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Translation, Journal Entries, Consolidated Comprehensive Income, and Stockholders’ Equity
On January 1, 20X5, Taft Company acquired all of the outstanding stock of Vikix, Inc., a Norwegian company, at a cost of $151,200. Vikix’s net assets on the date of acquisition were 700,000 kroner (NKr). On January 1, 20X5, the book and fair values of the Norwegian subsidiary’s identifiable assets and liabilities approximated their fair values except for property, plant, and equipment and patents acquired. The fair value of Vikix’s property, plant, and equipment exceeded its book value by $18,000. The remaining useful life of Vikix’s equipment at January 1, 20X5, was 10 years. The remainder of the differential was attributable to a patent having an estimated useful life of 5 years. Vikix’s trial balance on December 31, 20X5, in kroner, follows:
|
|
Debits |
Credits |
|
Cash |
NKr 150,000 |
|
|
Accounts Receivable (net) |
200,000 |
|
|
Inventory |
270,000 |
|
|
Property, Plant, & Equipment |
600,000 |
|
|
Accumulated Depreciation |
|
NKr 150,000 |
|
Accounts Payable |
|
90,000 |
|
Notes Payable |
|
190,000 |
|
Common Stock |
|
450,000 |
|
Retained Earnings |
|
250,000 |
|
Sales |
|
690,000 |
|
Cost of Goods Sold |
410,000 |
|
|
Operating Expenses |
100,000 |
|
|
Depreciation Expense |
50,000 |
|
|
Dividends Paid |
40,000 |
|
|
Total |
NKr1,820,000 |
NKr1,820,000 |
Additional Information
1. Vikix uses the FIFO method for its inventory. The beginning inventory was acquired on December 31, 20X4, and ending inventory was acquired on December 15, 20X5. Purchases of NKr420,000 were made evenly throughout 20X5.
2. Vikix acquired all of its property, plant, and equipment on July 1, 20X3, and uses straight-line depreciation.
3. Vikix’s sales were made evenly throughout 20X5, and its operating expenses were incurred evenly throughout 20X5.
4. The dividends were declared and paid on July 1, 20X5.
5. Taft’s income from its own operations was $275,000 for 20X5, and its total stockholders’ equity on January 1, 20X5, was $3,500,000. Taft declared $100,000 of dividends during 20X5.
6. Exchange rates were as follows:
|
|
NKr |
$ |
|
July 1, 20X3 |
1 = |
0.15 |
|
December 30, 20X4 |
1 = |
0.18 |
|
January 1, 20X5 |
1 = |
0.18 |
|
July 1, 20X5 |
1 = |
0.19 |
|
December 15, 20X5 |
1 = |
0.205 |
|
December 31, 20X5 |
1 = |
0.21 |
|
Average for 20X5 |
1 = |
0.20 |
Required
a. Prepare a schedule translating the trial balance from Norwegian kroner into U.S. dollars. Assume the krone is the functional currency.
b. Assume that Taft uses the fully adjusted equity method. Record all journal entries that relate to its investment in the Norwegian subsidiary during 20X5. Provide the necessary documentation and support for the amounts in the journal entries, including a schedule of the translation adjustment related to the differential.
c. Prepare a schedule that determines Taft’s consolidated comprehensive income for 20X5.
d. Compute Taft’s total consolidated stockholders’ equity at December 31, 20X5.
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