Chapter 12, Problem 12.25P

a

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The elimination entries required for comprehensive consolidation worksheet for December 31, 20X3.

Explanation of Solution

Particulars	Amount $	Amount $
1.
Income from subsidiary	39,416
Dividends declared		4,824
Investment in subsidiary		34,592
(Income from subsidiary eliminated)
2.
Income to non-controlling interest	11,414
Dividends declared		1,206
Non-controlling interest		10,208
(Assignment of income to non-controlling interest)
3.
Investment in SR	13,408
Other comprehensive income translation adjustment		13,408
(Elimination of comprehensive income from subsidiary that had been recorded by parent)
4.
Non-controlling interest	3,352
Other comprehensive income to non-controlling interest		3,352
(Assignment of proportionate share of the subsidiary other comprehensive income to non-controlling interest)
5.
Common stock	63,000
Retained earnings January 1	28,000
Differential	67,200
Investment in subsidiary		140,000
Non-controlling interest		18,200
(Elimination of beginning investment in subsidiary)
6.
Investment in subsidiary	9,120
Differential		9,120
(Elimination of differential translation adjustment)
7.
Plant and equipment	24,200
Patient	33,880
Differential		58,080
(Assignment of differential adjustment to plant and equipment, patient)
8.
Depreciation expenses	2,600
Amortization expenses	3,640
Accumulated depreciation		2,600
Patient		3,640
(Amortization of differential)
9.
Payable to P	6,480
Receivable from SR		6,480
(Elimination of intercompany receivable and payable)

1. Elimination of income from subsidiary, dividends declared $\$4,824=\$6,030\times .80$ by reversal
2. Assignment of income to non-controlling interest $\$11,414=\$57,070\times .20$
3. Dividends declared $\$1,206=\$6,030\times .20$
4. Elimination of other comprehensive from subsidiary that had been recorded by the parent $\$13,408=\$16.760\times .80$
5. Assignment of proportionate share of the subsidiary’s other comprehensive income to the non-controlling interest $\$3,352=\$16.760\times .20$
6. Elimination of beginning investment, investment in subsidiary $\$140,000=\$67,200+(\$63,000+28,000)\times .80$
7. Non-controlling interest $\$18,200=(\$63,000+28,000)\times .20$
8. Amount of differential translation adjustment in investment in subsidiary eliminated
9. Amount of differential in Plant and Equipment, and patients assigned $Plantandequipment\$24,200=\$28,000-\$3,800$
$Patient\$33,880=\$39,200-\$5,320$
10. Amortization of differential on depreciation and patient
11. Elimination of intercompany receivable and payable by setoff.

b

To determine

Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that it occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.

The comprehensive consolidation worksheet as of December 31, 20X3.

Answer to Problem 12.25P

The trial balance total after transaction adjustment December 31 20X4 $1,148,228

Explanation of Solution

P. Inc. and Subsidiary

Consolidation Worksheet

For the year ended December 31, 20X2

			Eliminations
Item	P $	SR $	Debit $	Credit $	Consolidation $
Sales	1,000,000	376,350			1,376,350
Income from subsidiary	39,416		39,416
Less:
Cost of sales	(600,000)	(241,500)			(814,500)
Depreciation expenses	(28,000)	(15,600)	2,600		(46,200)
Amortization expenses			3,640		(3,640)
Operating expenses	(204,000)	(85,475)			(289,475)
Interest expenses	(2,000)	(3,705)			(5,705)
Net income					216,830
Non-controlling interest			11,414		(11,414)
Net income C/F	205,416	57,070	57,070	0	205,416
Retained earnings Jan 1	179,656	28,000	28,000		179,656
Net income B/F	205,416	57,070	57,070	0	205,416
Less: Dividends declared	(50,000)	(6,030)		4,824
				1,206	(50,000)
Retained earnings	335,072	79,040	85,070	6,030	335,072
Cash	38,000	26,460			64,460
Accounts receivable	140,000	43,200			183,200
Receivable from SR	6,480			6,480
Inventory	128,000	51,600			179,600
Plant and equipment	500,000	144,000	24,000		668,200
Investment in subsidiary	152,064		13,408	34,592
			9,120	140,000
Differential			67,200	9,120
				58,080
Patient			33,880	3,640	30,240
Accumulated other comprehensive income	22,528	16,760		16,760	22,528
Total Assets	987,072	282,020			1,148,228
Accumulated depreciation	90,000	36,000		2,600	128,600
Accounts payable	60,000	32,280			92,280
Payable to P		6,480	6,480
Interest payable	2,000	1,800			3,800
Bonds payable		60,000			60,000
Premium on bonds		3,420			3,420
Common stock	500,000	63,000	63,000		500,000
Retained earnings	335,072	79,040	85,070	6,030	335,072
Non-controlling interest			3,352	10,208
				18,200	25,056
Total Liability and equity	987,072	282,020	305,710	305,710	1,148,228