Solution manual advanced accounting 4e jeter ch13

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CHAPTER 13
Note: The letter A or B indicated for a question, exercise, or problem means that the question,
exercise, or problem relates to a chapter appendix.
ANSWERS TO QUESTIONS
1.

(1) The parent company must control more than 50 percent of the voting stock of the subsidiary.
(2) The intent of control should be permanent.
(3) The control should rest with the majority owners.

2.

The functional currency of an entity is the currency of the primary economic environment in which
the entity operates. The FASB provided the following six economic indicators:
a. The impact on the parent’s cash flow;
b. The short-term responsiveness of the sales price to changes in the exchange rate;
c. The sales market for the firm’s products;
d. The currency in which labor, materials, and other factor inputs are primarily obtained;
e. The currency in which debt is denominated and the ability of the foreign entity’s operations to
generate amounts of that currency sufficient to service the debt;
f. The volume of transactions between the foreign entity and its parent.

3.

Local currency, current rate

4.

U.S. dollar, temporal

5.

The temporal method is used when a foreign subsidiary operates in a highly inflationary economy.

6.

Remeasurement is the process of translating the accounts of a foreign entity into its functional
currency when they are stated in another currency.

7.

All assets and liabilities are translated using the current rate at the balance sheet date when the
current rate method of translation is used.

8. Assets and liabilities are translated at the rate in effect at the balance sheet date. Common stock is
translated at the historical rate when the stock was issued. Retained earnings consists of various
period’s net income (translated at the yearly average rates) less dividends converted at the historical
rates on the declaration dates. The cumulative translation adjustment is a balancing amount in
equity, which results in total equity (including the cumulative adjustment) being driven back to the
rate in effect at the balance sheet date. Thus, the ratios will not change from their calculations using
the local currency.

9.

Application of the temporal method produces translated amounts that reflect transactions as if they
had been measured in dollars originally rather than in the local currency.

13 - 1

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10. Revenues and expenses are translated using the exchange rate in effect when they were recognized
during the period except for expenses associated with nonmonetary items which are translated
using historical rates. Because it is impractical to translate numerous transactions, the use of an
appropriate average is permitted.
11. The translation adjustment is reported as a separate component of stockholders’ equity when the
current rate method is used to translate the accounts.
Business Ethics Solutions
Business ethics solutions are merely suggestions of points to address. The objective is to raise the
students' awareness of the topics, and to invite discussion. In most cases, there is clear room for
disagreement or conflicting viewpoints.
1. Spring-loading is a contentious issue, and the following points are among those that may be
considered in a discussion or debate of whether it should be allowed or not:
Though granting options is intended to motivate and incentivize the employees to generate
more profits, granting an award that is already known (or strongly suspected) before-the-fact to
be in the money very soon seems counter to this intent.
Companies engaged in spring-loading mislead investors by not disclosing that options are
awarded with foreknowledge of the impending good news.
Spring-loading is legal as long as the compensation committee awarding the options knows the
same information as the recipient, and the company informs shareholders that it does not
withhold granting options when undisclosed, positive company information is pending.
Companies suspected of spring-loading cannot be said to have advantage of prior market
reactions that have not actually taken place, and executives can argue, truthfully, that there is no
way to know for certain how the market will react to impending news.
Option manipulation is generally more likely to occur in circumstances in which the company
executives like CEOs have greater influence on the company’s pay-setting and governance processes,
which suggests a lack of board oversight.
2. Spring-loaded grants might violate insider-trading rules, particularly if managers with

knowledge of the information gives options to themselves, or if executives conceal good
news from directors while urging them to grant options.
Also, see the following links: /> /> />
13 - 2


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ANSWERS TO EXERCISES

Exercise 13-1
Cash
Accounts receivable
Inventory carried at cost
Inventory carried at market
Prepaid rent
Property, plant, and equipment
Goodwill
Accounts payable
Bonds payable
Unamortized premium on bonds payable
Preferred stock carried at issuance price
Common stock
Sales
Cost of goods sold
Depreciation expense

Functional Currency
U.S. Dollar
Local Currency

C
C
C
C
H
C
C
C
H
C
H
C
H
C
C
C
C
C
C
C
H
H
H
H
A
A
H
A
H
A

Exercise 13-2
1. c 2. b 3. d 4. d 5. c

Exercise 13-3
1. a 2. c 3. c 4. b 5. b

13 - 3


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Exercise 13-4

Swiss
Francs

Part A Consolidated Income and Retained Earnings Statement
Revenues
Operating Expenses
Net Income
Retained Earnings - 1/1
Dividends
Retained Earnings - 12/31
Balance Sheet
Cash and Receivables
Net Property, Plant, and Equipment
Total
Accounts and Notes Payable
Common Stock

Retained Earnings

Translation
Rate

$

75,000 $.5654
(30,000) .5654
45,000
10,000 .5987
55,000
(15,000) .5810
40,000

42,405
(16,962)
25,443
5,987
31,430
(8,715)
22,715

55,000 .5321
37,000 .5321
92,000

29,266
19,688
48,954

32,000 .5321
20,000 .5987
40,000
92,000
--Balancing amt.
92,000

Cumulative Translation Adjustment (debit)
Total

Part B Exposed net asset position - 1/1
Adjustment for changes in the net asset position during the year:
Net income
Dividends
Net asset position translated using rate in effect at date of transactions
Exposed net asset position - 12/31
Cumulative translation adjustment (debit)

13 - 4

Swiss
Translation
Francs
Rate
30,000$.5987
45,000 .5654
(15,000).5810
--60,000 .5321

17,027
11,974
22,715
51,716
(2,762)
48,954

$
17,961
25,443
(8,715)
34,689
31,927
(2,762)


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Exercise 13-5

Swiss
Francs

Part A Balance Sheet
Cash and Receivables
Net Property, Plant, and Equipment
Total
Accounts and Notes Payable
Common Stock
Retained Earnings

Total
Consolidated Income Statement and Retained Earnings Statement
Revenue
Operating Expenses: depreciation
other
Translation Loss
Net Income
Retained Earnings - 1/1
Dividends
Retained Earnings - 12/31

Net monetary liability position - 1/1 ($20,000 - $30,000)
Adjustment for changes in net monetary position during the year:
Add: Increase in cash and receivables from sales
Less: Decrease in net asset position:
Other operating expenses
Dividends
Net asset position translated using rate in effect at date of transaction
Net monetary asset position-12/31 ($32,000 - $55,000)
Translation gain (loss)

13 - 5

$

55,000 $.5321
37,000 .5987
92,000

29,266

22,152
51,418

32,000 .5321
20,000 .5987
40,000 Balancing amt.
92,000

17,027
11,974
22,417
51,418

75,000
.5654
(3,000)
.5987
(27,000)
.5654
--Balancing amt.
45,000
10,000
.5987
55,000
(15,000)
.5810
40,000
Swiss
Francs

Part B

Translation
Rate

Translation
Rate

42,405
(1,796)
(15,266)
(198)
25,145
5,987
31,132
(8,715)
22,417

$

(10,000)$.5987

(5,987)

75,000 .5654

42,405

(27,000) .5654
(15,000) .5810

--23,000 .5321

(15,266)
(8,715)
12,437
12,238
(199)


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Exercise 13-6
Swiss
Franc
Consolidated Income and Retained Earnings Statement
Revenues
Operating Expenses
Depreciation
Other
Translation Loss
Net Income
Retained Earnings - 1/1
Dividends
Retained Earnings - 12/31
Balance Sheet
Cash and Receivables
Net Property, Plant, and Equipment
Total
Accounts and Notes Payable
Common Stock

Retained Earnings
Translation Adjustment (loss)
Total

75,000

Part A
Translation
Rate

Brazilian
Real

1.3445

(3,000)
1.3940
(27,000)
1.3445
--Balancing amount
45,000
10,000
1.3940
55,000
(15,000)
1.2438
40,000

55,000
37,000

92,000

1.2899
1.3940

32,000
1.2899
20,000
1.3940
40,000Balancing amount
92,000
-92,000

13 - 6

Part B
Translation
Rate

$

100,838

$.4751

47,908

(4,182)
(36,302)
(2,271)

58,083
13,940
72,023
(18,657)
53,366

.4751
.4751
.4751

(1,987)
(17,247)
(1,079)
27,595
6,818
34,413
(8,843)
25,570

70,945
51,578
122,523

.4630
.4630

32,847
23,880
56,727

41,277
27,880
53,366
122,523

.4630
.4891

19,111
13,636
25,570
58,317
(1,590)
56,727

--122,523

.4891
.4740


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Exercise 13-7

Adjusted
Trial Balance (£)

Consolidated Income and Retained Earnings Statement
Sales

Cost of Goods Sold
Depreciation Expense
Other Expenses
Net Income
Beginning Retained Earnings
Less: Dividends
Ending Retained Earnings
Balance Sheet
Cash and Receivables
Merchandise Inventory
Property, Plant, and Equipment

Current Liabilities
Long-term Notes Payable
Capital Stock
Retained Earnings
Cumulative Translation Adjustment
Total

Translation
Rate

2,900,000 $1.4788
1,400,000 1.4788
300,000
1.4788
400,000
1.4788
800,000
900,000

Given
1,700,000
325,000
1.4730
1,375,000

4,288,520
2,070,320
443,640
591,520
1,183,040
1,593,408
2,776,448
478,725
2,297,723

1,275,000
490,000
3,450,000
5,215,000

1,878,075
721,770
5,081,850
7,681,695

1.4730
1.4730
1.4730

640,000
1.4730
1,200,000 1.4730
2,000,000 1.8365
1,375,000
--Balancing amount
5,215,000

13 - 7

Adjusted
Trial Balance ($)

942,720
1,767,600
3,673,000
2,297,723
(999,348)
7,681,695


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Exercise 13-8

Adjusted
Trial Balance (£)

Balance Sheet
Cash and Receivables

Merchandise Inventory
Property, Plant, and Equipment

Translation
Rate

Adjusted
Trial Balance ($)

1,275,000 $1.4730
490,000
1.4950
3,450,000 1.8365
5,215,000

Current Liabilities
Long-term Notes Payable
Capital Stock
Retained Earnings
Cumulative Translation Adjustment

640,000
1.4730
1,200,000 1.4730
2,000,000 1.8365
1,375,000Balancing amount
--5,215,000

Consolidated Income and Retained Earnings Statement
Sales

Cost of Goods Sold
Depreciation Expense
Other Expenses
Translation Gain
Net Income
Beginning Retained Earnings

2,900,000
(1,400,000)
(300,000)
(400,000)
--800,000
900,000
1,700,000
325,000
1,375,000

Less: Dividends
Ending Retained Earnings
Schedule A - Translation of cost of goods sold
Beginning Inventory
Purchases (1,400,000 + 490,000 + 420,000)

420,000
1,470,000
1,890,000
490,000
1,400,000

Ending Inventory

Cost of Goods Sold

13 - 8

$1.4788
Schedule A
1.8365
1.4788

Given
1.4730

1.5300
1.4788
1.4950

1,878,075
732,550
6,335,925
8,946,550
942,720
1,767,600
3,673,000
2,563,230
8,946,550

4,288,520
(2,083,886)
(550,950)
(591,520)

188,467
1,250,631
1,791,324
3,041,955
478,725
2,563,230

642,600
2,173,836
2,816,436
732,550
2,083,886


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Exercise 13-9
Part A Exposed net asset position - 1/1
Adjustment for changes in the net asset position during the year
Add: Revenues
Less: Operating expenses
Dividends
Net asset position translated using rate in effect at date of transactions
Exposed net asset position - 12/31
Cumulative translation adjustment - gain
Part B Exposed net monetary liability position - 1/1 (15,500 + 25,000 – 32,000)
Adjustment for changes in net monetary position during the year
Less: Increase in cash and receivables - revenues
Add: Decrease in monetary assets or increase in monetary liabilities
Operating expenses - less depreciation and office supplies used

Dividends
Net monetary asset position translated using rate in effect at date of transactions
Exposed net monetary asset position-12/31 (35,000 - 6,900 – 15,000)
Translation gain

(£)
63,000

Translation
Rate
$1.5403

($)
97,039

40,000
(20,000)
(4,000)

1.5532
1.5532
1.5961

79,000

1.5961

8,500

$1.5403

13,093

(40,000)

1.5532

(62,128)

14,400
4,000
--13,100

1.5532
1.5961

22,366
6,384
20,285
20,909
624

1.5961

62,128
(31,064)
(6,384)
121,719
126,092
4,373

Part C An entity’s accounting exposure to changes in the exchange rate is related to the set of accounts translated at the current rate. Under
the current rate method, all assets and liabilities are translated at the current rate. Thus, under this method, only the net asset
position will result in a translation adjustment. Under the current rate method, a gain results from a net asset position and an
increase in the exchange rate. In contrast, monetary assets and liabilities are translated at the current rate when using the temporal
method. In this exercise, the company went from a net monetary liability position to a net monetary asset position during the year.
A translation gain results from an increase in the exchange rate.

13 - 9


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Exercise 13-10A
$30,000
= 57,781 50% = 28,891 $.4994 = $14,428
$.5192
$30,000
Accounts Payable
= 60,072 $.4994 = $30,000
.4994

Part A 1. Inventory

2. Measurement of accounts payable
$30,000
Year-end
.4994
$30,000
Date of transaction

.5192
Transaction loss

60,072
57,781
2,291

3. The transaction loss is reported in determining net income for the current period since the transaction is not of a long-term
investment nature.

Part B Unrealized profit in ending inventory - $6,000

50% = $3,000

Part C 1. Measurement of accounts receivable
Year-end 50,204 $.4994 =
Transaction date 50,204 $.5192 =
Transaction loss

$25,878
26,066
$188

2. The transaction loss is reported in determining net income for the current period.
3. A transaction loss (or gain) related to a loan of a long-term investment nature is deferred and reported in a separate component of
stockholders’ equity.

13 - 10

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ANSWERS TO PROBLEMS
Problem 13-1

New
Zealand $

Part A Consolidated Income and Retained Earnings Statement
Revenues
Cost of Goods Sold
Depreciation Expense
Other Expenses
Net Income
Retained Earnings - 1/1
Less: Dividends Declared - 7/1
12/31
Retained earnings - 12/31
Balance Sheet
Cash and Receivables
Inventories
Land
Building (net)
Equipment (net):
Purchased before 1/1
Purchased 7/1
Totals

Translation
Rate

3,225,000$.7480
2,200,000 .7480
140,000
.7480
540,000
.7480
345,000
720,000
.7924
1,065,000
(50,000)
.7412
(50,000)
.7298
965,000

2,412,300
1,645,600
104,720
403,920
258,060
570,528
828,588
(37,060)
(36,490)
755,038

880,000
500,000

400,000
605,000

642,224
364,900
291,920
441,529

.7298
.7298
.7298
.7298

380,000
.7298
90,000
.7298
2,855,000

Short-Term Accounts and Notes
Long-Term Notes
Common Stock
Additional Paid-in Capital
Retained Earnings
Totals
Translation Adjustment
Totals

210,000
.7298

680,000
.7298
800,000
.7924
200,000
.7924
965,000
2,855,000
--Balancing amt.
2,855,000

13 - 11

U.S.
$

277,324
65,682
2,083,579
153,258
496,264
633,920
158,480
755,038
2,196,960
(113,381)
2,083,579


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Problem 13-1 (continued)

New
Zealand $

Part B Exposed net asset position - 1/1
Adjustments for changes in net asset position during the year:
Net income
Dividends declared - 7/1
12/31
Net asset position translated using rate in effect at date of transaction
Exposed net asset position - 12/31
Cumulative translation adjustment (debit)

Problem 13-2

345,000
(50,000)
(50,000)

13 - 12

.7480
.7412
.7298

1,965,000 .7298

880,000

500,000
400,000
605,000

Short-Term Payables
Long-Term Notes
Common Stock
Additional Paid-in Capital
Retained Earnings
Totals

U.S.
$

1,720,000$.7924

New
Zealand $

Part A Balance Sheet
Cash and Receivables
Inventories
Land
Buildings (net)
Equipment (net):
Purchased before 1/1
Purchased 7/1
Totals

Translation

Rate

Translation
Rate
$.7298
.7476
.7924
.7924

1,362,928
258,060
(37,060)
(36,490)
1,547,438
1,434,057
(113,381)

U.S.
$
642,224
373,800
316,960
479,402

380,000
.7924
90,000
.7412
2,855,000

301,112
66,708
2,180,206

210,000
.7298
680,000
.7298
800,000
.7924
200,000
.7924
965,000 Balancing amt.
2,855,000

153,258
496,264
633,920
158,480
738,284
2,180,206


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Problem 13-2 (continued)
Consolidated Statement of Income and Retained Earnings
Revenues
Cost of Goods Sold
Depreciation Expense

Other Expenses
Translation Loss (Gain)
Net Income
Retained Earnings - 1/1
Less: Dividends Declared - 7/1
12/31
Retained Earnings - 12/31
Schedule 1 - Translation of cost of goods sold

3,225,000 .7480
2,200,000 Schedule 1
140,000 Schedule 2
540,000
.7480
--Balancing amt.
345,000
720,000
.7924
1,065,000
(50,000)
.7412
(50,000)
.7298
965,000
New
Translation
Zealand $
Rate
600,000
.7924*

2,100,000 .7480
2,700,000

Beginning Inventory
Purchase

Less: Ending Inventory
Cost of Goods Sold

2,412,300
1,672,440
110,424
403,920
(15,790)
241,306
570,528
811,834
(37,060)
(36,490)
738,284
U.S.
$
475,440
1,570,800
2,046,240

500,000
.7476
2,200,000

373,800
1,672,440

45,000
85,000
10,000
140,000

35,658
67,354
7,412
110,424

Schedule 2 - Translation of Depreciation Expense
Buildings
Equipment on hand - 1/1
Equipment purchased - 7/1
Total

.7924
.7924
.7412

* Translation rate is the January 1, 2008 rate, the date the equity interest was acquired, rather than the $.7480 rate in effect when the
inventory was purchased.

13 - 13


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Problem 13-2 (continued)

New
Translation
Zealand $
Rate
395,000 $.7924
(3,225,000).7480

Part B Exposed net monetary liability position - 1/1 (295,000 + 600,000 – 500,000)
Less: Increase in cash and receivables from sales
Add: Decrease in monetary assets or increase in monetary liabilities:
Purchases
Other expenses
Dividends - 7/1
12/31
Purchase of equipment - 7/1
Net monetary liability position translation using rates in effect at date of each transaction
Exposed net monetary liability position - 12/31 (210,000 + 680,000 – 880,000)
Translation gain (reported on the Income Statement)

2,100,000 .7480
540,000
.7480
50,000
.7412
50,000
.7298
100,000

.7412
10,000

Problem 13-3
Francs
Part A Consolidated Statement of Income and Retained Earnings
Sales
Cost of Goods Sold
Depreciation Expense
Other Expense
Income Tax Expense
Net Income
Retained Earnings - 1/1
Less: Dividends Declared
Retained Earnings - 12/31

13 - 14

.7298

Translation
Rate

3,775,000$.176
2,312,500 .176
125,000
.176
818,750
.176
102,500

.176
416,250
513,000
Given
929,250
375,000
.18
554,250

U.S.
$
312,998
(2,412,300)
1,570,800
403,920
37,060
36,490
74,120
23,088
7,298
15,790

U.S.$
664,400
407,000
22,000
144,100
18,040
73,260
75,948

149,208
67,500
81,708


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Problem 13-3 (continued)
Balance Sheet
Cash
Accounts Receivable
Inventories
Land
Buildings (net)
Equipment (net)
Accounts Payable
Short-term Notes Payable
Bonds Payable
Common Stock
Additional Paid-in Capital
Retained Earnings
Cumulative Translation Adjustment (Credit)

962,500
$.19
660,000
.19
1,037,500 .19
500,000
.19

550,000
.19
405,000
.19
4,115,000

182,875
125,400
197,125
95,000
104,500
76,950
781,850

800,000
650,750
850,000
960,000
300,000
554,250
--4,115,000

152,000
123,643
161,500
144,000
45,000
81,708
73,999
781,850

.19
.19
.19
.15
.15

Part B Verification of the Translation Adjustment
Francs
Exposed net asset position - 1/1
Adjustments for changes in net asset position during the year:
Net income for the year
Dividends declared
Net asset position translated using rate in effect at date of transaction
Exposed net asset position - 12/31
Change in cumulative translation adjustment during the year - net increase
Cumulative translation adjustment - 1/1 (Given)
Cumulative translation adjustment - 12/31 (Credit balance)
** Difference of $1.00 ($74,000 compared to $73,999) due to rounding.
* Common stock
Additional paid-in capital
Retained earnings

960,000
300,000
513,000
1,773,000
13 - 15

Translation

Rate
1,773,000*$.17

416,250
.176
(375,000)
.18
--1,814,250 .19

U.S.$
301,410
73,260
(67,500)
307,170
344,708
37,538
36,462
74,000**


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Problem 13-3 (continued)

Francs
2,660 ,000
= 1.83
1,450 ,750

505 ,400

= 1.83
275 ,643

Debt to equity

2,300 ,750
= 1.27
1,814 ,250

437 ,143
= 1.27
344 ,707

Gross profit percentage

1,462 ,500
= 38.7%
3,775 ,000

257 ,400
= 38.7%
664 ,400

Net income to sales

416 ,250
= 11.0%
3,775 ,000

73,260

= 11.0%
664 ,400

Part C Current ratio

$

Problem 13-4
Francs
Part A Balance Sheet
Cash
Accounts Receivable
Inventories (FIFO Cost)
Land
Buildings (net)
Equipment (net)
Total

962,500
660,000
1,037,500
500,000
550,000
405,000
4,115,000

Accounts Payable
Short-term Notes Payable
Bonds Payable
Common Stock

Additional Paid-in Capital
Retained Earnings
Total

800,000
650,750
850,000
960,000
300,000
554,250
4,115,000

13 - 16

Translation
Rate
$.19
.19
Schedule 1
.15
.15
.15

.19
.19
.19
.15
.15

U.S.$

182,875
125,400
191,938
75,000
82,500
60,750
718,463
152,000
123,643
161,500
144,000
45,000
92,320
718,463


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Problem 13-4 (continued)
Francs
Consolidated Income and Retained Earnings Statement
Sales
Cost of Goods Sold
Depreciation Expense
Other Expense
Income Tax Expense
Translation Loss
Net Income
Retained Earnings - 1/1
Less: Dividends Declared

Retained Earnings - 12/31

Schedule 1

Translation
Rate

3,775,000 $.176
2,312,500 Schedule 1
125,000
.15
818,750
.176
102,500
.176
416,250
Balancing Amt.
416,250
513,000
Given
929,250
375,000
.18
554,250

Francs

Beginning inventory
Purchases
Goods available

Ending inventory
Cost of goods sold

830,000
2,520,000
3,350,000
1,037,500
2,312,500

13 - 17

U.S.$

Translation
Rate
.165
.176
.185

664,400
388,532
18,750
144,100
18,040
94,978
11,818
83,160
76,660
159,820
67,500

92,320

U.S.$
136,950
443,520
580,470
191,938
388,532


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Problem 13-4 (continued)
Part B Verification of the Translation Loss
Francs
Exposed net monetary liability position - 1/1
Adjustments for changes in net monetary position during the year:
Less: Increase in cash and receivables from sales
Add: Decrease in monetary assets or increase in monetary
liabilities from operations:
Purchases
Other expenses
Income taxes
Dividends declared
Net monetary liability position translated using rate in effect
at date of transaction
Exposed net monetary liability position - 12/31
Translation Loss
*End of Year:
Monetary assets

962,500 + 660,000 =
Monetary liabilities
800,000 + 650,750 + 850,000 =
Net monetary liability position

637,000
(3,775,000)

2,520,000
818,750
102,500
375,000
--678,250*

1,622,500
2,300,750
678,250

13 - 18

Translation
Rate

U.S.$

.17

108,290

.176

(664,400)

.176
.176
.176
.18

443,520
144,100
18,040
67,500

.19

117,050
128,868
(11,818)


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Problem 13-5
Canadian $
Part A (1) Equipment:
Drill press
Stamping press
Fork lift
Total
Accumulated depreciation:

Drill press (30,000/5 4)
Stamping press (80,000/4 3)
Fork lift (42,000/6)
Total

Translation
Rate

30,000
80,000
42,000
152,000

$.8430
.7360
.6998

25,290
58,880
29,392
113,562

24,000
60,000
7,000
91,000

.8430
.7360
.6998

20,232
44,160
4,899
69,291

Equipment
Less: Accumulated depreciation
Net

Part B

U.S.$

113,562
69,291
44,271

(2) Ending inventory

60,000

.6845

41,070

(3) Marketable securities

30,000

.9320

27,960

6,000
20,000
7,000

$.8430
.7360
.6998

5,058
14,720
4,899
24,677

60,000
400,000
460,000
60,000
400,000

.7322
.7140

43,932
285,600
329,532
41,070

288,462

Depreciation expense:
Drill press
Stamping press
Fork lift
Total depreciation
Beginning inventory
Purchases
Goods available for sale
Ending inventory
Cost of goods sold

13 - 19

.6845


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Problem 13-5 (continued)
Canadian $
Part C (1) Equipment:
Drill press
Stamping press
Fork lift
Total

Translation
Rate

U.S.$

30,000
80,000
42,000
152,000 $.6960105,792

Accumulated depreciation:
Drill press
Stamping press
Fork lift
Total
Net

24,000
60,000
7,000
91,000 .6960 63,336
42,456

(2) Inventory

60,000 .6960 41,760

(3) Marketable securities

30,000 .6960 20,880

(4) Depreciation expense:

Drill press
Stamping press
Fork lift
Total depreciation

6,000
20,000
7,000
33,000 .7140 23,562

(5) Beginning inventory
Purchases
Goods available for sale
Ending inventory
Cost of goods sold

60,000
400,000
460,000
60,000
400,000 .7140285,600

Part D

Current
Rate
Temporal
Method Method
$ 23,562 $ 24,677
285,600 288,462

$309,162 $313,139
309,162
$ 3,977

Depreciation expense
Cost of goods sold
Total
Difference

Difference:
Effect on
Income
$ 1,115
2,862
$ 3,977

Net income is increased under the current rate method because depreciation expense and
cost of goods sold are translated using the average rate for 2008 which is lower than the
historical rates used under the temporal method. Therefore, expenses in dollars are smaller
under the current rate method.

13 - 20


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Problem 13-6A
Part A See Problem 13-3.
Part B Cash ((375,000 $.18)
Dividend Income

.80)

54,000
54,000

Part C Supporting Entries (the workpaper is on a following page)
Elimination Entries:
(1) Investment in SFr Company
Beginning Retained Earnings - P Company
($75,948 - $72,000) .80 = $3,158
(2) Dividend Income
Dividends Declared

3,158
3,158

54,000
54,000

(3) Retained Earnings - 1/1 SFr Company
Common Stock - SFr Company
Additional Paid-in Capital - SFr Company
Difference Between Implied and Book Value
Investment in SFr Company ($300,000 $3,158)
Noncontrolling interest
(4) Cumulative Translation Adjustment - SFr Company ($73,999
Cumulative Translation Adjustment - P Company

75,948

144,000
45,000
114,000
303,158
75,790
.80) 59,199

(5) Beginning Retained Earnings - P Company (1st yr’s depreciation*) 4,680
Noncontrolling Interest (37,500 $.156) x .20
1,170
Depreciation Expense (current yr’s depreciation) ($37,500 $.176) 6,600
Land ($385,000 .19)
73,150
Buildings, net (unamortized balance) ($300,000 .19)
57,000
Cumulative Translation Adjustment ($13,200 + $15,400)
Difference Between Implied and Book Value
* (37,500

$.156) x .80

13 - 21

59,199

28,600
114,000


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Problem 13-6A (continued)
Supporting computations for eliminating entries
Francs
Implied value of investment (2,000,000/.80)
Book value of net assets
Common stock
Additional paid-in capital
Retained earnings
Net assets
Difference between implied and book value
Land
Building
Excess of cost over fair value

960,000
300,000
480,000
1,740,000

Translation
Rate
2,500,000 $.15

1,740,000
760,000
(385,000)
(375,000)
0

.15
.15
.15
.15

261,000
114,000
(57,750)
(56,250)
0
56,250
(5,850)
(6,600)
43,800
57,000
13,200

Undervalued building
Amortization - Prior year
- 2009
Building translated using rate in effect at date of transaction
Unamortized balance - 12/31/2009
Cumulative translation adjustment

375,000
(37,500)
(37,500)

.15
.156

.176

300,000

.19

Land - Date of acquisition
- 12/31/2009
Cumulative translation adjustment

385,000
385,000

.15
.19

Total adjustment - $13,200 + $15,400 = $28,600

13 - 22

U.S.$
375,000

57,750
73,150
15,400


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Problem 13-6A (continued)

P COMPANY AND SUBSIDIARY
Consolidated Statement Workpaper
For the Year Ended December 31, 2009
P
Company

Income Statement
Sales
Dividend Income
Total Revenues
Cost of Goods Sold
Depreciation Expense
Other Expense
Income Tax Expense
Total Expenses
Net Income
Noncontrolling Interest
Net Income to Retained Earnings
Retained Earnings Statement
Retained Earnings - 1/1
P Company
SFr Company
Net Income from Above
Dividends Declared
P Company
SFr Company
Retained Earnings to
Balance Sheet - 12/31

4,200,000
54,000
4,254,000
2,720,000
210,000
914,000
100,000
3,944,000
310,000

SFr
Company

Eliminations
Dr.
Cr.

664,400
(2)
664,400
407,000
22,000 (5)
144,100
18,040
591,140
73,260

54,000

6,600

310,000

73,260

60,600

544,400

(5)
75,948 (3)
73,260

4,680 (1)
75,948
60,600

310,000

Noncontrolling Consolidated
Interest
Balances

---

4,864,400
________
4,864,400
3,127,000

238,600
1,058,100
118,040
4,541,740
322,660
13,332*
(13,332)
13,332
309,328

3,158

542,878
13,332

(200,000)
(67,500)
654,400

81,708

*($73,260- $6,600) x

13 - 23

(2) 54,000
141,228

57,158

(13,500)
(168)

309,328
(200,000)
_______
652,206


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Problem 13-6A (continued)
Balance Sheet
Cash
Accounts Receivable
Inventories (FIFO Cost)
Investment in SFr Company
Land
Buildings (net)
Equipment (net)
Difference between Implied &
Book Value
Total Assets
Accounts Payable
Short-Term Notes Payable
Bonds Payable
Common Stock
P Company
SFr Company
Additional Paid-in Capital

P Company
SFr Company
Cumulative Translation Adjustment
P Company
SFr Company
Retained Earnings
1/1 Noncontrolling interest
12/31 Noncontrolling interest
Total Liabilities and Equity

P
Company

SFr
Company

Eliminations
Dr.
Cr.

Noncontrolling Consolidated
Interest
Balances

500,200
516,400
627,800
300,000
450,000
610,000

290,000

182,875
125,400
197,125
(1)
95,000 (5)
104,500 (5)
76,950

3,158 (3)
73,150
57,000

303,158

---

--(3)
781,850

114,000 (5)

114,000

3,294,400
540,000
300,000
700,000

683,075
641,800
824,925
--618,150
771,500
366,950
________
3,906,400

152,000
123,643
161,500

692,000
423,643
861,500

800,000

800,000
144,000 (3)

144,000

45,000 (3)

45,000

300,000

300,000

---

654,400

3,294,400

(4)
(5)
73,999 (4)
81,708
(5)
781,850

13 - 24

59,199
28,600

59,199
141,228
57,158
1,170
(3) 75,790
637,905

637,905

87,799

14,800
(168)
74,620
89,252

652,206
89,252
3,906,400


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Problem 13-7A
Part A See Problem 13-4.
Part B Cash ((375,000 $.18)
Dividend Income

.80)

54,000
54,000

Part C Supporting Entries (the workpaper is on a following page)
Elimination Entries
(1) Investment in SFr Company
Beginning Retained Earnings - P Company
Retained earnings - 1/1/2009
Retained earnings - Date of acquisition
Undistributed net income

3,728
3,728
$76,660
72,000
$ 4,660

.8 =

3,728
(2) Dividend Income
Dividends Declared

54,000
54,000

(3) Beginning Retained Earnings - SFr Company
Common Stock - SFr Company
Additional Paid-In Capital - SFr Company
Difference Between Implied and Book Value
Investment in SFr Company ($300,000 + $3,728)
Noncontrolling interest
(4) Beginning Retained Earnings - P Company
Noncontrolling interest (37,500 x $.15) x .20
Depreciation Expense
Land
Building
Difference Between Implied and Book Value

76,660
144,000

45,000
114,000
303,728
75,932
4,500
1,125
5,625
57,750
45,000

Supporting computations:
375,000
$.15 = 37,500 $.15 = $5,625
10
Unamortized balance - 12/31/2009
Land 385,000 $.15 = $57,750
Building 375,000 - 37,500 - 37,500 = 300,000 $.15 = $45,000

Depreciation expense per year

13 - 25

114,000