Assignment Problems For Chapter 10
Page 34
Assignment Problems For Chapter 10
(The solutions for these problems are only available in
the solutions manual that has been provided to your instructor.)
Assignment Problem Ten - 1 (Income Statement Translation)
The Israeli Company, Afula Inc., is a wholly owned subsidiary of the Canadian company,
Goodnite Inc. Goodnite Inc. acquired its investment in the shares of Afula on January 1,
1996. The Statement Of Income And Change In Retained Earnings for Afula Inc. in Israeli New
Shekels (S, hereafter) for the year ending December 31, 2009 is as follows:
Afula Company
Statement of Income and Change in Retained Earnings
Year Ending December 31, 2009
Sales Revenue
S4,500,000
Cost Of Goods Sold
Amortization Expense
Interest Expense
Selling And Administrative Expense
Loss On Expropriation Of Land
Income Taxes (S675,000 - S45,000)
S1,500,000
225,000
150,000
375,000
300,000
630,000
Total Expenses And Losses
S3,180,000
Net Income
Dividends Declared
Increase In Retained Earnings
(
S1,320,000
120,000)
S1,200,000
Other Information:
1. Sales occur evenly throughout the year.
2. The inventory on hand on January 1, 2009 was purchased on September 30, 2008 for
S450,000. Purchases during 2009 of S1,800,000 occurred evenly over the first three
quarters. The inventory on hand on December 31, 2009 was purchased on September
30, 2009. Inventory is accounted for on a first-in, first-out inventory flow assumption.
3. The Amortization Expense pertains to a building which was purchased on January 1,
1999.
4. The Interest Expense relates to the 10 percent, 20 year bonds which were issued for
S1,500,000 on January 1, 2009.
5. The Selling And Administrative Expenses occurred evenly over the year.
6. The expropriation loss arises from the expropriation of a parcel of land which was
purchased on January 1, 1999 for S750,000. This land was expropriated by the local
government on December 31, 2009 for proceeds of S450,000. Income taxes of S45,000
were recovered due to the loss.
7. Income Taxes accrued evenly over the year, except for the tax recovery related to the
expropriation described in Part 6.
8. The dividends of Afula Inc. were declared on September 30, 2009 and paid on December
31, 2009.
9. The net monetary assets of Afula Inc. on January 1, 2009, before the issuance of the
S1,500,000 in bonds (see Part 4), totalled S2,250,000.
Canadian Advanced Accounting (2nd IC Edition) - Assignment Problems
Assignment Problems For Chapter 10
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10. The relationship between the New Israeli Shekel and the Canadian dollar on relevant
dates was as follows:
January 1, 1999
September 30, 2008
January 1, 2009
March 31, 2009
June 30, 2009
September 30, 2009
December 31, 2009
Average For 2009
S1
S1
S1
S1
S1
S1
S1
S1
=
=
=
=
=
=
=
=
$.20
$.24
$.25
$.27
$.29
$.31
$.33
$.29
Changes in the exchange rate occurred uniformly over the year 2009.
Required: Translate the Statement Of Income And Change In Retained Earnings of the Afula
Company for use in the preparation of the 2009 consolidated financial statements of the
Goodnite Company assuming:
A. the Afula Company is an integrated foreign operation.
B. the Afula Company is a self-sustaining foreign operation.
Note that a Statement of Comprehensive Income is not required.
Assignment Problem Ten - 2
(Translation O Financial Statements - Integrated Foreign Operation)
On December 31, 2007, the Olaf Company, a Danish retail operation, was acquired by a
Canadian company. On this acquisition date, the carrying values of all of the identifiable
assets and liabilities of the Olaf Company equalled their fair values and the Canadian parent
purchased 100 percent of the voting shares of Olaf at their book value. On December 31,
2007, the Olaf Company had the following account balances in krone (Kr, hereafter):
Retained Earnings
No Par Common Stock
Land
Equipment
Accumulated Amortization - Equipment
Building
Accumulated Amortization - Building
Kr 192,000
Kr1,200,000
Kr 600,000
Kr 510,000
Kr
70,000
Kr2,100,000
Kr 320,000
The adjusted Trial Balance of the Olaf Company for the year ending December 31, 2009 is as
follows:
Cash
Accounts Receivable
Inventory
Equipment
Building
Land
Cost of Goods Sold
Amortization Expense
Other Expenses
Dividends Declared
Kr 150,000
255,000
510,000
690,000
2,100,000
600,000
2,400,000
240,000
960,000
600,000
Total Debits
Kr8,505,000
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Assignment Problems For Chapter 10
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Accounts Payable
Long-Term Note Payable
No Par Common Stock
Retained Earnings
Sales
Accumulated Amortization
Allowance For Doubtful Accounts
Kr 450,000
900,000
1,200,000
600,000
4,500,000
840,000
15,000
Total Credits
Kr8,505,000
Other Information:
1. Sales and inventory Purchases occurred uniformly over the year. The Other Expenses
include Kr6,000 of bad debts which were credited to the Allowance For Doubtful
Accounts on December 31, 2009. Also on December 31, 2009, Kr9,000 in bad debts
were written off against the Allowance For Doubtful Accounts. The remainder of the
Other Expenses occurred uniformly over the year.
2. The exchange rate for the Danish krone and the Canadian dollar is as follows:
December 31, 2007
December 31, 2008
Average for the 2008 fourth quarter
December 31, 2009
Average for 2009
Average for the 2009 fourth quarter
Kr1
Kr1
Kr1
Kr1
Kr1
Kr1
=
=
=
=
=
=
$0.1000
$0.1600
$0.1525
$0.2000
$0.1800
$0.1950
3. The dividends were declared on January 1, 2009.
4. Year end Inventories are purchased uniformly over the last quarter of each year. On
December 31, 2008 the Inventories totalled Kr750,000 and on December 31, 2009 they
totalled Kr510,000.
5. On January 1, 2009, equipment was purchased for Kr180,000. It has an estimated useful
life of six years with no anticipated net salvage value. The Olaf Company uses the straight
line method to calculate Amortization Expense.
6. The December 31, 2009 Accumulated Amortization balance is allocated Kr240,000 to
the Equipment and Kr600,000 to the Building.
7. The Long-Term Note Payable was issued on January 1, 2008 and is due on January 1,
2012.
8. The Olaf Company had current monetary assets of Kr230,000 and current monetary
liabilities of Kr890,000 as at December 31, 2008.
Required: The Olaf Company is classified as an integrated foreign operation by its Canadian
parent. Its financial statements are translated to be included in the consolidated financial
statements of the Canadian parent. Prepare the following in Canadian dollars:
A. A calculation of the exchange gain or loss on the accounts of Olaf Company for 2009.
B. The translated Statement of Income and Change in Retained Earnings of the Olaf
Company for the year ending December 31, 2009.
C. The translated Balance Sheet of the Olaf Company as at December 31, 2009.
You may find it useful to translate the adjusted trial balance as of December 31, 2009 prior to
preparing the financial statements required.
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Assignment Problems For Chapter 10
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Assignment Problem Ten - 3 (Translation Of Financial Statements)
The Statement of Income and Change in Retained Earnings and the comparative Balance
Sheets for the year ending March 31, 2009, of the Bulgar Company, a Bulgarian company, in
Bulgarian lev (L, hereafter) are as follows:
Bulgar Company
Statement Of Income And Change In Retained Earnings
For The Year Ending March 31, 2009
Sales
L67,263,750
Total Revenues
L67,263,750
Cost of Goods Sold
Amortization Expense
Other Expenses
Taxes
L45,000,000
2,700,000
13,725,500
1,650,000
Total Expenses
L63,075,500
Net Income
Dividends On Common Stock
(
Increase in Retained Earnings
L 4,188,250
1,500,000)
L 2,688,250
Bulgar Company
Balance Sheets As At March 31
2009
2008
Cash And Current Receivables
Inventories
Plant And Equipment
Accumulated Amortization
Land
L 4,938,250
3,450,000
27,000,000
( 7,200,000)
7,500,000
L 2,900,000
3,750,000
27,000,000
( 4,500,000)
4,500,000
Total Assets
L35,688,250
L33,650,000
Current Liabilities
Long-Term Liabilities
No Par Common Stock
Retained Earnings
L 1,150,000
9,000,000
22,500,000
3,038,250
L 1,800,000
9,000,000
22,500,000
350,000
L 35,688,250
L33,650,000
Total Equities
Other Information:
1. On April 1, 2006, the date of incorporation of the Bulgar Company, No Par Common
Stock was issued for L22.5 million. The proceeds were used to purchase Plant And Equipment for L18,000,000 and Land for L4,500,000 on the same day. The Plant and
Equipment had an estimated service life of ten years with no anticipated salvage value.
The Bulgar Company uses the straight line method to calculate Amortization Expense.
2. On April 1, 2007, additional Plant and Equipment was purchased with the proceeds from
a L9 million issue of bonds maturing on April 1, 2017. These additions also have a ten year
estimated service life with no anticipated salvage value.
3. The March 31, 2008 Inventories were acquired on January 1, 2008. The Inventories in
the March 31, 2009 Balance Sheet were acquired on January 1, 2009. The Bulgar
Company uses the first-in, first-out inventory flow assumption.
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Assignment Problems For Chapter 10
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4. Sales, Purchases and Other Expenses occurred evenly throughout the year. The taxes
were paid quarterly in equal installments.
5. On October 1, 2008, Land was purchased for cash of L3 million.
6. The dividends on common stock were declared on January 1, 2009 updated and paid on
February 1, 2009.
7. The exchange rate movements occurred evenly throughout the year. The average
exchange rate for the year ending March 31, 2009 was L1 = $.84. Other foreign exchange
rate data for the lev and the Canadian dollar was as follows:
April 1, 2006
April 1, 2007
January 1, 2008
March 31, 2008
July 1, 2008
October 1, 2008
January 1, 2009
March 31, 2009
L1
L1
L1
L1
L1
L1
L1
L1
=
=
=
=
=
=
=
=
$.75
$.78
$.78
$.82
$.85
$.84
$.83
$.85
Required:
A. Assume that the Bulgar Company is classified as an integrated foreign operation. Prepare,
in Canadian dollars:
i.
a calculation of the exchange gain or loss on the accounts of Bulgar Company the year
ending March 31, 2009,
ii. a Statement of Income and Change in Retained Earnings for the year ending March
31, 2009,
iii. a Balance Sheet as at March 31, 2008, and
iv. a Balance Sheet as at March 31, 2009.
B. Assume that the Bulgar Company is classified as a self-sustaining foreign operation. You
have been provided with the information that the correct March 31, 2008 balance in the
Accumulated Other Comprehensive Income account is a credit of $1,797,000.
Prepare, in Canadian dollars:
i. a Balance Sheet as at March 31, 2008,
ii. a calculation of the exchange gain or loss on the accounts of Bulgar Company the year
ending March 31, 2009,
iii. a Statement of Net And Comprehensive Income for the year ending March 31, 2009,
iv. a Statement of Changes in Shareholders’ Equity for the year ending March 31, 2009,
and
v. a Balance Sheet as at March 31, 2009.
Canadian Advanced Accounting (2nd IC Edition) - Assignment Problems
Assignment Problems For Chapter 10
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Assignment Problem Ten - 4
(Translation And Consolidation Of Foreign Subsidiary)
Canco is a Canadian corporation that specializes in the selling of men’s and women’s pants. In
an attempt to diversify its product line, it acquired 80 percent of the outstanding voting shares
of the Forco Company on December 31, 2009 for $10 million in cash. Forco is a Kiev based
company that is famous for a hand embroidered line of sweaters that it sells. Because of the
extensive use of common distribution channels that will be possible after this business combination, Forco is classified as an integrated foreign operation.
Forco’s accounting records are expressed in Ukrainian Hryvnias (H, hereafter). The comparative Balance Sheets of the two Companies as at December 31, 2009 and December 31, 2010
and the Income Statements of the two Companies for the year ending December 31, 2010 are
as follows:
Balance Sheets
As At December 31, 2009
(000s Omitted)
Canco
Forco
Cash
Accounts Receivable
Inventories
Investment In Forco (Cost)
Plant And Equipment (Net)
Land
$ 1,000
1,000
3,000
10,000
5,000
Nil
H 8,000
10,000
7,000
N/A
6,000
2,000
Total Assets
$20,000
H33,000
Current Liabilities
Long-Term Liabilities
No Par Common Stock
Retained Earnings
$ 1,000
5,000
5,000
9,000
H 3,000
5,000
15,000
10,000
Total Equities
$20,000
H33,000
Balance Sheets
As At December 31, 2010
(000s Omitted)
Canco
Forco
Cash
Accounts Receivable
Inventories
Investment In Forco (Cost)
Plant And Equipment (Net)
Land
$ 2,000
3,100
4,000
10,000
4,400
Nil
H 10,000
11,200
9,000
N/A
4,300
3,000
Total Assets
$23,500
H37,500
Current Liabilities
Long-Term Liabilities
No Par Common Stock
Retained Earnings
$ 1,500
5,000
5,000
12,000
H 3,500
5,000
15,000
14,000
Total Equities
$23,500
H37,500
Canadian Advanced Accounting (2nd IC Edition) - Assignment Problems
Assignment Problems For Chapter 10
Page 40
Canco And Forco Companies
Income Statements
For The Year Ending December 31, 2010
(000s Omitted)
Canco
Forco
Sales
$35,000
H40,000
Cost Of Goods Sold
Amortization Expense
Selling And Administrative Expenses
Other Expenses And Losses
Tax Expense
$28,000
1,000
1,600
600
800
H32,000
500
1,500
1,000
1,000
Total Expenses
$32,000
H36,000
Net Income
$ 3,000
H 4,000
Other Information:
1. Assume that selected exchange rates between the Hryvnia and the Canadian dollar are as
follows:
January 1, 2004
March 1, 2004
July 1, 2009
December 31, 2009
Average For 2009
May 1, 2010
July 1, 2010
September 1, 2010
December 31, 2010
Average For 2010
H1
H1
H1
H1
H1
H1
H1
H1
H1
H1
=
=
=
=
=
=
=
=
=
=
$.210
$.220
$.230
$.240
$.230
$.250
$.255
$.260
$.270
$.255
The exchange rate changed uniformly throughout the period under consideration.
2. At the time Canco acquired its interest in Forco, all of the identifiable assets and liabilities
of Forco had carrying values that were equal to their fair values except for Equipment
which had a fair value that was H1,500,000 greater than its carrying value. The remaining
useful life of this Equipment on December 31, 2009 was twelve years. Forco’s Plant And
Equipment was acquired on March 1, 2004. Both Companies use straight line calculations for all amortization charges.
3. There was no impairment of the goodwill in any of the years under consideration.
4. Selling And Administration Expenses occurred uniformly over the second half of 2010.
Sales, Purchases, Other Expenses, and Tax Expense took place evenly throughout the
year.
5. The December 31, 2009 Inventories of Forco were purchased on July 1, 2009. The
December 31, 2010 Inventories of Forco were purchased on September 1, 2010.
6. The Long-Term Liabilities of the Forco Company were issued on January 1, 2004 and
mature on January 1, 2014. Forco’s No Par Common Stock was also issued on January 1,
2004.
7. Neither of the two Companies declared or paid dividends during 2010.
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Assignment Problems For Chapter 10
Page 41
8. Forco’s Land consists of two parcels. One was acquired on July 1, 2009 for H2,000,000
and the second was purchased for H1,000,000 on September 1, 2010.
9. On May 1, 2010, Canco purchases Equipment from Forco at a price of $250,000. The
Equipment has a carrying value of H1,200,000 on the books of Forco and a remaining
useful life at the time of the sale of four years. This is not the Equipment on which there
was a fair value change at the time Canco acquired Forco.
10. On May 1, 2010, Forco sold H5,000,000 in merchandise to Canco. Of this sale, Canco
had H2,000,000 remaining in the December 31, 2010 Inventories. Sales are priced to
provide a gross profit of 20 percent on the sales price. Both Companies account for Inventories on a First In, First Out basis.
Required:
A. Prepare translated Balance Sheets as at December 31, 2009 and December 31, 2010, and
a translated 2010 Income Statement for the Forco Company.
B. Using the translated financial statements from Part A, prepare consolidated Balance
Sheets as at December 31, 2009 and December 31, 2010, and a consolidated Income
Statement for the year ending December 31, 2010, for the Canco Company and its subsidiary, the Forco Company.
In preparing your solution, assume that the non-controlling interest in Forco will be
measured at its fair value based on the price paid for the contolling interest. Ignore the
effect of intercompany transactions on the consolidated Tax Expense.
Canadian Advanced Accounting (2nd IC Edition) - Assignment Problems