Test bank of Advanced Accounting by Guerrero & Peralta CHAPTER 20
CHAPTER 20
MULTIPLE CHOICE
20-1:
b
Bad debt expense (S$ 6,000 x P28.20)
P169,200
Amortization of patents (S$ 4,000 x P28.20)
112,800
Rent expense (S$ 10,000 x P28.20)
282,000
Total
P564,000
Average rate (P28.20) is used to translate all expenses since this is a reasonable
estimation.
20-2:
b
Machinery [(24,000 Ringgit ÷ 10) x P10.42]
Equipment [(12,000 Ringgit ÷ 10) x P10.42]
Total depreciation
20-3:
d
Accounts receivable
Prepaid expenses
Property and equipment (net)
Total
20-4:
P 25,008
12,504
P 37,512
P120,000
55,000
275,000
P450,000
a
Depreciation expense (H$ 12,000 x P5.80)
Bad debts (H$ 8,000 x P5.80)
Rent (H$ 20,000 x P5.80)
Total
P 69,600
46,400
116,000
P232,000
Average rate for the year is used in translating depreciation expense because this is more
reasonable estimation than the rate when the related asset was acquired (P4.80).
20-5:
d
[25,000 LCU x (1 ÷ 2)]
20-6:
20-7:
d
Long-term receivable: [1,500,000 LCU x (1 ÷ 1.5 LCU)]
P1,000,000
Long-term debt: [2,400,000 LCU x (1 ÷ 1.5 LCU)]
P1,600,000
b (NT Dollar 10,000 x P1.70)
131
20-8:
20-9:
b
Beginning inventory
Purchases
Goods available for sale
Ending inventory
Cost of goods sold
40,000 Rupee
300,000
340,000
30,000
310,000 Rupee
Translated cost of goods sold (310,000 Rupee x P.5745)
P178,095
c
NZ Dollar
20,000
Net assets, 1/1/05
Increase in net assets:
Net income, 2005 (30,000 – 20,000) 10,000
Net assets 12/31/05
30,000
Net assets at current rate
30,000
Translation adjustment, 2005 (positive)
Rate
P15
Phil Peso
P300,000
P19
190,000
P490,000
630,000
P140,000
P21
20-10: b
Equipment [800,000 x (1 ÷ 50)]
P16,000
Accumulated depreciation [560,000 x (1 ÷ 50)]
P11,200
Depreciation [80,000 x (1÷ 50)]
P 1,600
20-11: a (25,000 Rupee x P1.24)
20-12: d (5,000 Rupee x P1.30)
20-13: c
Investment cost, Jan. 1, 2005
Less: Book and fair value of net assets acquired
(300,000 Rp x P1.20)
Goodwill
Goodwill
Impairment
Balance
Pesos
P42,000
4,340 (3,500 Rp x P1.24)
P37,660
Translated balance (31,500 Rp x P1.32)
Less: umimpaired goodwill
Translation adjustment
P402,000
360,000
P 42,000
Rupee
35.000 (P42,000 / P1.20)
3,500
31,500
P41,580
37,660
P 3,920
132
20-14: b
Translation adjustment from translating the trial balance
Translation adjustment from translating goodwill (per 20-13)
Total translation adjustment
P12,000 Cr
3,920 Cr
P15,920
20-15: b
Investment in Subsidiary account, Jan. 1, 2005
Share in subsidiary net income [(800,000 yen x 70%) x P.57]
Translation adjustment (P25,000 x 70%)
Share of subsidiary dividends [(50,000 yen x 70%) x P.59]
Investment in Subsidiary account, December 31, 2005
P1,600,000
319,200
17,500
(
20,650)
P1,916,050
20-16: d
20-17: a
Initial inventory transfer date:
Selling price
Cost
Profit
Balance sheet date (75,000 x 1.70)
20-18: a
Phil Peso
Thailand Baht
P120,000÷1.60
(80,000)
40,000
75,000 B
127,500
75,000 B
(P127,500 – 40,000)
20-19: a
Net asset beginning
Net income
Net asset translated at rate:
During the year
At end of year
Yen
200,000
200,000
400,000
400,000
Exchange Rate
.44
.46
.48
Translation adjustment (credit)
20-20: a
Phil Peso
88,000
92,000
180,000
192,000
(12,000)
(70,000 rupee x P1.50)
20-21: c
Investment cost
Book value of interest acquired (1,100,000 x 1.10) x .80
Goodwill
P1,210,000
968,000
242,000
133
PROBLEMS
Problem 20-1
a.
Pilipino Company
Translation Working Paper
December 31, 2005
Cash
Accounts receivable
Inventory
Plant and equipment
Cost of sales
Operating expenses
Depreciation expenses
Total
Accumulated Other Comprehensive Income Translation Adjustment
Total debits
Accumulated depreciation
Accounts payable
Common stock
Retained earnings, Jan. 1
Sales
Total credits
Yen
40,000
120,000
100,000
700,000
360,000
140,000
60,000
1,520,000
Exchange Rate
.40 CR
.40 CR
.40 CR
.40 CR
.425 AR
.425 AR
.425 AR
Phil. Pesos
16,000
48,000
40,000
280,000
153,000
59,500
25,500
622,000
25,000
647,000
240,000
80,000
200,000
400,000
600,000
1,5200,000
.40
.40
.44
.44
.425
CR
CR
HR
HR
AR
P96,000
32,000
88,000
176,000
255,000
647,000
CR – Current Rate
AR – Average Rate
HR – Historical Rate
b. Proof of Translation Adjustment
Net assets at beginning of year
Adjustment for changes in net assets
Position during year
Net income for the year
Net assets translated at rates in effect
For those items
Net assets at end of year
Change in translation adjustment during year
(to OCI) – net decrease (debit)
Yen
600,000
Translation Rate
.44
Phil. Pesos
264,000
40,000
.425
17,000
640,000
.40
281,000
256,000
25,000
Accumulated OCI – translation adjustment,1/1
-0-
Accumulated OCI – translation adjustment,
Dec. 31 (debit)
25,000
134
Problem 20-2
(1)
Trial Balance Translation
Thailand
Baht
7,000
20,000
5,000
25,000
100,000
70,000
10,000
30,000
15,000
282,000
Cash
Accounts receivable (net)
Receivable from Davao
Inventory
Plant and equipment
Cost of goods sold
Depreciation expense
Operating expenses
Dividends paid
Total debits
Accumulated depreciation
Accounts payable
Bonds payable
Common stock
Sales
Total
Accumulated other comprehensive
Income – Translation adj. (credit)
Total credits
Translation
Rate
1.60 CR
1.60 CR
1.60 CR
1.60 CR
1.60 CR
1.50 AR
1.50 AR
1.50 AR
1.54 HR
10,000
12,000
50,000
60,000
150,000
282,.000
1.60
1.60
1.80
1.46
1.50
Philippine
Pesos
11,200
32,000
8,000
40,000
160,000
105,000
15,000
45,000
23,000
439,300
CR
CR
CR
HR
AR
16,000
19,200
80,000
87,600
225,000
427,800
11,500
439,300
CR – Current Rate
AR – Average Rate
HR – Historical Rate
(2)
Proof of Translation Adjustment
Net assets at beginning of year
Adjustments for changes in net
asset position during year:
Net income for year (sch. 1)
Dividends paid
Net assets translated at:
Rates during year
Rates at end of year
Change in OCI – translation adj.
during year – Net increase
Accumulated OCI – translation
adjustment – Jan. 1
Change in OCI – translation
adjustment, Dec. 31 (credit)
Thailand
Baht
60,000
Translation
Rate
1.46
Philippine
Pesos
87,600
40,000
(15,000)
1.50
1.54
60,000
(23,100)
85,000
1.60
124,500
136,000
11,500
-011,500
135
Schedule 1:
Sales
Cost of goods sold
Depreciation expense
Operating expenses
Net income
150,000 Thailand Baht
( 70,000)
( 10,000)
( 30,000)
40,000 Thailand Baht
(b)
The change in the translation adjustment of P11,500 is included as a credit in the other
comprehensive income on the Statement of Comprehensive Income. The other comprehensive
income is then accumulated and reported in the stockholders’ equity section of the consolidated
balance sheet as presented below:
Net assets
P136,000
Common stock
Retained earnings, Dec. 31
Accumulated Other Comprehensive Income
Total
P 87,600
36,900
11,500
P136,000
Problem 20-3
a.
Translation Work paper
Cash
Accounts receivable
Inventory
Plant and equipment
Cost of sales
Operating expenses
Depreciation expense
Dividends
Total debits
Accumulated depreciation
Accounts payable
Common stock
Retained earnings, Jan. 1
Sales
Total
Accumulated OCI – Translation
Adjustment
Total credits
Brunei $
1.600
2,500
4,000
35,000
17,000
7,000
3,000
1,500
71,600
9,000
2,600
20,000
10,000
30,000
71,600
Exchange
Rate
33 CR
33 CR
33 CR
33 CR
31 AR
31 AR
31 AR
32 HR
Philippine
Pesos
52,800
82,500
132,500
1,155,000
527,000
217,000
93,000
48,000
2,307,300
31
33
30
30
31
297,000
85,800
600,000
300,000
930,000
2,212,800
AR
CR
HR
HR
AR
94,500
2,307,300
136
Proof of Translation Adjustment (not required)
Net assets at beginning of year
Adjustment for net assets position
during the year:
Net income
Dividends paid
Net assets translated at rates
in effect for those items
Net assets at end of year
Change in translation adjustment during
Year to OCI – net increase (credit)
Accumulated OCI – translation adj. 1/1
Accumulated OCI – translation
Adjustment – 12/31 (credit)
b.
Brunei $
30,000
Translation
rate Philippine Pesos
30
900,000
3,000
(1,500)
31
32
93,000
(48,000)
31,500
33
945,000
1,039,500
94,500
-094,500
Parent Company entries affecting Investment in Moslem Co. (equity method)
Jan. 2:
Oct. 15:
Investment in Moslem Co.
Cash
To record investment cost.
Cash
900,000
900,000
48,000
Investment in Moslem Co.
To record dividends received
Dec. 31:
48,000
Investment in Moslem Co.
Investment income
To record equity in income of Moslem
93,000
Investment in Moslem Co.
Other Comprehensive Income – Translation
adjustment
To record parent’s share of change in translation
Adjustment
94,500
93,000
94,500
137
Problem 20-4
UK Company
Translation Working Paper
Year Ended December 31, 2005
In Pounds
Income Statement
Sales
Cost of sales
Depreciation expense
Other expenses
Net income carried forward
Retained Earnings Statement
Balance, 1/1
Net income from above
Balance, 12/31
Balance Sheet
Cash
Accounts receivable
Inventories, at cost
Prepaid expenses
Property, plant and equipment (net)
Total assets
Accounts payable
Current portion of long-term debt
Long-term debt
Capital stock
Retained earnings from above
Total
Cumulative translation adjustment:
Balance, 1/1
Current translation adjustment
Balance, 12/31
Total liabilities and stockholders’ equity
90,000
(80,000)
(1,500)
(5,750)
2,750
Exchange
Rate
P67.50
67.50
67.50
67.50
2,500
2,750
5,250
In
Phil. Pesos
(A)
(A)
(A)
(A)
6,075,000
(5,400,000)
(101,250)
(388,125)
185,625
B
F
119,500
185,625
305,125
2,500
4,000
5,500
750
9,000
21,750
67.60
67.60
67.60
67.60
67.60
(C)
(C)
(C)
(C)
(C)
169,000
270,400
371,800
50,700
608,400
1,470,300
3,500
500
7,500
5,000
5,250
67.60
67.60
67.60
67.20
(C)
(C)
(C)
(H)
236,600
33,800
507,000
336,000
1,418,525
G
21,750
50,000
1,775
51,775
1,470,300
Translation Code:
C = Current rate
H = Historical rate
A = Average rate
B = Balance in Philippine pesos at the beginning of the year.
F = Per Income Statement
138
Problem 20-5
Goodluck Corporation
Foreign Exchange Translation Worksheet
Year Ended December 31, 2005
Cash
Marketable securities
Accounts receivable
Inventories
Property, plant and equip-net
Cost of goods sold
Depreciation expense
Other expenses
Totals
Trial
Balance
(In Pounds)
15,000
25,000
60,000
80,000
420,000
150,000
40,000
10,000
800,000
Accounts payable
Current portion of LT debt
Long-term debt
Sales
Other revenues
Capital stock
Retained earnings, 1/1
FC translation adjustment
Balance, 1/1
Current year
Net income
50,000
40,000
120,000
200,000
50,000
250,000
90,000
Totals
800,000
Exchange
Rate
0.95 C
0.95 C
0.95 C
0.95 C
0.95 C
0.90 A
0.90 A
0.90 A
0.95
0.95
0.95
0.90
0.90
0,87
G
C
C
C
A
A
H
G
B
B
Trial
Balance
(In Pesos)
14,250
23,750
57,000
76,000
399,000
135,000
36,000
9,000
750,000
Income
Statement
(In Pesos)
47,500
38,000
114,000
180,000
45,000
217,500
70,000
135,000
36,000
9,000
180,000
570,000
47,500
38,000
114,000
180,000
45,000
217,500
70,000
1,500
36,500
750,000
Balance
Sheet
(In Pesos)
14,250
23,750
57,000
76,000
399,000
(45,000)
1,500
36,500
45,000
180,000
570,000
Translation Code:
A = Average rate
B = Current rate
H = Historical rate
G = Given
B = Balancing amount
Problem 20-6
a. Direct and indirect exchange rates
January 1, 2007
December 31, 2007
December 31, 2008
Direct A$
P.03333=1
P.02857=1
P .025=1
Indirect
A$30=P1
A$35=P1
A$40=P1
The peso strengthened during 2007 because the number of A$ one Phil. Peso could acquire
at the end of the year (35) is greater than the number of A$ that could be acquired at the
139
beginning of the year (30); therefore, the value of the peso has increased relative to the A$
during 2007. The peso continued to strengthen during 2008.
b. Translated December 31, 2007, balance sheet:
Subsidiary’s
Trial Balance
_ (in A$)__
A$ 100,000
400,000
680,000
1,000,000
R 2,230,000
Cash
Receivables
Inventory
Fixed assets
Total
Accumulated other
comprehensive income –
translated adjustment (debit)
Total debits
Current payables
Long-term debt
Common stock
Retained earnings
Total credits
A$ 260,000
1,250,000
500,000
220,000
A$2,230,000
Direct
Exchange
Rate
P.02857
P.02857
P.02857
P.02857
Translated
Trial Balance
( in $)___
P 2,857
12,857
19,428
28,570
P 63,712
2,903
P 66,615
P.02857
P.02857
P.03333
P.03333
P 7,428
35,713
16,665
6,809
P 66,615
P.03333= average of beginning and ending exchange rates, rounded to 4 decimal points:
P.030945= [(P.03333 + P.02856) /2]
(Not required: Proof of translation adjustment (debit) of P 2,903)
___A$___
A$ 500,000
Net assets, 1/1/07
Adjustment for changes in
net assets during year:
Net income
220,000
Net assets translated at:
Rates during year
Rates at end of year
A$ 720,000
Change in translation
Adjustment during year (debit)
Translation
_ Rate_
P.03333
P.03095
P.02857
_Dollars_
P 16,665
6,809
P 23,474
(20,570)
P 2,904*
*Difference of P1 (P 2,904 – P 2,903) due to rounding of exchange rates.
140
c. Translated December 31, 2008, balance sheet:
Cash
Receivables
Inventory
Fixed assets
Accumulated other
comprehensive incometranslation adjustment (debit)
Total debits
Subsidiary’s
Trial Balance
(in A$)
A$
80,000
550,000
720,000
900,000
A$ 2,250,000
Direct
Exchange
__Rate
P.025
P.025
P.025
P.025
Translated
Trial Balance
(in P)__
P 2,000
13,750
18,000
22,500__
P56,250
5,635___
P61,885
(a)The retained earnings in pesos would begin with the December 31, 2007, peso
balance (P6,809) that would be carried forward. To this would be added 2008’s net income
of A$90,000, which is the change in retained earnings in A$ multiplied by the 2008
exchange rate of P.02679 [(P.02857 + P.025/2)] which equals P2, 411. Therefore, translated
retained earnings on December 31, 2008, is P9, 220 (P9, 220= P6, 809 + P2, 411)
(Not required: Proof of translation adjustment (debit) of P5, 635)
Australian
Dollar
A$ 720,000
Net assets, 1/1/08
Adjustment for changes in
net assets during year:
Net income
90,000
Net assets translated at:
rates during year
Other comprehensive incomerate at end of year
A$ 810,000
Change in other comprehensive
income- translation
adjustment during year (debit)
Accumulated other comprehensive
income- translation adjustment, 1/1/08
Accumulated other comprehensive
income- translation adjustment, 12/31/08 (debit)
d.
Translation
_ Rate
P.02857
P.02679
Pesos___
P20, 570
2,411___
P22, 981
P.025
(20,250)__
P2, 731
2,904___
P5, 635
The P2, 731 change in the accumulated other comprehensive income- translation
adjustment during 2008 would be reported as a component of other comprehensive
income on 2008 statement of other comprehensive income.
141
MULTIPLE CHOICE
20-1:
b
Bad debt expense (S$ 6,000 x P28.20)
P169,200
Amortization of patents (S$ 4,000 x P28.20)
112,800
Rent expense (S$ 10,000 x P28.20)
282,000
Total
P564,000
Average rate (P28.20) is used to translate all expenses since this is a reasonable
estimation.
20-2:
b
Machinery [(24,000 Ringgit ÷ 10) x P10.42]
Equipment [(12,000 Ringgit ÷ 10) x P10.42]
Total depreciation
20-3:
d
Accounts receivable
Prepaid expenses
Property and equipment (net)
Total
20-4:
P 25,008
12,504
P 37,512
P120,000
55,000
275,000
P450,000
a
Depreciation expense (H$ 12,000 x P5.80)
Bad debts (H$ 8,000 x P5.80)
Rent (H$ 20,000 x P5.80)
Total
P 69,600
46,400
116,000
P232,000
Average rate for the year is used in translating depreciation expense because this is more
reasonable estimation than the rate when the related asset was acquired (P4.80).
20-5:
d
[25,000 LCU x (1 ÷ 2)]
20-6:
20-7:
d
Long-term receivable: [1,500,000 LCU x (1 ÷ 1.5 LCU)]
P1,000,000
Long-term debt: [2,400,000 LCU x (1 ÷ 1.5 LCU)]
P1,600,000
b (NT Dollar 10,000 x P1.70)
131
20-8:
20-9:
b
Beginning inventory
Purchases
Goods available for sale
Ending inventory
Cost of goods sold
40,000 Rupee
300,000
340,000
30,000
310,000 Rupee
Translated cost of goods sold (310,000 Rupee x P.5745)
P178,095
c
NZ Dollar
20,000
Net assets, 1/1/05
Increase in net assets:
Net income, 2005 (30,000 – 20,000) 10,000
Net assets 12/31/05
30,000
Net assets at current rate
30,000
Translation adjustment, 2005 (positive)
Rate
P15
Phil Peso
P300,000
P19
190,000
P490,000
630,000
P140,000
P21
20-10: b
Equipment [800,000 x (1 ÷ 50)]
P16,000
Accumulated depreciation [560,000 x (1 ÷ 50)]
P11,200
Depreciation [80,000 x (1÷ 50)]
P 1,600
20-11: a (25,000 Rupee x P1.24)
20-12: d (5,000 Rupee x P1.30)
20-13: c
Investment cost, Jan. 1, 2005
Less: Book and fair value of net assets acquired
(300,000 Rp x P1.20)
Goodwill
Goodwill
Impairment
Balance
Pesos
P42,000
4,340 (3,500 Rp x P1.24)
P37,660
Translated balance (31,500 Rp x P1.32)
Less: umimpaired goodwill
Translation adjustment
P402,000
360,000
P 42,000
Rupee
35.000 (P42,000 / P1.20)
3,500
31,500
P41,580
37,660
P 3,920
132
20-14: b
Translation adjustment from translating the trial balance
Translation adjustment from translating goodwill (per 20-13)
Total translation adjustment
P12,000 Cr
3,920 Cr
P15,920
20-15: b
Investment in Subsidiary account, Jan. 1, 2005
Share in subsidiary net income [(800,000 yen x 70%) x P.57]
Translation adjustment (P25,000 x 70%)
Share of subsidiary dividends [(50,000 yen x 70%) x P.59]
Investment in Subsidiary account, December 31, 2005
P1,600,000
319,200
17,500
(
20,650)
P1,916,050
20-16: d
20-17: a
Initial inventory transfer date:
Selling price
Cost
Profit
Balance sheet date (75,000 x 1.70)
20-18: a
Phil Peso
Thailand Baht
P120,000÷1.60
(80,000)
40,000
75,000 B
127,500
75,000 B
(P127,500 – 40,000)
20-19: a
Net asset beginning
Net income
Net asset translated at rate:
During the year
At end of year
Yen
200,000
200,000
400,000
400,000
Exchange Rate
.44
.46
.48
Translation adjustment (credit)
20-20: a
Phil Peso
88,000
92,000
180,000
192,000
(12,000)
(70,000 rupee x P1.50)
20-21: c
Investment cost
Book value of interest acquired (1,100,000 x 1.10) x .80
Goodwill
P1,210,000
968,000
242,000
133
PROBLEMS
Problem 20-1
a.
Pilipino Company
Translation Working Paper
December 31, 2005
Cash
Accounts receivable
Inventory
Plant and equipment
Cost of sales
Operating expenses
Depreciation expenses
Total
Accumulated Other Comprehensive Income Translation Adjustment
Total debits
Accumulated depreciation
Accounts payable
Common stock
Retained earnings, Jan. 1
Sales
Total credits
Yen
40,000
120,000
100,000
700,000
360,000
140,000
60,000
1,520,000
Exchange Rate
.40 CR
.40 CR
.40 CR
.40 CR
.425 AR
.425 AR
.425 AR
Phil. Pesos
16,000
48,000
40,000
280,000
153,000
59,500
25,500
622,000
25,000
647,000
240,000
80,000
200,000
400,000
600,000
1,5200,000
.40
.40
.44
.44
.425
CR
CR
HR
HR
AR
P96,000
32,000
88,000
176,000
255,000
647,000
CR – Current Rate
AR – Average Rate
HR – Historical Rate
b. Proof of Translation Adjustment
Net assets at beginning of year
Adjustment for changes in net assets
Position during year
Net income for the year
Net assets translated at rates in effect
For those items
Net assets at end of year
Change in translation adjustment during year
(to OCI) – net decrease (debit)
Yen
600,000
Translation Rate
.44
Phil. Pesos
264,000
40,000
.425
17,000
640,000
.40
281,000
256,000
25,000
Accumulated OCI – translation adjustment,1/1
-0-
Accumulated OCI – translation adjustment,
Dec. 31 (debit)
25,000
134
Problem 20-2
(1)
Trial Balance Translation
Thailand
Baht
7,000
20,000
5,000
25,000
100,000
70,000
10,000
30,000
15,000
282,000
Cash
Accounts receivable (net)
Receivable from Davao
Inventory
Plant and equipment
Cost of goods sold
Depreciation expense
Operating expenses
Dividends paid
Total debits
Accumulated depreciation
Accounts payable
Bonds payable
Common stock
Sales
Total
Accumulated other comprehensive
Income – Translation adj. (credit)
Total credits
Translation
Rate
1.60 CR
1.60 CR
1.60 CR
1.60 CR
1.60 CR
1.50 AR
1.50 AR
1.50 AR
1.54 HR
10,000
12,000
50,000
60,000
150,000
282,.000
1.60
1.60
1.80
1.46
1.50
Philippine
Pesos
11,200
32,000
8,000
40,000
160,000
105,000
15,000
45,000
23,000
439,300
CR
CR
CR
HR
AR
16,000
19,200
80,000
87,600
225,000
427,800
11,500
439,300
CR – Current Rate
AR – Average Rate
HR – Historical Rate
(2)
Proof of Translation Adjustment
Net assets at beginning of year
Adjustments for changes in net
asset position during year:
Net income for year (sch. 1)
Dividends paid
Net assets translated at:
Rates during year
Rates at end of year
Change in OCI – translation adj.
during year – Net increase
Accumulated OCI – translation
adjustment – Jan. 1
Change in OCI – translation
adjustment, Dec. 31 (credit)
Thailand
Baht
60,000
Translation
Rate
1.46
Philippine
Pesos
87,600
40,000
(15,000)
1.50
1.54
60,000
(23,100)
85,000
1.60
124,500
136,000
11,500
-011,500
135
Schedule 1:
Sales
Cost of goods sold
Depreciation expense
Operating expenses
Net income
150,000 Thailand Baht
( 70,000)
( 10,000)
( 30,000)
40,000 Thailand Baht
(b)
The change in the translation adjustment of P11,500 is included as a credit in the other
comprehensive income on the Statement of Comprehensive Income. The other comprehensive
income is then accumulated and reported in the stockholders’ equity section of the consolidated
balance sheet as presented below:
Net assets
P136,000
Common stock
Retained earnings, Dec. 31
Accumulated Other Comprehensive Income
Total
P 87,600
36,900
11,500
P136,000
Problem 20-3
a.
Translation Work paper
Cash
Accounts receivable
Inventory
Plant and equipment
Cost of sales
Operating expenses
Depreciation expense
Dividends
Total debits
Accumulated depreciation
Accounts payable
Common stock
Retained earnings, Jan. 1
Sales
Total
Accumulated OCI – Translation
Adjustment
Total credits
Brunei $
1.600
2,500
4,000
35,000
17,000
7,000
3,000
1,500
71,600
9,000
2,600
20,000
10,000
30,000
71,600
Exchange
Rate
33 CR
33 CR
33 CR
33 CR
31 AR
31 AR
31 AR
32 HR
Philippine
Pesos
52,800
82,500
132,500
1,155,000
527,000
217,000
93,000
48,000
2,307,300
31
33
30
30
31
297,000
85,800
600,000
300,000
930,000
2,212,800
AR
CR
HR
HR
AR
94,500
2,307,300
136
Proof of Translation Adjustment (not required)
Net assets at beginning of year
Adjustment for net assets position
during the year:
Net income
Dividends paid
Net assets translated at rates
in effect for those items
Net assets at end of year
Change in translation adjustment during
Year to OCI – net increase (credit)
Accumulated OCI – translation adj. 1/1
Accumulated OCI – translation
Adjustment – 12/31 (credit)
b.
Brunei $
30,000
Translation
rate Philippine Pesos
30
900,000
3,000
(1,500)
31
32
93,000
(48,000)
31,500
33
945,000
1,039,500
94,500
-094,500
Parent Company entries affecting Investment in Moslem Co. (equity method)
Jan. 2:
Oct. 15:
Investment in Moslem Co.
Cash
To record investment cost.
Cash
900,000
900,000
48,000
Investment in Moslem Co.
To record dividends received
Dec. 31:
48,000
Investment in Moslem Co.
Investment income
To record equity in income of Moslem
93,000
Investment in Moslem Co.
Other Comprehensive Income – Translation
adjustment
To record parent’s share of change in translation
Adjustment
94,500
93,000
94,500
137
Problem 20-4
UK Company
Translation Working Paper
Year Ended December 31, 2005
In Pounds
Income Statement
Sales
Cost of sales
Depreciation expense
Other expenses
Net income carried forward
Retained Earnings Statement
Balance, 1/1
Net income from above
Balance, 12/31
Balance Sheet
Cash
Accounts receivable
Inventories, at cost
Prepaid expenses
Property, plant and equipment (net)
Total assets
Accounts payable
Current portion of long-term debt
Long-term debt
Capital stock
Retained earnings from above
Total
Cumulative translation adjustment:
Balance, 1/1
Current translation adjustment
Balance, 12/31
Total liabilities and stockholders’ equity
90,000
(80,000)
(1,500)
(5,750)
2,750
Exchange
Rate
P67.50
67.50
67.50
67.50
2,500
2,750
5,250
In
Phil. Pesos
(A)
(A)
(A)
(A)
6,075,000
(5,400,000)
(101,250)
(388,125)
185,625
B
F
119,500
185,625
305,125
2,500
4,000
5,500
750
9,000
21,750
67.60
67.60
67.60
67.60
67.60
(C)
(C)
(C)
(C)
(C)
169,000
270,400
371,800
50,700
608,400
1,470,300
3,500
500
7,500
5,000
5,250
67.60
67.60
67.60
67.20
(C)
(C)
(C)
(H)
236,600
33,800
507,000
336,000
1,418,525
G
21,750
50,000
1,775
51,775
1,470,300
Translation Code:
C = Current rate
H = Historical rate
A = Average rate
B = Balance in Philippine pesos at the beginning of the year.
F = Per Income Statement
138
Problem 20-5
Goodluck Corporation
Foreign Exchange Translation Worksheet
Year Ended December 31, 2005
Cash
Marketable securities
Accounts receivable
Inventories
Property, plant and equip-net
Cost of goods sold
Depreciation expense
Other expenses
Totals
Trial
Balance
(In Pounds)
15,000
25,000
60,000
80,000
420,000
150,000
40,000
10,000
800,000
Accounts payable
Current portion of LT debt
Long-term debt
Sales
Other revenues
Capital stock
Retained earnings, 1/1
FC translation adjustment
Balance, 1/1
Current year
Net income
50,000
40,000
120,000
200,000
50,000
250,000
90,000
Totals
800,000
Exchange
Rate
0.95 C
0.95 C
0.95 C
0.95 C
0.95 C
0.90 A
0.90 A
0.90 A
0.95
0.95
0.95
0.90
0.90
0,87
G
C
C
C
A
A
H
G
B
B
Trial
Balance
(In Pesos)
14,250
23,750
57,000
76,000
399,000
135,000
36,000
9,000
750,000
Income
Statement
(In Pesos)
47,500
38,000
114,000
180,000
45,000
217,500
70,000
135,000
36,000
9,000
180,000
570,000
47,500
38,000
114,000
180,000
45,000
217,500
70,000
1,500
36,500
750,000
Balance
Sheet
(In Pesos)
14,250
23,750
57,000
76,000
399,000
(45,000)
1,500
36,500
45,000
180,000
570,000
Translation Code:
A = Average rate
B = Current rate
H = Historical rate
G = Given
B = Balancing amount
Problem 20-6
a. Direct and indirect exchange rates
January 1, 2007
December 31, 2007
December 31, 2008
Direct A$
P.03333=1
P.02857=1
P .025=1
Indirect
A$30=P1
A$35=P1
A$40=P1
The peso strengthened during 2007 because the number of A$ one Phil. Peso could acquire
at the end of the year (35) is greater than the number of A$ that could be acquired at the
139
beginning of the year (30); therefore, the value of the peso has increased relative to the A$
during 2007. The peso continued to strengthen during 2008.
b. Translated December 31, 2007, balance sheet:
Subsidiary’s
Trial Balance
_ (in A$)__
A$ 100,000
400,000
680,000
1,000,000
R 2,230,000
Cash
Receivables
Inventory
Fixed assets
Total
Accumulated other
comprehensive income –
translated adjustment (debit)
Total debits
Current payables
Long-term debt
Common stock
Retained earnings
Total credits
A$ 260,000
1,250,000
500,000
220,000
A$2,230,000
Direct
Exchange
Rate
P.02857
P.02857
P.02857
P.02857
Translated
Trial Balance
( in $)___
P 2,857
12,857
19,428
28,570
P 63,712
2,903
P 66,615
P.02857
P.02857
P.03333
P.03333
P 7,428
35,713
16,665
6,809
P 66,615
P.03333= average of beginning and ending exchange rates, rounded to 4 decimal points:
P.030945= [(P.03333 + P.02856) /2]
(Not required: Proof of translation adjustment (debit) of P 2,903)
___A$___
A$ 500,000
Net assets, 1/1/07
Adjustment for changes in
net assets during year:
Net income
220,000
Net assets translated at:
Rates during year
Rates at end of year
A$ 720,000
Change in translation
Adjustment during year (debit)
Translation
_ Rate_
P.03333
P.03095
P.02857
_Dollars_
P 16,665
6,809
P 23,474
(20,570)
P 2,904*
*Difference of P1 (P 2,904 – P 2,903) due to rounding of exchange rates.
140
c. Translated December 31, 2008, balance sheet:
Cash
Receivables
Inventory
Fixed assets
Accumulated other
comprehensive incometranslation adjustment (debit)
Total debits
Subsidiary’s
Trial Balance
(in A$)
A$
80,000
550,000
720,000
900,000
A$ 2,250,000
Direct
Exchange
__Rate
P.025
P.025
P.025
P.025
Translated
Trial Balance
(in P)__
P 2,000
13,750
18,000
22,500__
P56,250
5,635___
P61,885
(a)The retained earnings in pesos would begin with the December 31, 2007, peso
balance (P6,809) that would be carried forward. To this would be added 2008’s net income
of A$90,000, which is the change in retained earnings in A$ multiplied by the 2008
exchange rate of P.02679 [(P.02857 + P.025/2)] which equals P2, 411. Therefore, translated
retained earnings on December 31, 2008, is P9, 220 (P9, 220= P6, 809 + P2, 411)
(Not required: Proof of translation adjustment (debit) of P5, 635)
Australian
Dollar
A$ 720,000
Net assets, 1/1/08
Adjustment for changes in
net assets during year:
Net income
90,000
Net assets translated at:
rates during year
Other comprehensive incomerate at end of year
A$ 810,000
Change in other comprehensive
income- translation
adjustment during year (debit)
Accumulated other comprehensive
income- translation adjustment, 1/1/08
Accumulated other comprehensive
income- translation adjustment, 12/31/08 (debit)
d.
Translation
_ Rate
P.02857
P.02679
Pesos___
P20, 570
2,411___
P22, 981
P.025
(20,250)__
P2, 731
2,904___
P5, 635
The P2, 731 change in the accumulated other comprehensive income- translation
adjustment during 2008 would be reported as a component of other comprehensive
income on 2008 statement of other comprehensive income.
141