Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Chapter 12, Problem 12.16P
a
To determine
Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.
The differential allocation and amortization for 20X1 in a schedule containing both Canadian dollars and U.S. dollars.
a
Expert Solution
Answer to Problem 12.16P
The differential allocation and amortization for 20X1
| Items | Canadian Dollars | Exchange rate | U.S. Dollars |
| Plant and equipment | 9,000 | 0.70 | 6,300 |
| Trademark | 45,000 | 0.70 | 31,500 |
Explanation of Solution
| Items | Canadian Dollars | Exchange rate | U.S. Dollars |
| Income statement: | |||
| Differential at date of acquisition: | |||
| Plant and equipment | 10,000 | 0.80 | 8,000 |
| Less: Amortization (10,000 / 10 years) | (1,000) | 0.75 | (750) |
| Remaining balance | 9,000 | 7,250 | |
| Trademark | 50,000 | 0.80 | 40,000 |
| Less: Amortization ($10,000 / 10 years) | (5,000) | 0.75 | (3.750) |
| Remaining balance | 45,000 | 36,250 | |
| Balance sheet: | |||
| Remaining balance on December 31, 20X1: | |||
| Plant and equipment | 9,000 | 0.70 | 6,300 |
| Trademark | 45,000 | 0.70 | 31,500 |
b
To determine
Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.
The entries that would be recorded in 20X1 for investment in SB when full adjusted equity method is used.
b
Expert Solution
Answer to Problem 12.16P
Explanation of Solution
Parent company
| Particulars | Debit $ | Credit $ |
| 1. Purchase of investment in SB | ||
| Investment in SB | 120,000 | |
| Cash | 120,000 | |
| (Paid cash to acquire foreign investment) | ||
| 2. To record equity accrual for P’s share of SB’s income | ||
| Investment in SB company | 15,000 | |
| Income in Subsidiary | 15,000 | |
| (Investment in SB is recognized) | ||
| 3. To record dividends declared and paid by SB | ||
| Cash | 6,000 | |
| Investment in SB company | 6,000 | |
| (Cash received on account of dividends) | ||
| 4. To record amortization of differential | ||
| Income from Subsidiary | 4,500 | |
| Investment in SB company | 4,500 | |
| (Amortization of differential recognized) | ||
| 5. To recognize translation adjustment on differential | ||
| Other comprehensive income − translation adjustment | 5,700 | |
| Investment in SB company | 5,700 | |
| (Translation adjustment recognized) |
- Acquired investment in foreign subsidiary
- Equity in income of subsidiary recognized
- Received dividends from foreign subsidiary
- Amortization of differential in plant and equipment and trademark recognized
- Translation adjustment in buildings and equipment and trademark recognized
| Plant and Equipment | $750 |
| Trademark | $3,750 |
| Total | 4,500 |
| Plant and Equipment | $950 |
| Trademark | $4,750 |
| Total | 5,700 |
c
To determine
Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.
The schedule showing the proof of the translation adjustment for SB and necessary entry P would record for its share in translation adjustment.
c
Expert Solution
Answer to Problem 12.16P
The translation adjustment $9,600
| Particulars | Debit $ | Credit $ |
| Other comprehensive income − translation adjustment | 9,600 | |
| Investment in SB company | 9,600 | |
| (Translation adjustment recognized) |
Explanation of Solution
P and SB Company
Proof of translation adjustment
Year ended December 31, 20X1
| Items | Canadian dollars | Exchange rate | U.S. Dollars |
| Net assets at the beginning of year 1/1/20X1 | 90,000 | 0.80 | 72,000 |
| Adjustment for changes in assets position during the year: | |||
| Net income for the year | 20,000 | 0.75 | 15,000 |
| Dividends paid | (8,000) | 0.75 | (6,000) |
| Net assets translated at rates in effect | 81,000 | ||
| Net assets at end of year | 102,000 | 0.70 | 71,400 |
| Change in other comprehensive income- translation adjustment during year − net decrease (debit) | 9,600 |
d
To determine
Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.
The entry required by P to restate the C $8,000 in foreign currency units account into its year-end U.S. dollar equivalent value.
d
Expert Solution
Answer to Problem 12.16P
| Particulars | Debit $ | Credit $ |
| Foreign currency transaction loss | 400 | |
| Foreign currency units (C$) | 400 | |
| (Exchange loss on foreign currency unit recognized) |
Explanation of Solution
| Items | Amount $ |
| Equivalent U.S. dollar value of | 5,600 |
| Less: equivalent U.S. dollar value on date of receipt | 6,000 |
| Foreign currency transaction loss | 400 |
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Chapter 12 Solutions
Advanced Financial Accounting
Ch. 12 - Prob. 12.1QCh. 12 - Prob. 12.2QCh. 12 - Prob. 12.3QCh. 12 - How widely used are IFRS? Can IFRS be used for...Ch. 12 - Prob. 12.5QCh. 12 - Prob. 12.6QCh. 12 - Prob. 12.7QCh. 12 - Prob. 12.8QCh. 12 - Prob. 12.9QCh. 12 - Prob. 12.10Q
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