On January 1, 2019, Parker, Inc., a U.S.-based firm, acquired 100 percent of Suffolk PLC located in Great Britain for consideration paidof 52,000,000 British pounds (£), which was equal to fair value. The excess of fair value over book value is attributable to land (part ofproperty, plant, and equipment) and is not subject to depreciation. Parker accounts for its investment in Suffolk at cost. On January 1,2019, Suffolk reported the following balance sheet:CashAccounts receivable$ 2,000,000 Accounts payable3,000,000 Long-term debt14,000,000 Common stock40,000,000 Retained earnings$59,000,000$ 1,000,000$,000,00044,000,0006,000,000InventoryProperty, plant, and equipment (net)$59,000,000Suffolk's 2019 income was recorded at £2,000,000. It declared and paid no dividends in 2019.On December 31, 2020, two years after the date of acquisition, Suffolk submitted the following trial balance to Parker forconsolidation:Page 537Cash$ 1,500,000Accounts Receivable5,200,000Inventory18,000,000Property, Plant, and Equipment (net) 36,000,000Accounts Payable(1,450,000)Long-Term Debt(5,000,000)Common Stock(44,000,000)Retained Earnings, 1/1/20(8,000,000)Sales(28,000,000)Cost of Goods Sold16,000,000Depreciation2,000,000Other Expenses6,000,000Dividends, 1/30/201,750,000-0-Other than paying dividends, no intra-entity transactions occurred between the two companies. Relevant U.S. dollar exchange rates forthe British pound follow:January 1January 30AverageDecember 31$ 1.60$ 1.61$ 1.62$ 1.64201920201.641.651.661.68 The December 31, 2020, financial statements (before consolidation with Suffolk) follow Dividend income is the U.S. dollar amount ofdividends received from Suffolk translated at the $1.65/£ exchange rate at January 30, 2020. The amounts listed for dividend income andall affected accounts (i.e., net income, December 31 retained earnings, and cash) reflect the $1.65/£ exchange rate at January 30, 2020.Credit balances are in parentheses.ParkerSales$ (70,000,000)34,000,000Cost of goods soldDepreciation20,000,000Other expenses6,000,000(2,887,500)Dividend incomeNet income$ (12,887,500)$ (48,000,000)Retained earnings, 1/1/20Net income, 2020Dividends, 1/30/20Retained earnings, 12/31/20(12,887,500)4,500,000$ (56,387,500)3,687,50010,000,000Cash$Accounts receivableInventory30,000,000Investment in Suffolk83,200,000105,000,000(25,500,000)Plant and equipment (net)Accounts payableLong-term debtCommon stock(50,000,000)Retained earnings, 12/31/20(100,000,000)(56,387,500)-0-Parker's chief financial officer (CFO) wishes to determine the effect that a change in the value of the British pound would have onconsolidated net income and consolidated stockholders' equity. To help assess the foreign currency exposure associated with theinvestment in Suffolk, the CFO requests assistance in comparing consolidated results under actual exchange rate fluctuations with resultsthat would have occurred had the dollar value of the pound remained constant or declined during the first two years of Parker'sownership.1. Translate Suffolk's December 31, 2017, trial balance from British pounds toU.S. dollars. The British pound is Suffolk's functional currency.

As per International accounting standard 21, translating the trial balance or balance sheet of the…

On January 1, 2019, Parker, Inc., a U.S.-based firm, acquired 100 percent of Suffolk PLC located in Great Britain for consideration paid of 52,000,000 British pounds (£), which was equal to fair value. The excess of fair value over book value is attributable to land (part of property, plant, and equipment) and is not subject to depreciation. Parker accounts for its investment in Suffolk at cost. On January 1, 2019, Suffolk reported the following balance sheet: Cash Accounts receivable $ 2,000,000 Accounts payable 3,000,000 Long-term debt 14,000,000 Common stock 40,000,000 Retained earnings $59,000,000 $ 1,000,000 $,000,000 44,000,000 6,000,000 Inventory Property, plant, and equipment (net) $59,000,000 Suffolk's 2019 income was recorded at £2,000,000. It declared and paid no dividends in 2019. On December 31, 2020, two years after the date of acquisition, Suffolk submitted the following trial balance to Parker for consolidation: Page 537 Cash $ 1,500,000 Accounts Receivable 5,200,000 Inventory 18,000,000 Property, Plant, and Equipment (net) 36,000,000 Accounts Payable (1,450,000) Long-Term Debt (5,000,000) Common Stock (44,000,000) Retained Earnings, 1/1/20 (8,000,000) Sales (28,000,000) Cost of Goods Sold 16,000,000 Depreciation 2,000,000 Other Expenses 6,000,000 Dividends, 1/30/20 1,750,000 -0- Other than paying dividends, no intra-entity transactions occurred between the two companies. Relevant U.S. dollar exchange rates for the British pound follow: January 30 Average December 31 January 1 $ 1.60 $ 1.61 $ 1.64 2019 2020 $ 1.62 1.66 1.64 1.65 1.68

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter12: Intangibles

Section: Chapter Questions

Problem 18E