,### euros !"4,### (!",4##, !!!,*##

&,4## $!,"#&,###

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148

Foreign Currency Financial Statements

Solution P14-2 1 E@cess Patent at Januar !, "#!!: $34",### ("4#,###, $!#",###

Cost Boo8 6alue o5 interest ac0uired (4,###,### .CBs $.!+, 4#C E@cess Patent E@cess Patent in .CBs $!#",###;$.!+ = */#,### .CBs 2 E@cess Patent a1orti<ation 8 "#!!: E@cess Patent in .CBs */#,###;!# rate = 3 ears $.!4 a6erage

&,+"#

Bna1orti<ed E@cess Patent at Aece1ber 3!, "#!!: (*/#,### % */,### .CBs a1orti<ation, $.!3 current rate $ -&,+*#

E0uit

ad>ust1ent 5ro1 E@cess Patent: $!#",### (&,+"#, (-&,+*#, $ !",&"# $ */# !","4# $!",&"#

Beginning balance in B.S. dollars .ess: A1orti<ation 5or "#!! .ess: Ending balance E0uit ad>ust1ent 5ro1 E@cess Patent Alternati6el , */,### .CBs ($.!+ % $.!4, = *!",### .CBs ($.!+ % $.!3, = 5 Inco1e 5ro1 Sor 8 "#!!: E0uit in inco1e ($!!",### 4#C, .ess: E@cess Patent a1orti<ation Inco1e 5ro1 Sor 8 "#!! 6 In6est1ent in Sor balance at Aece1ber 3!, "#!!: Cost Januar ! Add: Inco1e "#!! .ess: Ai6idends ($+*,### 4#C, .ess: E0uit ad>ust1ent ($/4,### 4#C, .ess: E0uit ad>ust1ent 5ro1 E@cess Patent In6est1ent in Sor Aece1ber 3!, "#!!

$ 44,/## (&,+"#, $ 3+,"/#

$34",### 3+,"/# ("",4##, (33,*##, (!",&"#, $3#/,3*#

Chec8: 7et assets $""/,/## ($+-",### 4#C, plus $-&,+*# una1orti<ed E@cess Patent = $3#/,3*# in6est1ent in Sor at Aece1ber 3!, "#!!.

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Chapter 14

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Solution P14-3 1 Soo Com an!. Lt"/ ?ranslation Eor8sheet 5or "#!! British Pounds Debits Cash Accounts recei6able 8 net In6entories E0uip1ent Cost o5 sales Aepreciation e@pense Fperating e@penses Ai6idends Credits Accu1ulated depreciation Accounts pa able Capital stoc8 9etained earnings Sales E0uit ad>ust1ent 5ro1 translation 2 Journal entries 8 "#!! anuary !" #$!! In6est1ent in Soo Cash ?o record purchase o5 Soo at boo8 6alue. During #$!! Cash In6est1ent in Soo ?o record di6idends 5ro1 Soo. $/##,### $/##,### "#,### -#,### +#,### /##,### 3+#,### /#,### !##,### 3#,### !,+##,### 33#,### -#,### 4##,### !##,### *##,### !,+##,### E@change 9ate $!.*+ !.*+ !.*+ !.*+ !.*3 !.*3 !.*3 !.*" C C C C A A A 9 BS Aollars $ 33,### !!+,+## /",+## !,3"#,### +-#,+## !3#,4## !*3,### 4/,*## $",4*3,+## $ +44,+## !!+,+## *4#,### !*#,### &-/,### "+,+## $",4*3,+##

$!.*+ C !.*+ C !.*# H 1easured !.*3

$ 4/,*## $ 4/,*##

December %!" #$!! In6est1ent in Soo $!3&,*## Inco1e 5ro1 Soo $!!4,!## E0uit ad>ust1ent 5ro1 translation "+,+## ?o record inco1e 5ro1 Soo and enter e0uit ad>ust1ent 5or currenc 5luctuations. Chec8: In6est1ent in Soo !;! Ai6idends Inco1e 5ro1 Soo E0uit ad>ust1ent In6est1ent in Soo !";3! $/##,### (4/,*##, !!4,!## "+,+## $/&!,### Capital stoc8 9etained earnings !;! Add: Inco1e .ess: Ai6idends Stoc8holdersD e0uit Current rate 4##,### ) !##,### ) -#,### ) (3#,###,) +4#,### ) $ !.*+ $/&!,###

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1410

Foreign Currency Financial Statements

Solution P14-4 Preli1inar co1putations In6est1ent cost $4,###,### .ess: Boo8 6alue o5 interest ac0uired ",/##,### (-,###,### euros $.+# e@change rate /#C interest, Patent $!,"##,### Patent in euros ($!,"##,###;$.+# e@change rate, = ",4##,### euros Patent a1orti<ation based on euros ",4##,### euros;!# ears = "4#,### euros 1 Sul Co% o%ation ?ranslation Eor8sheet at and 5or the ear ended Aece1ber 3!, "#!! Euros Debits Cash Accounts recei6able In6entories E0uip1ent Cost o5 sales Aepreciation e@pense Fperating e@penses Ai6idends !,###,### ",###,### 4,###,### /,###,### 4,###,### /##,### ",-##,### +##,### "3,###,### E@change 9ate B.S. Aollars $.*### .*### .*### .*### .++## .++## .++## .+4## C $ *##,### C !,"##,### C ",4##,### C 4,/##,### A ","##,### A 44#,### A !,4/+,### H "-#,### $!3,3&+,###

Credits ",4##,### Accu1ulated depreciation 8 e0uip1ent Accounts pa able 3,*##,### Capital stoc8 +,###,### 9etained earnings, Januar ! ",###,### Sales !#,###,### E0uit ad>ust1ent 5ro1 translation "3,###,### 2 PetDs inco1e 5ro1 Sul 8 "#!!

.*### C $ !,44#,### .*### .+### .+### .++## C H H A ",!*#,### ",+##,### !,###,### +,+##,### -&+,### $!3,3&+,###

Share o5 SulDs net inco1e ($+,+##,### sales % $","##,### cost o5 sales % $44#,### depreciation % $!,4/+,### operating e@penses, Percentage o3ned E0uit in SulDs net inco1e .ess: Patent a1orti<ation ("4#,### euros $.++ a6erage rate, Inco1e 5ro1 Sul

$ !,3-+,### /#C !,!##,### (!3",###, $ &*/,###

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Chapter 14

07(!!

Solution P14-4 3

(continued,

In6est1ent in Sul Aece1ber 3!, "#!! In6est1ent Januar !, "#!! Add: Inco1e 5ro1 Sul Add: E0uit ad>ust1ent 5ro1 translation ($-&+,### /#C, Add: E0uit ad>ust1ent 5ro1 Patent [$!,"##,### Patent at beginning o5 the period % $!3",### Patent a1orti<ation 8 (",!*#,### euros una1orti<ed Patent $.*# current rate,] .ess: Ai6idends ($"-#,### /#C, In6est1ent in Sul Aece1ber 3!, "#!! $4,###,### &*/,### *3*,###

(""/,###, ("!*,###, $+,!*#,###

Solution P14-5 Sa% Com an! 9e1easure1ent Eor8sheet at Aece1ber 3!, "#!! British ) Cash Accounts recei6able Short%ter1 note recei6able In6entories .and Buildings 8 net E0uip1ent 8 net Cost o5 sales Aepreciation e@pense Fther e@penses Ai6idends E@change loss on re1easure1ent Accounts pa able Bonds pa able 8 !#C Bond interest pa able Capital stoc8 9etained earnings Sales
G

E@change 9ate $!.-# !.-# !.-# !.*/ !.*# !.*# !.*# G !.*# !.*+ !.*4 C C C H H H H H H A

B.S. Aollars $ /+,### 34#,### /+,### "+",### 4/#,### *4#,### /##,### !,#+/,### 3"#,### **#,### !*4,### *!,### $4,&4+,### $ 3#*,### /+#,### 34,### /##,### 4/#,### ",4-+,### $4,&4+,###

+#,### "##,### +#,### !+#,### 3##,### 4##,### +##,### *+#,### "##,### 4##,### !##,### 3,###,### !/#,### +##,### "#,### +##,### 3##,### !,+##,### 3,###,###

$!.-# !.-# !.-# !.*#

C C C H H !.*+ A

Cost o5 sales = Beginning in6entor ("##,### ) $!.*#, ' purchases (*##,### ) $!.*+, % ending in6entor (!+#,### ) $!.*/, = $!,#+/,###

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1412

Foreign Currency Financial Statements

Solution P14-6 Stu Co% o%ation 9e1easure1ent Eor8sheet Aece1ber 3!, "#!! 7e3 Iealand Aollars Debits Cash Accounts recei6able 8 net In6entories Prepaid e@penses .and E0uip1ent Cost o5 sales Aepreciation e@pense Fther operating e@penses Ai6idends 9e1easure1ent loss Credits Accu1ulated depreciation Accounts pa able Capital stoc8 9etained earnings Sales 7ote ! !+,### *#,### 3#,### !#,### 4+,### *#,### !"#,### !",### "/,### "#,### 4##,### "",### !/,### !+#,### !#,### "##,### 4##,### 7ote + H $ #.*+ C #.-# H H #.*- A E@change 9ate $ #.*+ #.*+ #.** #.-# #.-# 7ote ! 7ote " 7ote 3 7ote 4 #.** C C H H H H H H H H B.S. Aollars $ &,-+# 3&,### !&,/## -,### 3!,+## 4!,/## /","## /,3*# !&,### !3,"## !,4+# $"-3,#*# $ !+,3*# !!,-## !#+,### -,### !34,### $"-3,#*#

Friginal e0uip1ent (+#,### 7I$ $.-#, ' e0uip1ent purchased in "##* (!#,### 7I$ $.*/, Beginning in6entor (+#,### 7I$ $.-#, ' purchases (!##,### 7I$ $.*-, % ending in6entor (3#,### 7I$ $.**, Aepreciation on original e0uip1ent (+#,### 7I$ "#C $.-#, ' depreciation on ne3 e0uip1ent (!#,### 7I$ "#C $.*/, Fther operating e@penses consist o5 the prepaid supplies used (/,### 7I$ $.-#, ' current ear outla s ("#,### 7I$ $.*-, Accu1ulated depreciation on the original e0uip1ent ("#,### 7I$ $.-#, ' accu1ulated depreciation on the e0uip1ent purchased (",### 7I$ $.*/,

7ote "

7ote 3 7ote 4

7ote +

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Chapter 14

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Solution P14-7 1 Sa% Com an! ?ranslation Eor8sheet at and 5or the ear ended Aece1ber 3!, "#!! She0els Debits Cash ?rade recei6ables In6entories .and E0uip1ent 8 net Buildings 8 net E@penses E@change loss (ad6ance,G Ai6idends E0uit ad>ust1ent ?otal Credits Accounts pa able Fther liabilities Ad6ance 5ro1 Pel Co11on stoc8 9etained earnings Januar Sales ?otal
G

?ranslation 9ate $.3# .3# .3# .3# .3# .3# .3" .3" .33 C C C C C C A A 9

B.S. $ $ !",### !+,### 4+,### 4/,### &#,### !+#,### !"/,### *,4## 33,### 4#,*## $+*/,### $ 3*,### !/,### 4",### !-+,### !#+,### !&",### $+*/,###

4#,### +#,### !+#,### !*#,### 3##,### +##,### 4##,### "#,### !##,### !,-"#,### !"#,### *#,### !4#,### +##,### 3##,### *##,### !,-"#,###

$.3# .3# .3# .3+ .3+ .3"

C C C H H A

Sar increased its ad6ance b loss.

"#,### she0els and recogni<ed a "#,### she0el

Journal entries to account 5or the in6est1ent in Sar: anuary !" #$!! In6est1ent in Sar $3#/,### Cash ?o record the in6est1ent in Sar Co. anuary #" #$!! Ad6ance to Sar $ 4",### Cash ?o record ad6ance to Sar deno1inated in B.S. dollars. une #$!! Cash

$3#/,###

$ 4",###

$ 33,### In6est1ent in Sar $ 33,### ?o record receipt o5 di6idends (!##,### she0els $.33,. $ !-,### 4#,*## $ +-,*## $ ",+*# 3,/4# $ *,4##

December %!" #$!! In6est1ent in Sar E0uit ad>ust1ent 5ro1 translation Inco1e 5ro1 Sar ?o record e0uit in Sar. Inco1e 5ro1 Sar E0uit ad>ust1ent 5ro1 translation In6est1ent in Sar

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1414

Foreign Currency Financial Statements

?o record e0uit ad>ust1ent 5ro1 Patent a1orti<ation co1puted as 5ollo3s: Patent a1orti<ation /#,### she0els;!# ears $.3" rate = $",+*# Ending balance -",### she0els $.3# rate = $"!,*## $"/,### beginning balance % $"!,*## ending balance = $*,4##

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Solution P14-8 Preli1inar co1putations $!,-!#,### (!,+"#,###, $ !&#,### !,###,### .CB !##,### .CB $ $ $!&#,### (!/,+##, (!*",###, !/,+## !*",###

In6est1ent cost o5 SAA Boo8 6alue ac0uired (/,###,### .CB $.!&#, Patent Patent based on .CB ($!&#,###;$.!&#, A1orti<ation o5 Patent (!,###,### .CB;!# ears,

Patent a1orti<ation 5or "#!! (!##,### .CB $.!/+, Bna1orti<ed Patent at Aece1ber 3!, "#!! (&##,### .CB $.!/#, E0uit ad>ust1ent 5or Patent 5or "#!!: Beginning balance .ess: A1orti<ation .ess: Ending balance

&,+##

9econciliation o5 in6est1ent account: In6est1ent in SAA Januar !, "#!! Add: Inco1e 5ro1 SAA 5or "#!! ($3*#,-+# % $!/,+## Patent a1orti<ation, E0uit ad>ust1ent 5ro1 translation ($/4,-+# !##C, E0uit ad>ust1ent 5ro1 Patent Ai6idends 5ro1 SAA In6est1ent in SAA Aece1ber 3!, "#!!

$!,-!#,### 34","+# (/4,-+#, (&,+##, (!/+,###, $!,--3,###

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Foreign Currency Financial Statements

Solution P14-8 (continued, 1 Journal entries to account 5or the in6est1ent in SAA anuary !" #$!! In6est1ent in SAA $!,-!#,### Cash ?o record purchase o5 SAA stoc8 5or cash.

$!,-!#,###

uly !" #$!! Ad6ance to SAA $ 333,### Cash $ 333,### ?o record short%ter1 ad6ance to SAA deno1inated in dollars. &eptember !" #$!! Cash $ !/+,### In6est1ent in SAA $ !/+,### ?o record receipt o5 di6idends 3hen e@change rate is $.!/+. December %!" #$!! In6est1ent in SAA E0uit ad>ust1ent 5ro1 translation Inco1e 5ro1 SAA ?o record e0uit in inco1e o5 SAA. Inco1e 5ro1 SAA E0uit ad>ust1ent 5ro1 translation In6est1ent in SAA ?o record Patent a1orti<ation and e0uit co1puted as 5ollo3s: $ "-*,### /4,-+# $ $ !/,+## &,+## 3*#,-+#

$ "/,### ad>ust1ent 5ro1 Patent

Patent a1orti<ation: !##,### .CB $.!/+ a6erage rate = $!/,+## E0uit ad>ust1ent: $!&#,### beginning Patent balance % $!/,+## a1orti<ation % (&##,### .CB una1orti<ed Patent at ear end $.!/# current rate, = $&,+##

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Chapter 14

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Solution P14-8 (continued, P01 Co% o%ation an" Su#$i"ia%! Consolidation Eor8ing Papers 5or the ear ended Aece1ber 3!, "#!!
PEA 'ncome &tatement Sales Inco1e 5ro1 SAA E@penses E@change loss 7et inco1e Retained (arnings 9etained earnings 8 PEA 9etained earnings 8 SAA 7et inco1e Ai6idends 9etained earnings Aece1ber 3!, "#!! )alance &heet Cash Accounts recei6able Ad6ance to SAA In6entories .and E0uip1ent 8 net Buildings 8 net In6est1ent in SAA Patent $3,44+,""# Accounts pa able Ad6ance 5ro1 PEA Fther liabilities Capital stoc8 9etained earnings E0uit E0uit ad>ust1ent 8 PEA ad>ust1ent 8 SAA $3,44+,""# $ !*",-"# 3#/,+## ",###,### !,#*/,"+# (&4,"+#, $",!/-,### $ !3+,### 333,### d 333,### !#/,### &+#,### b &+#,### -4+,-+# (/4,-+#, $",!/-,### b /4,-+# $3,*//,""# $ SAA Ad>ust1ents and Eli1inations Consolidated State1ents $!,*-&,+## (!,!+/,+##, (&,"+#, $ +!!,-+#

+*&,+## $!,!!#,### 34","+# a 34","+# (4##,###, (-4#,###, c !/,+## (&,"+#, $ +!!,-+# $ 3*#,-+#

/+*,+## $ +!!,-+# (3##,###, +-#,### 3*#,-+# (!/+,###, b +-#,### a !/+,###

/+*,+## +!!,-+# (3##,###,

$!,#*/,"+#

-4+,-+#

$!,#*/,"+#

&#,-"# !"/,+## 333,### !"#,### !##,### *##,### 3##,### !,--3,###

&&,### &#,### d "-#,### "//,### +4#,### &##,### a !+-,"+# b !,*!+,-+# b !/#,+## c !/,+## 333,###

!/&,-"# "!/,+## 3&#,### 3//,### !,!4#,### !,"##,###

!*",### $3,*//,""# $ "&-,-"# 4!*,+## ",###,### !,#*/,"+# (&4,"+#,

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Foreign Currency Financial Statements

Solution P14-9 1 San Co% o%ation Ad>usted ?rial Balance ?ranslation Eor8sheet at Aece1ber 3!, "#!! .CBs Debits Cash Accounts recei6able In6entories .and Buildings E0uip1ent Cost o5 sales Aepreciation e@pense Fther e@penses E@change loss Ai6idends E0uit ad>ust1ent Credits Accu1ulated depreciation 8 buildings Accu1ulated depreciation 8 e0uip1ent Accounts pa able Short%ter1 loan 5ro1 Par Capital stoc8 9etained earnings Januar ! Sales 2 !+#,### !/#,### "3#,### "+#,### *##,### /##,### "##,### !##,### !"#,### 3#,### !##,### %%% ",-*#,### 3##,### 4##,### !3#,### "3#,### /##,### "##,### -##,### ",-*#,### 9ate $."# ."# ."# ."# ."# ."# ."" ."" ."" ."" ."! C C C C C C A A A A 9 B.S. Aollars $ 3#,### 3*,### 4*,### +#,### !"#,### !*#,### 44,### "",### "*,4## *,*## "!,### 44,### $*#*,### $ *#,### /#,### "*,### 4*,### !&",### 4/,### !+4,### $*#*,###

$."# ."# ."# ."# ."4 ."4 .""

C C C C H H A

Journal entries 5or "#!! 2Pa%3$ #oo4$5 anuary !" #$!! In6est1ent in San $"!*,### Cash $"!*,### ?o record purchase o5 &#C interest in San: !,###,### .CB $."4 e@change rate &#C interest. May !" #$!$ Ad6ance to San $ 4*,### Cash $ 4*,### ?o record short%ter1 loan to San deno1inated in B.S. dollars: "##,### .CB $."3 e@change rate.

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Solution P14-9 (continued, &eptember #$!! Cash $ !/,&## In6est1ent in San $ !/,&## ?o record receipt o5 di6idends 5ro1 San (!##,### .CB $."! e@change rate &#C interest,

December %!" #$!! In6est1ent in San $ &,&## E0uit ad>ust1ent 5ro1 translation 3&,*## Inco1e 5ro1 San $ 4&,+## ?o record in6est1ent inco1e 5ro1 San o5 $4&,+## co1puted as [$!+4,### re6enue J ($44,### cost o5 sales ' $"",### depreciation e@pense ' $"*,4## other e@penses ' $*,*## e@change loss,] &#C and to record e0uit ad>ust1ent 5ro1 translation o5 $3&,*## co1puted as $44,### &#C.

Su

o%tin6 'om utation$ $"!*,### (!/,&##, 4&,+## (3&,*##, $"#-,###

In6est1ent balance Januar !, "#!! .ess: Ai6idends Add: Inco1e 5ro1 San .ess: E0uit ad>ust1ent 5ro1 translation In6est1ent balance Aece1ber 3!, "#!! 7oncontrolling interest at Januar !, "#!! date o5 ac0uisition !,###,### .CB $."4 !#C .ess: 7oncontrolling interestDs share o5 the e0uit ad>ust1ent 5ro1 translation 5or "#!! ($44,### !#C, Beginning 7oncontrolling interest in consolidation 3or8ing Papers

$ "4,### (4,4##, $ !&,*##

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1420

Foreign Currency Financial Statements

Solution P14-9 (continued, 3 Pa% Co% o%ation an" Su#$i"ia%! Consolidation Eor8ing Papers 5or the ear ended Aece1ber 3!, "#!!
Par 'ncome &tatement Sales Inco1e 5ro1 San Cost o5 sales Aepreciation e@pense Fther e@penses E@change loss 7oncontrolling inco1e 7et inco1e Retained (arnings 9etained earnings 8 Par 9etained earnings 8 San 7et inco1e Ai6idends 9etained earnings Aece1ber 3!, "#!! )alance &heet Cash Accounts recei6able .oan to San In6entories .and Buildings 8 net E0uip1ent 8 net In6est1ent in San San &#C Ad>ust1ents and Eli1inations 7oncontro Consolidated lling State1ents Interest $ 4&,+## (444,###, (!#3,###, (""*,4##, (*,*##, (+,+##, $ !*/,+## &+4,###

$ /##,### $ !+4,### 4&,+## a (4##,###, (44,###, (/!,###, ("",###, ("##,###, ("*,4##, (*,*##, $ !*/,+## $ ++,###

$ +,+##

$ ""#,### $ !*/,+## (!##,###, $ "//,+## $ 4/,### ++,### ("!,###, /",### b 4/,### a !/,&## (",!##,

""#,###

!*/,+## (!##,###, $ "//,+##

4-,### &#,### 4*,### !!#,### !+#,### !/#,### !*#,### "#-,###

3#,### 3*,### c 4*,### +#,### *#,### /#,### a 3#,*## b !-*,4## 4*,###

--,### !"*,### !+*,### "##,### "4#,### "4#,###

$ &&#,### Accounts pa able .oan 5ro1 Par Capital stoc8 9etained earnings E0uit ad>ust1ent 8 Par E0uit ad>ust1ent 8 San $ "4!,!## +##,### "//,+## (3&,*##,

$ 3#",### $ "*,### 4*,### !&",### /",###

$!,#3&,### $ c 4*,### b !&",### "*-,!## +##,### "//,+## (3&,*##,

(44,###, $ &&#,### $ 3#",###

44,###

7oncontrolling interest Januar !, "#!! 7oncontrolling interest Aece1ber 3!, "#!!

!&,*##

!&,*## $"3,### "3,### $!,#3&,###

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