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CHAPTER 12TRANSLATION OF FOREIGN CURRENCY FINANCIAL
STATEMENTS
The title of each problem is followed by the estimated time in minutes required for completion and by a difficulty rating. The time estimates are applicable for students using the partially filled-in working papers.
Pr. 12–1 Transcontinent Company (20 minutes, easy)
Remeasurement of foreign branch’s trial balance to U.S. dollars functional currency from local currency.
Pr. 12–2 Sarasota Company (20 minutes, easy)
Remeasurement of trial balance of foreign branch to U.S. dollars. Computation of foreign currency transaction gain or loss resulting from remeasurement.
Pr. 12–3 Pan-Europe Corporation (20 minutes, medium)
Remeasurement of selected items from foreign subsidiary’s balance sheet to U.S. dollars, including computation of exchange rates in terms of one unit of foreign currency.
Pr. 12–4 Westpac Corporation (30 minutes, medium)
Journal entries, in dollars and in foreign currency, for transactions of home office and foreign branch of a U.S. multinational enterprise.
Pr. 12–5 Portero Corporation (50 minutes, medium)
Remeasurement of foreign subsidiary’s trial balance to U.S. dollars from foreign local currency. Computation of foreign currency transaction gain or loss resulting from remeasurement.
Pr. 12–6 Hightower Company (60 minutes, strong)
Preparation of working paper for combined income statement and balance sheet of U.S. multinational enterprise home office and foreign branch with U.S. dollar functional currency. Adjustments of ledger account balances of both home office and branch prior to combination.
Pr. 12–7 Eagle Corporation (60 minutes, strong)
Translation of foreign currency financial statements from functional currency to U.S. dollar; equity-method journal entry for parent company; working paper for consolidated financial statements and related working paper elimination (in journal entry format).
Pr. 12–8 Panamer Corporation (90 minutes, strong)
Translation of financial statements of foreign subsidiary of U.S. multinational enterprise. Adjustment of ledger account balances of parent company and domestic subsidiary. Preparation of working paper for consolidated financial statements and working paper eliminations for U.S. multinational enterprise and its domestic and foreign subsidiaries.
ANSWERS TO REVIEW QUESTIONS
1. The functional currency of a foreign entity is the currency of the primary economic environment in which the entity operates; normally, that is the currency of the environment in which the entity primarily generates and expends cash.
2. The current/noncurrent method of translating foreign currencies involves the following exchange rates for translation:(1) Current rate for current assets and current liabilities
The McGraw-Hill Companies, Inc., 2006Solutions Manual, Chapter 12 365
(2) Historical rate for all other assets and liabilities, elements of owners’ equity, depreciation expense, and amortization expense
(3) Average rate for revenue and expenses other than depreciation expense and amortization expense
The current rate method of translating foreign currencies requires translation of all balance sheet items other than owners’ equity at the current exchange rate. Owners’ equity amounts are translated at historical rates. All revenue and expenses are translated at an average rate.
3. No exchange rate is used to remeasure the balance of the Intercompany Accounts Payable ledger account of a foreign subsidiary. Instead, the account is remeasured at the balance in U.S. dollars of the reciprocal Intercompany Accounts Receivable account in the U.S. parent company’s accounting records.
4. Remeasurement to functional currency is required for the accounts of a foreign branch, subsidiary, or investee whose accounting records are not maintained in the functional currency. Remeasurement is accomplished by the monetary/nonmonetary method. Foreign currency translation is the restatement of the financial statements of a foreign branch, subsidiary, or investee from its functional currency to the reporting currency (the U.S. dollar for a U.S. enterprise). Translation is accomplished by the current rate method. If the functional currency of a foreign entity is the U.S. dollar, remeasurement makes translation unnecessary.
5. Foreign currency transaction gains and losses result from the following:(1) Changes in the exchange rate for a foreign currency between the date of initiation and the
date of settlement of a business transaction denominated in the foreign currency(2) Remeasurement of the trial balance of a foreign branch, subsidiary, or investee to the
functional currency from a local currencyForeign currency translation adjustments result from the translation of financial statements of a foreign subsidiary, branch, or investee to the reporting currency (the U.S. dollar for a U.S. enterprise) from the functional currency of the foreign entity.
6. Foreign currency transaction gains and losses from the following are excluded from the measurement of net income and are accounted for in the same manner as translation adjustments:(1) Foreign currency transactions designated as, and effective as, economic hedges of a net
investment in a foreign entity(2) Intercompany foreign currency transactions that are of a long-term investment nature
7. The functional currency of a foreign investee in a highly inflationary economy is identified as the reporting currency of the parent company, home office, or investor enterprise.
8. Required disclosures relating to foreign currency matters in the financial statements or in a note to the financial statements of U.S. multinational enterprises include the following:(1) Aggregate foreign currency transaction gain or loss, including gains and losses not deferred
on forward contracts, included in the measurement of net income for the accounting period(2) Changes in foreign currency translation adjustments during the accounting period, in a
separate financial statement, in a note to the financial statements, or in the statement of comprehensive income.
9. Two criticisms of FASB Statement No. 52, “Foreign Currency Translation,” are the following:(1) It established an indefensible distinction between foreign currency transaction gains and
losses and translation adjustments.(2) It abandons historical-cost concepts by sanctioning use of the current rate method for
translation of foreign currency financial statements.
The McGraw-Hill Companies, Inc., 2006366 Modern Advanced Accounting, 10/e
SOLUTIONS TO EXERCISES
Ex. 12–1 1. c 7. a2. c 8. b3. d 9. b4. a 10. a5. a 11. c6. b
Ex. 12–2 Journal entries for home office of Logan Company:
2006Apr. 1 Investment in Foreign Branch (LCU10,000 x $0.24) 2,400
Cash 2,400To record dispatch of draft to branch.
16 Equipment: Foreign Branch (LCU50,000 x $0.22) 11,000Investment in Foreign Branch 11,000
To record acquisition of equipment by branch.
30 Cash (LCU4,000 x $0.22) 880Investment in Foreign Branch 880
To record receipt of draft from branch.
Ex. 12–3 Computation of amounts to be included in remeasured income statement of Multiverse Company’s subsidiary for year ended Nov. 30, 2006:
Amount (LCUs)
Exchange rates
Amount (U.S.
dollars)Doubtful accounts expense LCU 60,000 $0.20 $12,000Patent amortization expense 40,000 0.25 10,000Rent expense 100,000 0.22 22,000
Totals LCU200,000 $44,000
Ex. 12–4 Computation of 2006 depreciation expense for foreign subsidiary of Paloma Company:
Remeasurement of:2004 plant asset acquisitions: LCU2,400,000 x $0.625 $1,500,0002005 plant asset acquisitions:
LCU1,200,000 x $0.556 667,20
0Totals LCU3,600,000 $2,167,200
Depreciation rate (straight-line method) 0.10Depreciation expense for 2006 ($2,167,200 x 0.10) $ 216,720
The McGraw-Hill Companies, Inc., 2006Solutions Manual, Chapter 12 367
Ex. 12–5 USA CORPORATIONRemeasurement of French Branch Trial Balance to U.S. Dollars
June 30, 2005
Balance (euros) dr (cr)
Exchangerates
Balance(U.S. dollars)
dr (cr)Cash C 15,000 $1.04 $ 15,600Trade accounts receivable 250,000 1.04 260,000Inventories 115,000 1.05 120,750Home office (360,000) (365,000)Sales (450,000) 1.045 (470,250)Cost of goods sold 340,000 1.05 357,000Operating expenses 90,000 1.045 94,050
Subtotals C -0- $ 12,150Foreign currency transaction gain -0 - (12,150 )
Totals C -0 - $ -0 -
Ex. 12–6 GLOBAL COMPANYRemeasurement of German Branch Trial Balance to U.S. Dollars
April 30, 2005
Balance (euros) dr (cr)
Exchange rates
Balance (U.S. dollars)
dr (cr)Cash C 15,000 $1.06 $ 15,900Trade accounts receivable 260,000 1.06 275,600Inventories 120,000 1.04 124,800Home office (280,000) (298,000)Sales (550,000) 1.05 (577,500)Cost of goods sold 340,000 1.04 353,600Operating expenses 95,000 1.05 99,750
Subtotals C -0- $ (5,850)Foreign currency transaction loss -0 - 5,850
Totals C -0 - $ -0 -
Ex. 12–7 SPANISH COMPANYBalance Sheet
November 30, 2006Assets
Current assets $180,000Plant assets (net) 260,000Other assets 60,000
Total assets $500,000
Liabilities & Stockholder’s Equity
Current liabilities $ 80,000Long-term debt 120,000
Total liabilities $200,000Common stock $ 50,000Additional paid-in capital 100,000Retained earnings 120,000Foreign currency translation adjustments 30,000
Total stockholder’s equity $300,000Total liabilities & stockholder’s equity $500,000
The McGraw-Hill Companies, Inc., 2006368 Modern Advanced Accounting, 10/e
Ex. 12–8 Computation of foreign currency translation adjustments of Overseas Company, Dec. 31, 2005:
Total assets (LCU900,000 x $0.48) $432,000Less: Total liabilities (LCU500,000 x $0.48) $240,000
Common stock (LCU200,000 x $0.44) 88,000Retained earnings (same as net income) (LCU200,000 x
$0.46) 92,000 420,000Foreign currency translation adjustments (credit balance) $ 12,000
Ex. 12–9 Journal entry for Investor Corporation, Dec. 31, 2007:
Foreign Currency Transaction Loss 9,300Loan Payable to Bank 9,300
To recognize transaction loss on loan obtained to hedge investment in Foreign Investee Company as follows:
Liability recorded on Jan. 2, 2007 (LCU300,000 x $0.20) $ 60,000
Less: Liability translated at Dec. 31, 2007 spot rate LCU1 = $0.24 (LCU300,000 x $0.24) 72,000
Difference $(12,000)Less: Increase in cumulative translation
adjustments of investee ($50,300– $47,600) 2,700
Foreign currency transaction loss recognized $ 9,300
CASES
Case 12–1 Although the accounting treatment accorded to the translation adjustment of Ostmark’s Austrian subsidiary was incorrect, the net translation adjustments in Ostmark’s consolidated balance sheet would be correct. The controller of Ostmark incorrectly used a working paper elimination to record a foreign currency translation adjustment. The controller should have included the $25,000 difference between the translated amount of the Austrian subsidiary’s intercompany payable amount and Ostmark’s intercompany receivable amount in the foreign currency translation adjustments amount in the Austrian subsidiary’s translated balance sheet. This treatment is required by FASB Statement No. 52, “Foreign Currency Translation,” for intercompany foreign currency transactions that are of a long-term investment nature.
Case 12–2 Arguments supporting the affirmative position include:
(1) A single translation technique should be used for restating foreign currency financial statements of all foreign entities.
(2) Allowing management of a parent or investor enterprise to determine the functional currency of a foreign entity might encourage improper designation of the entity’s local currency as the functional currency, in order to avoid recognition of foreign currency transaction gains and losses resulting from remeasurement.
(3) The foreign currency translation adjustments resulting from translation of a foreign entity’s financial statements from the functional currency to the reporting currency defy a logical explanation in accounting theory. As a “plug” amount, carried perhaps indefinitely in the foreign entity’s translated financial statements, they are nebulous at best and possibly misleading, given their impact on measures such as debt-to-equity ratio, at worst.
The McGraw-Hill Companies, Inc., 2006Solutions Manual, Chapter 12 369
Arguments supporting the negative position include:
(1) It is factual that the local currency of some countries is undesirable as a medium of exchange and that many significant business transactions in those countries use another (functional) currency. The functional currency concept recognizes this fact and avoids misstatements of a foreign entity’s operating results that arise from use of a currency in which transactions were not completed.
(2) Use of the foreign currency translation adjustments “plug” in the stockholders’ equity section of the foreign entity’s translated financial statements avoids recognizing an uncontrollable gain or loss resulting from changes in exchange rates rather than from business transactions or events.
Case 12–3 There appears to be an incentive for management of a U.S. multinational enterprise to avoid remeasurement of a foreign entity’s accounts to a functional currency different from its local currency. Any time generally accepted accounting principles permit enterprise management to make a decision that impacts the “bottom line” of the enterprise’s income statement, the decision likely will be one that enhances net income or reduces net loss. Further, the reliability qualitative characteristic of accounting information is difficult to comply with when objective evidence to support the selection of a foreign entity’s functional currency is difficult to obtain, as it is in most situations other than a highly inflationary economy.
The McGraw-Hill Companies, Inc., 2006370 Modern Advanced Accounting, 10/e
20 Minutes, EasyTranscontinent Company Pr. 12–1
Transcontinent Company
Remeasurement of Mideastia Branch Trial Balance
March 31, 2005
BalanceBalance (LCUs) Exchange (U.S. dollars)
dr (cr) rates dr (cr)
Cash LCU 2 0 0 0 $ 0 . 6 4 (1) $ 1 2 8 0
Trade accounts receivable 5 8 0 0 0 0 . 6 4 (1) 3 7 1 2 0
Allowance for doubtful accounts ( 1 0 0 0 ) 0 6 4 (1) ( 6 4 0 )
Inventories 1 2 6 0 0 0 0 . 6 0 (2) 7 5 6 0 0
Home office ( 2 2 0 0 0 0 ) (3) ( 1 3 2 0 0 0 )
Sales ( 1 8 4 0 0 0 ) 0 . 6 2 (4) ( 1 1 4 0 8 0 )
Cost of goods sold 1 6 0 0 0 0 0 . 6 0 (2) 9 6 0 0 0
Operating expenses 5 9 0 0 0 0 . 6 2 (4) 3 6 5 8 0
Subtotals LCU - 0 - $ ( 1 4 0 )
Foreign currency transaction loss - 0 - 1 4 0
Totals LCU - 0 - $ - 0 -
(1) Current rate (Mar. 31, 2005).
(2) Historical rate (when goods were shipped to branch by home office).
(3) Balance of Investment in Mideastia Branch ledger account in home office accounting records.
(4) Average of exchange rates for the month of March, 2005.
20 Minutes, EasySarasota Company Pr. 12–2
The McGraw-Hill Companies, Inc., 2006Solutions Manual, Chapter 12 371
Sarasota Company
Remeasurement of Foreign Branch Trial Balance
April 30, 2005
Balance Balance(LCUs) Exchange (U.S. dollars)dr (cr) rates dr (cr)
Cash LCU 1 0 0 0 0 $ 1 . 0 5 $ 1 0 5 0 0
Trade accounts receivable 5 0 0 0 0 $ 1 . 0 5 5 2 5 0 0
Inventories 1 2 4 3 7 5 ( 1 ) 1 3 1 1 0 0
Reciprocal
Home office ( 1 0 4 5 6 5 ) account ( 1 1 9 7 0 0 )
balance
Sales ( 2 7 9 3 0 0 ) $ 1 . 0 9 (2) ( 3 0 4 4 3 7 )
Cost of goods sold 1 5 2 2 8 9 ( 3 ) 1 6 9 1 0 9
Operating expenses 4 7 2 0 1 $ 1 . 0 9 (2) 5 1 4 4 9
Subtotals - 0 - $ ( 9 4 7 9 )
Foreign currency transaction loss - 0 - 9 4 7 9
Totals LCU - 0 - $ - 0 -
(1) LCU117,150 x $1.05 = $123,008
7,225 x 1.12 = 8,092
LCU124,375 $131,100
(2) ($1.10 x 6/30) + ($1.12 x 12/30) + ($1.05 x 12/30) = $1.09
(3) LCU 72,730 x $1.10 = $ 80,003
79,559x 1.12 = 89,106
LCU152,289 $169,109
The McGraw-Hill Companies, Inc., 2006372 Modern Advanced Accounting, 10/e
20 Minutes, MediumPan-Europe Corporation Pr. 12–3
Pan-Europe Corporation
Remeasurement of Amounts in Foreign Subsidiary’s Trial Balances
November 30, 2007 and 2006
The McGraw-Hill Companies, Inc., 2006Solutions Manual, Chapter 12 373
Nov. 30, 2007 Nov. 30, 2006
Exchange Exchange
LCUs rates U.S. dollars LCUs rates U.S. dollars
Trade accounts receivable (net) LCU 4 0 0 0 0 $ 0 . 6 7 $ 2 6 8 0 0 LCU 3 5 0 0 0 $ 0 . 5 9 $ 2 0 6 5 0
Allowance for doubtful accounts 2 2 0 0 0 . 6 7 1 4 7 4 2 0 0 0 0 . 5 9 1 1 8 0
Inventories 8 0 0 0 0 0 . 5 9 4 7 2 0 0 7 5 0 0 0 0 . 5 0 3 7 5 0 0
Plant assets (net):
Dec. 1, 2005 acquisition 1 3 6 0 0 0 0 . 5 0 $ 6 8 0 0 0 1 5 0 0 0 0 0 . 5 0 $ 7 5 0 0 0
June 4, 2007 acquisition 2 7 0 0 0 0 . 6 7 1 8 0 9 0
Total plant assets (net) LCU 1 6 3 0 0 0 $ 8 6 0 9 0 LCU 1 5 0 0 0 0 $ 7 5 0 0 0
Accumulated depreciation:
Dec. 1, 2005 acquisition (164,000) LCU 2 8 0 0 0 0 . 5 0 $ 1 4 0 0 0 LCU 1 4 0 0 0 0 . 5 0 $ 7 0 0 0
June 4, 2007 acquisition (30,000) 3 0 0 0 0 . 6 7 2 0 1 0
Total accumulated depreciation LCU 3 1 0 0 0 $ 1 6 0 1 0 LCU 1 4 0 0 0 $ 7 0 0 0
Long-term debt LCU 1 0 0 0 0 0 0 . 6 7 $ 6 7 0 0 0 LCU 1 2 0 0 0 0 0 . 5 9 $ 7 0 8 0 0
Common stock LCU 5 0 0 0 0 0 . 5 0 2 5 0 0 0 LCU 5 0 0 0 0 0 . 5 0 2 5 0 0 0
The McGraw-Hill Companies, Inc., 2006374 Modern Advanced Accounting, 10/e
30 Minutes, MediumWestpac Corporation Pr. 12–4
Westpac Corporation
Journal Entries
August, 2005
Home Office Accounting Records ($) Branch Accounting Records (S$)
(1) Investment in Singapore Cash 1 1 1 1 1 1
Branch 5 0 0 0 0 Home office 1 1 1 1 1 1
Cash 5 0 0 0 0
(2) Investment in Singapore Inventories 2 2 2 2 2 2
Branch 1 0 0 0 0 0 Home office 2 2 2 2 2 2
Inventories 7 5 0 0 0
Allowance for
Overvaluation of
Inventories:
Singapore Branch 2 5 0 0 0
(3) Rent Expense 1 0 0 0
Cash 1 0 0 0
(4) Equipment: Singapore Home Office 5 0 0 0
Branch 2 2 5 0 Cash 5 0 0 0
Investment in Singapore
Branch 2 2 5 0
(5) Trade Accounts
Receivable 2 5 0 0 0
Sales 2 5 0 0 0
Cost of Goods Sold 1 5 0 0 0
Inventories 1 5 0 0 0
(6) Cash 2 0 0 0 0
Trade Accounts
Receivable 2 0 0 0 0
(7) Operating Expenses 5 0 0 0
Cash 5 0 0 0
(8) Cash 4 4 0 0 Home Office 1 0 0 0 0
Investment in Singapore Cash 1 0 0 0 0
Branch 4 4 0 0
(9) Investment in Singapore 2 0 0 0 Operating Expenses 4 4 9 4
Branch Operating Expenses 2 0 0 0 Home Office 4 4 9 4
(10) Operating Expenses 1 0 0 0
Trade Accounts
Receivable 1 0 0 0
The McGraw-Hill Companies, Inc., 2006374 Modern Advanced Accounting, 10/e
50 Minutes, MediumPortero Corporation Pr. 12–5
Sudamerica Corporation
Remeasurement of Trial Balance
December 31, 2006
Nicaduranpesos Exchange U.S. dollarsdr (cr) rates dr (cr)
Cash $N 2 5 0 0 0 $ 2 . 4 0 $ 6 0 0 0 0
Trade accounts receivable 2 0 0 0 0 2 . 4 0 4 8 0 0 0
Allowance for doubtful accounts ( 5 0 0 ) 2 . 4 0 ( 1 2 0 0 )
Receivable from Portero Corporation 3 3 0 0 0 (Balance of reciprocal account) 7 0 5 0 0
Inventories 1 1 0 0 0 0 2 . 3 0 (1) 2 5 3 0 0 0
Plant assets 2 1 0 0 0 0 2 . 0 0 4 2 0 0 0 0
Accumulated depreciation of plant assets ( 7 9 9 0 0 ) 2 . 0 0 ( 1 5 9 8 0 0 )
Notes payable ( 6 0 0 0 0 ) 2 . 4 0 ( 1 4 4 0 0 0 )
Trade accounts payable ( 2 2 0 0 0 ) 2 . 4 0 ( 5 2 8 0 0 )
Income taxes payable ( 4 0 0 0 0 ) 2 . 4 0 ( 9 6 0 0 0 )
Common stock ( 5 0 0 0 0 ) 2 . 0 0 ( 1 0 0 0 0 0 )
Retained earnings ( 1 0 0 6 0 0 ) 2 . 0 0 ( 2 0 1 2 0 0 )
Sales—local ( 1 7 0 0 0 0 ) 2 . 3 0 ( 3 9 1 0 0 0 )
Sales—foreign ( 2 0 0 0 0 0 ) 2 . 3 0 ( 4 6 0 0 0 0 )
Cost of goods sold 2 0 7 6 0 0 2 . 3 0 (1) 4 7 7 4 8 0
Depreciation expense 2 2 4 0 0 2 . 0 0 4 4 8 0 0
Other operating expenses 6 0 0 0 0 2 . 3 0 1 3 8 0 0 0
Income taxes expense 4 0 0 0 0 2 . 3 0 9 2 0 0 0
Gain on disposal of plant assets ( 5 0 0 0 ) 2 . 3 0 ( 1 1 5 0 0 )
Subtotals $N - 0 - $ ( 1 3 7 2 0 )
Foreign currency transaction loss 1 3 7 2 0
Totals $N - 0 - $ - 0 -
(1) Absent detailed historical cost data, use Year
2006 average.
The McGraw-Hill Companies, Inc., 2006Solutions Manual, Chapter 12 375
60 Minutes, StrongHightower Company Pr. 12–6
a. (1) Hightower Company Home Office
Journal Entry (U.S. dollars)
December 31, 2005
Investment in Brazentina Branch 3 0 0 0
Branch Market Research 3 0 0 0
To record amortization of market research fee for
2005, which is chargeable to branch.
(2) Hightower Company Branch
Journal Entries (Brazentina pesos)
December 31, 2005
Purchases 2 0 0 0 0
Home Office 2 0 0 0 0
To record shipment in transit from home office
($4,000 ÷ $0.20 = BP20,000).
Other Operating Expenses 1 5 0 0 0
Home Office 1 5 0 0 0
To record charge from home office for 2005
amortization of market research fee ($3,000 ÷ $0.20 =
BP15,000).
Franchise Fee Expense 1 9 5 0 0
Current Liabilities 1 9 5 0 0
To record Brazentina franchise fee for 2005 as follows:
Sales BP1,680,000
Less: Cost of goods sold (BP80,000 +
BP1,200,000 – BP100,000) BP1,180,000
Depreciation expense 100,000
Other operating
expenses 205,000 1,485,000
Income before franchise fee BP 195,000
Franchise fee (BP195,000 x 0.10) BP 19,500
The McGraw-Hill Companies, Inc., 2006376 Modern Advanced Accounting, 10/e
Hightower Company (continued) Pr. 12–6
b. Hightower Company
Working Paper for Combined Financial Statements of Home Office and Branch
For Year Ended December 31, 2005
Home office
adjusted Branch adjusted trial balance Home office
trial balance In Brazentina Eliminations and branch
(U.S. dollars) pesos Exchange rates In U.S. dollars (U.S. dollars) combined
dr (cr) dr (cr) (remeasurement) dr (cr) dr (cr) dr (cr)
Income Statement:
Sales (4 0 3 5 0 0 0 ) (1 6 8 0 0 0 0 ) $ 0 . 2 2 5 ( 3 7 8 0 0 0 ) (c) 1 4 0 0 0 0 (4 2 7 3 0 0 0 )
Intracompany sales ( 1 6 0 0 0 0 ) (a) 1 6 0 0 0 0Inventories, beginning of year 5 1 0 0 0 0 8 0 0 0 0 0 . 2 5 2 0 0 0 0 (a) ( 2 5 0 0 ) 5 2 7 5 0 0
Purchases 3,140,000 3 0 1 0 0 0 0 1 2 0 0 0 0 0 0 . 2 2 5 (1) 2 7 0 0 0 0 (a)( 1 6 0 0 0 0 ) 3 1 2 0 0 0 0
Intracompany purchases 1 4 0 0 0 0 (c)( 1 4 0 0 0 0 )
Inventories, end of year ( 5 2 0 0 0 0 ) ( 1 0 0 0 0 0 ) 0 . 2 0 (2) ( 2 0 0 0 0 ) (b) 3 0 0 0 ( 5 3 7 0 0 0 )
Depreciation expense 5 0 0 0 0 1 0 0 0 0 0 0 . 2 5 2 5 0 0 0 7 5 0 0 0
Franchise fee expense 1 9 5 0 0 0 . 2 2 5 4 3 8 8 4 3 8 8
Other operating expenses and income
taxes expense 6 8 0 0 0 0 2 0 5 0 0 0 0 . 2 2 5 4 6 1 2 5 7 2 6 1 2 5
Foreign currency transaction gain ( 2 0 1 1 3 )(3) ( 2 0 1 1 3 )
Net income ( 3 2 5 0 0 0 ) ( 1 7 5 5 0 0 ) ( 5 2 6 0 0 )(3) 5 0 0 ( 3 7 7 1 0 0 )
Statement of Retained Earnings:
Retained earnings, beginning of year ( 1 4 5 0 0 0 ) (a) 2 5 0 0 ( 1 4 2 5 0 0 )
Net income ( 3 2 5 0 0 0 ) ( 1 7 5 5 0 0 ) ( 5 2 6 0 0 )(3) 5 0 0 ( 3 7 7 1 0 0 )
Retained earnings, end of year ( 5 1 9 6 0 0 )
(Continued on page 378.)
The McGraw-Hill Companies, Inc., 2006Solutions Manual, Chapter 12 377
Hightower Company (continued) Pr. 12–6
b. Hightower Company
Working Paper for Combined Financial Statements of Home Office and Branch (concluded)
For Year Ended December 31, 2005
Home office
adjusted Branch adjusted trial balance Home office
trial balance In Brazentina Eliminations and branch
(U.S. dollars) pesos Exchange rates In U.S. dollars (U.S. dollars) combined
dr (cr) dr (cr) (remeasurement) dr (cr) dr (cr) dr (cr)
Balance Sheet:
Cash 9 0 0 0 0 1 1 0 0 0 0 0 . 2 0 2 2 0 0 0 1 1 2 0 0 0
Trade accounts receivable (net) 1 6 0 0 0 0 1 5 0 0 0 0 0 . 2 0 3 0 0 0 0 1 9 0 0 0 0
Inventories, end of year 5 2 0 0 0 0 1 0 0 0 0 0 0 . 2 0 (2) 2 0 0 0 0 (b) ( 3 0 0 0 ) 5 3 7 0 0 0
Short-term prepayments 1 8 0 0 0 1 8 0 0 0
Investment in Brazentina Branch 1 3 0 0 0 (d) ( 1 3 0 0 0 )
Branch market research 9 0 0 0 9 0 0 0
Plant assets 7 5 0 0 0 0 1 0 0 0 0 0 0 0 . 2 5 2 5 0 0 0 0 1 0 0 0 0 0 0
Accumulated depreciation of plant assets ( 3 5 0 0 0 0 ) ( 6 5 0 0 0 0 ) 0 . 2 5 ( 1 6 2 5 0 0 ) ( 5 1 2 5 0 0 )
Current liabilities ( 2 4 0 0 0 0 ) ( 2 3 9 5 0 0 ) 0 . 2 0 ( 4 7 9 0 0 ) ( 2 8 7 9 0 0 )
Long-term debt ( 2 0 0 0 0 0 ) ( 2 3 0 0 0 0 ) 0 . 2 0 ( 4 6 0 0 0 ) ( 2 4 6 0 0 0 )
Home office ( 6 5 0 0 0 ) reciprocal account balance ( 1 3 0 0 0 ) (d) 1 3 0 0 0
Common stock ( 3 0 0 0 0 0 ) ( 3 0 0 0 0 0 )
Retained earnings, end of year ( 5 1 9 6 0 0 )
Totals - 0 - - 0 - - 0 - - 0 - - 0 -
(1) Average rate used for purchases occurring uniformly throughout year. Eliminations:
(2) Inventory turnover is more than 13 times [BP1,180,000 ÷ (BP180,000 ÷ 2) = 13.1 times]. (a) Intracompany sales and intracompany profits in beginning
Therefore Dec. 31, 2005, exchange rate is applicable for first-in, first-out cost. inventories—home office shipments to branch (page 379)
(3) $20,113 foreign currency transaction gain was derived from $52,600 remeasured net income (b) Intracompany profits in branch’s ending inventories
required in statement of retained earnings. (c) Intracompany sales—branch to home office
(d) Reciprocal accounts
The McGraw-Hill Companies, Inc., 2006378 Modern Advanced Accounting, 10/e
Hightower Company (concluded) Pr. 12–6
Hightower Company
Analysis of Intracompany Sales, Cost of Goods Sold, and Unrealized Profit in Inventories
Home Office to Branch
For Year Ended December 31, 2005
Selling Price Cost Markup
Brazentina pesos U.S. dollars U.S. dollars U.S. dollars
Beginning inventories B P 4 0 0 0 0 * $ 1 0 0 0 0 $ 7 5 0 0 $ 2 5 0 0
Add: Shipments 1 6 0 0 0 0 1 2 0 0 0 0 4 0 0 0 0
Subtotals $ 1 7 0 0 0 0 $ 1 2 7 5 0 0 $ 4 2 5 0 0
Less: Ending inventories B P 6 0 0 0 0 † 1 2 0 0 0 9 0 0 0 3 0 0 0
Cost of goods sold $ 1 5 8 0 0 0 $ 1 1 8 5 0 0 $ 3 9 5 0 0
* BP80,000 x ½; translated at BP1 = $0.25
† (BP80,000 x ½) + BP20,000; translated at BP1 = $0.20
The McGraw-Hill Companies, Inc., 2006Solutions Manual, Chapter 12 379
60 Minutes, StrongEagle Corporation Pr. 12–7
a. Mapleleaf Company
Translation of Financial Statements
For Year Ended December 31, 2005
Canadian Exchange
dollars rates U.S. dollars
Income Statement
Total revenue $C 8 0 0 0 0 0 $ 0 . 7 9 $ 6 3 2 0 0 0
Total costs and expenses 7 0 0 0 0 0 0 . 7 9 5 5 3 0 0 0
Net income $C 1 0 0 0 0 0 $ 7 9 0 0 0
Statement of Retained Earnings
Retained earnings, beginning of year
Net income $C 1 0 0 0 0 0 $ 7 9 0 0 0
Subtotal $C 1 0 0 0 0 0 $ 7 9 0 0 0
Dividends declared
Retained earnings, end of year $C 1 0 0 0 0 0 $ 7 9 0 0 0
Balance Sheet
Assets
Current assets $C 4 0 0 0 0 0 0 . 7 8 $ 3 1 2 0 0 0
Plant assets (net) 5 0 0 0 0 0 0 . 7 8 3 9 0 0 0 0
Total assets $C 9 0 0 0 0 0 $ 7 0 2 0 0 0
Liabilities & Stockholder’s Equity
Current liabilities $C 2 0 0 0 0 0 0 . 7 8 $ 1 5 6 0 0 0
Long-term debt 4 0 0 0 0 0 0 . 7 8 3 1 2 0 0 0
Common stock 2 0 0 0 0 0 0 . 8 0 1 6 0 0 0 0
Retained earnings 1 0 0 0 0 0 7 9 0 0 0
Foreign currency translation adjustments ( 5 0 0 0 )
Total liabilities & stockholder’s equity $C 9 0 0 0 0 0 $ 7 0 2 0 0 0
b. Eagle Corporation
Journal Entries
December 31, 2005
Investment in Mapleleaf Company Common
Stock 7 9 0 0 0
Intercompany Investment Income 7 9 0 0 0
To record 100% of net income of Mapleleaf
Company. (Income tax effects are disregarded.)
Foreign Currency Translation Adjustments 5 0 0 0
Investment in Mapleleaf Company Common
Stock 5 0 0 0
To record 100% of other comprehensive income
component of Mapleleaf Company’s stockholder’s
equity. (Income tax effects are disregarded.)
Eagle Corporation (concluded) Pr. 12–7
The McGraw-Hill Companies, Inc., 2006380 Modern Advanced Accounting, 10/e
c. Eagle Corporation and Subsidiary
Working Paper for Consolidated Financial Statements
For Year Ended December 31, 2005
Eliminations
Eagle Mapleleaf increase
Corporation Company (decrease) Consolidated
Income Statements
Total revenue 1 2 0 0 0 0 0 6 3 2 0 0 0 1 8 3 2 0 0 0
Intercompany investment
income 7 9 0 0 0 (a) ( 7 9 0 0 0 )
Total revenue and income 1 2 7 9 0 0 0 6 3 2 0 0 0 ( 7 9 0 0 0 ) 1 8 3 2 0 0 0
Total costs and expenses 9 0 0 0 0 0 5 5 3 0 0 0 1 4 5 3 0 0 0
Net income 3 7 9 0 0 0 7 9 0 0 0 ( 7 9 0 0 0 ) 3 7 9 0 0 0
Statements of Retained Earnings
Retained earnings, beginning
of year 5 0 0 0 0 0 5 0 0 0 0 0
Net income 3 7 9 0 0 0 7 9 0 0 0 ( 7 9 0 0 0 ) 3 7 9 0 0 0
Subtotal 8 7 9 0 0 0 7 9 0 0 0 ( 7 9 0 0 0 ) 8 7 9 0 0 0
Dividends declared 2 0 0 0 0 0 2 0 0 0 0 0
Retained earnings, end of year 6 7 9 0 0 0 7 9 0 0 0 ( 7 9 0 0 0 ) 6 7 9 0 0 0
Balance Sheet
Assets
Current assets 7 0 0 0 0 0 3 1 2 0 0 0 1 0 1 2 0 0 0
Investment in Mapleleaf
Company common stock 2 3 4 0 0 0 (a)( 2 3 4 0 0 0 )
Plant assets (net) 1 6 0 0 0 0 0 3 9 0 0 0 0 1 9 9 0 0 0 0
Intangible assets (net) 2 4 0 0 0 0 2 4 0 0 0 0
Total assets 2 7 7 4 0 0 0 7 0 2 0 0 0 ( 2 3 4 0 0 0 ) 3 2 4 2 0 0 0
Liabilities & Stockholders’ Equity
Current liabilities 4 0 0 0 0 0 1 5 6 0 0 0 5 5 6 0 0 0
Long-term debt 5 0 0 0 0 0 3 1 2 0 0 0 8 1 2 0 0 0
Common stock 1 2 0 0 0 0 0 1 6 0 0 0 0 (a)( 1 6 0 0 0 0 ) 1 2 0 0 0 0 0
Retained earnings 6 7 9 0 0 0 7 9 0 0 0 ( 7 9 0 0 0 ) 6 7 9 0 0 0
Foreign currency translation
adjustments ( 5 0 0 0 ) ( 5 0 0 0 ) (a) ( 5 0 0 0 )* ( 5 0 0 0 )
Total liabilities & stockholders’
equity 2 7 7 4 0 0 0 7 0 2 0 0 0 ( 2 3 4 0 0 0 ) 3 2 4 2 0 0 0
* A decrease in foreign currency translation adjustments and an increase in equity.
Eagle Corporation and SubsidiaryWorking Paper Elimination
December 31, 2005(a) Common Stock—Mapleleaf 1 6 0 0 0 0
Intercompany Investment Income—Eagle 7 9 0 0 0
Investment in Mapleleaf Company Common
Stock—Eagle 2 3 4 0 0 0
Foreign Currency Translation Adjustments—
Eagle 5 0 0 0
To eliminate intercompany investment and equity
accounts of subsidiary. (Income tax effects are
disregarded.)
90 Minutes, Strong
The McGraw-Hill Companies, Inc., 2006Solutions Manual, Chapter 12 381
Panamer Corporation Pr. 12–8
a. Itican Subsidiary
Translation of Financial Statements
For Year Ended December 31, 2006
Itican Exchange
pesos rates U.S. dollars
Income Statement
Sales IN 3 8 1 0 0 0 $ 0 . 0 9 * $ 3 4 2 9 0
Costs and expenses:
Cost of goods sold IN 3 0 0 0 0 0 0 . 0 9 $ 2 7 0 0 0
Depreciation expense 1 7 5 0 0 0 . 0 9 1 5 7 5
Selling expenses 1 6 5 0 0 0 . 0 9 1 4 8 5
Other operating expenses 2 3 6 6 7 0 . 0 9 2 1 3 0
Income taxes expense 9 3 3 3 0 . 0 9 8 4 0
Total costs and expenses IN 3 6 7 0 0 0 $ 3 3 0 3 0
Net income IN 1 4 0 0 0 $ 1 2 6 0
Statement of Retained Earnings
Retained earnings, beginning of year IN 7 0 0 0 0 . 1 2 $ 8 4 0
Net income 1 4 0 0 0 1 2 6 0
Retained earnings, end of year IN 2 1 0 0 0 $ 2 1 0 0
Balance Sheet
Assets
Cash IN 1 0 0 0 0 0 . 0 8 $ 8 0 0
Trade accounts receivable (net) 3 5 0 0 0 0 . 0 8 2 8 0 0
Inventories 8 3 0 0 0 0 . 0 8 6 6 4 0
Plant assets 1 7 5 0 0 0 0 . 0 8 1 4 0 0 0
Accumulated depreciation of plant assets ( 7 5 0 0 0 ) 0 . 0 8 ( 6 0 0 0 )
Total assets IN 2 2 8 0 0 0 $ 1 8 2 4 0
Liabilities & Stockholder’s Equity
Trade accounts payable IN 7 0 0 0 0 . 0 8 $ 5 6 0
Long-term debt 1 0 0 0 0 0 0 . 0 8 8 0 0 0
Common stock, 1,000 shares 1 0 0 0 0 0 0 . 1 2 1 2 0 0 0
Retained earnings 2 1 0 0 0 2 1 0 0
Foreign currency translation adjustments ( 4 4 2 0 )†
Total liabilities & stockholder’s equity IN 2 2 8 0 0 0 $ 1 8 2 4 0
* Weighted average, computed as follows: [($0.12 x 3) + ($0.08 x 9)] ÷ 12 = $0.09
† Derived amount, computed by determining amount necessary to balance the balance sheet.
The McGraw-Hill Companies, Inc., 2006382 Modern Advanced Accounting, 10/e
Panamer Corporation (continued) Pr. 12–8
b. Panamer Corporation
Adjusting Entries
December 31, 2006
(1) Investment in U.S. Subsidiary Common Stock 9 0 0
Intercompany Investment Income 9 0 0
To record share of net income of U.S. Subsidiary
under equity method of accounting ($1,000 x 0.90 =
$900). (Income tax effects are disregarded.)
(2) Intercompany Receivables 9 0 0
Investment in U.S. Subsidiary Common Stock 9 0 0
To accrue receivable for dividend declared Dec. 18,
2006, by U.S. Subsidiary (900 x $1 = $900).
(3) Investment in U.S. Subsidiary Common Stock 1 8 0
Intercompany Investment Income 1 8 0
To record share of amortization of bargain-purchase
excess arising from acquisition of U.S. Subsidiary,
computed as follows:
Share of current fair value of business combination
assets on date of business combination
($12,000 x 0.90) $10,800
Less: Cost of investment 9,000
Excess allocable to subsidiary’s plant assets $ 1,800
Amortization for 2006 ($1,800 x 0.10) $ 180
(4) Investment in Itican Subsidiary Common Stock 1 2 6 0
Intercompany Investment Income 1 2 6 0
To record 100% share of translated net income of
Itican Subsidiary under equity method of accounting.
(Income tax effects are disregarded.)
(5) Investment in Itican Subsidiary Common Stock 8 4
Intercompany Investment Income 8 4
To record amortization of bargain-purchase excess
arising from acquisition of Itican Subsidiary, computed
as follows:
Current fair value of subsidiary’s net assets
on date of business combination
(IN107,000 x $0.12) $12,840
Less: Cost of net assets 12,000
Excess allocable to subsidiary’s plant assets $ 840
Amortization for 2006 ($840 x 0.10) $ 84
(6) Foreign Currency Translation Adjustments 4 4 2 0
Investment in Itican Subsidiary Common
Stock 4 4 2 0
To record 100% share of other comprehensive income
component of Itican Subsidiary stockholder’s equity.
(Income tax effects are disregarded.)
The McGraw-Hill Companies, Inc., 2006Solutions Manual, Chapter 12 383
Panamer Corporation (continued) Pr. 12–8
U.S. Subsidiary
Adjusting Entry
December 31, 2006
Inventories 4 0 0 0
Intercompany Payables 4 0 0 0
To record merchandise in transit from parent company.
The McGraw-Hill Companies, Inc., 2006384 Modern Advanced Accounting, 10/e
Panamer Corporation (continued) Pr. 12–8
c. Panamer Corporation and Subsidiaries
Working Paper for Consolidated Financial Statements
For Year Ended December 31, 2006
The McGraw-Hill Companies, Inc., 2006Solutions Manual, Chapter 12 385
Eliminations
Panamer U.S. Itican increase
Corporation Subsidiary Subsidiary (decrease) Consolidated
Income Statements
Revenue:
Sales 4 0 0 0 0 0 2 1 0 0 0 3 4 2 9 0 4 5 5 2 9 0
Intercompany sales 1 0 0 0 0 (c) ( 1 0 0 0 0 )Intercompany investment income 2 4 2 4 (1) (a) ( 1 0 8 0 )
(b) ( 1 3 4 4 )
Total revenue 4 1 2 4 2 4 2 1 0 0 0 3 4 2 9 0 ( 1 2 4 2 4 ) 4 5 5 2 9 0
Costs and expenses and minority interest
Cost of goods sold 3 0 0 0 0 0 1 5 0 0 0 2 7 0 0 0 (c) ( 1 5 0 0 ) 3 4 0 5 0 0
Intercompany cost of goods sold 7 5 0 0 (c) ( 7 5 0 0 )
Depreciation expense 3 0 0 0 5 5 0 1 5 7 5 (a) ( 1 8 0 ) 4 8 6 1
(b) ( 8 4 )
Selling expenses 3 4 5 0 0 2 4 0 0 1 4 8 5 3 8 3 8 5
Other operating expenses 4 0 0 0 0 1 3 8 3 2 1 3 0 4 3 5 1 3
Income taxes expenses 1 0 0 0 0 6 6 7 8 4 0 1 1 5 0 7
Minority interest in net income of subsidiary (d) 1 1 8 1 1 8
Total cost and expenses and minority interest 3 9 5 0 0 0 2 0 0 0 0 3 3 0 3 0 ( 9 1 4 6 )* 4 3 8 8 8 4
Net income 1 7 4 2 4 1 0 0 0 1 2 6 0 ( 3 2 7 8 ) 1 6 4 0 6
Statements of Retained Earnings
Retained earnings, beginning of year 2 5 0 0 0 2 0 0 0 8 4 0 (a) ( 2 0 0 0 ) 2 5 0 0 0
(b) ( 8 4 0 )
Net income 1 7 4 2 4 1 0 0 0 1 2 6 0 ( 3 2 7 8 ) 1 6 4 0 6
Subtotal 4 2 4 2 4 3 0 0 0 2 1 0 0 ( 6 1 1 8 ) 4 1 4 0 6
Dividends declared 1 0 0 0 (a) ( 1 0 0 0 )†
Retained earnings, end of year 4 2 4 2 4 2 0 0 0 2 1 0 0 ( 5 1 1 8 ) 4 1 4 0 6
(1) $900 + $180 + $1,260 + $84 = $2,424 (see b)
* A decrease in costs and expenses and an increase in net income.
† A decrease in dividends and an increase in retained earnings. (Continued on page 386.)
The McGraw-Hill Companies, Inc., 2006386 Modern Advanced Accounting, 10/e
Panamer Corporation (continued) Pr. 12–8
Panamer Corporation and Subsidiaries
Working Paper for Consolidated Financial Statements (concluded)
For Year Ended December 31, 2006
The McGraw-Hill Companies, Inc., 2006386 Modern Advanced Accounting, 10/e
Eliminations
Panamer U.S. Itican increase
Corporation Subsidiary Subsidiary (decrease) Consolidated
Balance Sheet
Assets
Cash 1 0 0 0 0 1 5 0 0 8 0 0 1 2 3 0 0
Trade accounts receivable (net) 3 0 0 0 0 8 0 0 0 2 8 0 0 4 0 8 0 0
Intercompany receivables (payables) 4 9 0 0 ( 4 9 0 0 )
Inventories 2 0 0 0 0 4 0 0 0 6 6 4 0 (c) ( 1 0 0 0 ) 2 9 6 4 0
Investment in U.S. Subsidiary common stock 9 1 8 0 (a) ( 9 1 8 0 )
Investment in Itican Subsidiary common stock 8 9 2 4 (b) ( 8 9 2 4 )Plant assets 4 5 0 0 0 5 5 0 0 1 4 0 0 0 (a) ( 1 8 0 0 ) 6 1 8 6 0
(b) ( 8 4 0 )Accumulated depreciation ( 1 5 0 0 0 ) ( 2 0 0 0 ) ( 6 0 0 0 ) (a) ( 1 8 0 )* ( 2 2 7 3 6 )
(b) ( 8 4 )
Total assets 1 1 3 0 0 4 1 2 1 0 0 1 8 2 4 0 ( 2 1 4 8 0 ) 1 2 1 8 6 4
Liabilities & Stockholders’ Equity
Trade accounts payable 2 5 0 0 0 5 6 0 2 5 5 6 0
Dividends payable 1 0 0 1 0 0
Long-term debt 8 0 0 0 8 0 0 0
Common stock 5 0 0 0 0 1 0 0 0 0 1 2 0 0 0 (a) ( 1 0 0 0 0 ) 5 0 0 0 0
(b) ( 1 2 0 0 0 )
Minority interest in net assets of subsidiary (a) 1 1 0 0 1 2 1 8
(d) 1 1 8
Retained earnings 4 2 4 2 4 2 0 0 0 2 1 0 0 ( 5 1 1 8 ) 4 1 4 0 6
Foreign currency translation adjustments ( 4 4 2 0 ) ( 4 4 2 0 ) (b) ( 4 4 2 0 )† ( 4 4 2 0 )
Total liabilities & stockholders’ equity 1 1 3 0 0 4 1 2 1 0 0 1 8 2 4 0 ( 2 1 4 8 0 ) 1 2 1 8 6 4
* Decreases in accumulated depreciation and increases in total assets.
† A decrease in foreign currency translation adjustments and an increase in equity.
The McGraw-Hill Companies, Inc., 2006Solutions Manual, Chapter 12 387
Panamer Corporation (continued) Pr. 12–8
Panamer Corporation and Subsidiaries
Working Paper Eliminations
December 31,2006
(a) Common Stock—U.S. Subsidiary 1 0 0 0 0
Retained Earnings—U.S. Subsidiary 2 0 0 0
Accumulated Depreciation—U.S. Subsidiary 1 8 0
Intercompany Investment Income—Panamer 1 0 8 0
Investment in U.S. Subsidiary Common
Stock—Panamer 9 1 8 0
Plant Assets—U.S. Subsidiary 1 8 0 0
Depreciation Expense—U.S. Subsidiary 1 8 0
Dividends Declared—U.S. Subsidiary 1 0 0 0
Minority Interest in Net Assets of Subsidiary
($1,200 – $100) 1 1 0 0
To eliminate intercompany investment and related
equity accounts of U.S. Subsidiary at beginning of
year; to eliminate intercompany investment income
and subsidiary’s dividends; to offset bargain-purchase
excess against subsidiary’s plant assets; to reduce
subsidiary’s depreciation for pro rata portion of bargain-
purchase excess; and to provide for minority interest in
net assets of U.S. Subsidiary at beginning of year
($12,000 x 0.10 = $1,200), less minority’s share of
subsidiary’s dividends ($1,000 x 0.10 = $100.) (Income
tax effects are disregarded.)
(b) Common Stock—Itican Subsidiary 1 2 0 0 0
Retained Earnings—Itican Subsidiary 8 4 0
Accumulated Depreciation –Itican Subsidiary 8 4
Intercompany Investment Income—Panamer 1 3 4 4
Investment in Itican Subsidiary Common
Stock—Panamer 8 9 2 4
Foreign Currency, Translation Adjustment—
Panamer 4 4 2 0
Plant Assets—Itican Subsidiary 8 4 0
Depreciation Expense—Itican Subsidiary 8 4
To eliminate intercompany investment and related
equity accounts of Itican Subsidiary (retained
earnings at beginning of year); to eliminate
intercompany investment income; to offset bargain-
purchase excess against subsidiary’s plant assets;
and to reduce subsidiary’s depreciation for pro rata
portion of bargain-purchase excess. (Income tax
effects are disregarded.)
(Continued on page 388.)
The McGraw-Hill Companies, Inc., 2006Solutions Manual, Chapter 12 387
Panamer Corporation (concluded) Pr. 12–8
Panamer Corporation and Subsidiaries
Working Paper Eliminations (concluded)
December 31, 2006
(c) Intercompany Sales—Panamer 1 0 0 0 0
Intercompany Cost of Goods Sold—Panamer 7 5 0 0
Cost of Goods Sold—U.S. Subsidiary
($6,000 x 0.25) 1 5 0 0
Inventories—U.S. Subsidiary ($4,000 x 0.25) 1 0 0 0
To eliminate intercompany sales, cost of goods sold,
and unrealized profit in inventories. (Income tax effects
are disregarded.)
(d) Minority Interest in Net Income of Subsidiary 1 1 8
Minority Interest in Net Assets of Subsidiary 1 1 8
To provide for minority interest in adjusted net income:
Net income of U.S. Subsidiary $1,000
Add: Adjustment per elimination (a) 180
Adjusted net income of U.S.
Subsidiary $1,180
Minority interest share ($1,180 x 0.10) $ 118
The McGraw-Hill Companies, Inc., 2006388 Modern Advanced Accounting, 10/e