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CHAPTER 20

MULTIPLE CHOICE
20-1: b Bad debt expense (S$ 6,000 x P28.20) P169,200 Amortization of patents (S$ 4,000 x P28.20) 112,800 Rent expense (S$ 10,000 x P28.20) 282,000 Total P564,000 Average rate (P28.20) is used to translate all expenses since this is a reasonable estimation. 20-2: b Machinery [(24,000 Ringgit 10) x P10.42] Equipment [(12,000 Ringgit 10) x P10.42] Total depreciation 20-3: d Accounts receivable Prepaid expenses Property and equipment (net) Total 20-4: a Depreciation expense (H$ 12,000 x P5.80) Bad debts (H$ 8,000 x P5.80) Rent (H$ 20,000 x P5.80) Total P 69,600 46,400 116,000 P232,000 P120,000 55,000 275,000 P450,000 P 25,008 12,504 P 37,512

Average rate for the year is used in translating depreciation expense because this is more reasonable estimation than the rate when the related asset was acquired (P4.80). 20-5: d [25,000 LCU x (1 2)] 20-6: d Long-term receivable: [1,500,000 LCU x (1 1.5 LCU)] Long-term debt: [2,400,000 LCU x (1 1.5 LCU)] 20-7: b (NT Dollar 10,000 x P1.70) P1,000,000 P1,600,000

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20-8:

b Beginning inventory Purchases Goods available for sale Ending inventory Cost of goods sold Translated cost of goods sold (310,000 Rupee x P.5745) 40,000 Rupee 300,000 340,000 30,000 310,000 Rupee P178,095

20-9:

c Net assets, 1/1/05 Increase in net assets: Net income, 2005 (30,000 20,000) Net assets 12/31/05 Net assets at current rate Translation adjustment, 2005 (positive) NZ Dollar 20,000 10,000 30,000 30,000 Rate P15 P19 P21 Phil Peso P300,000 190,000 P490,000 630,000 P140,000

20-10: b Equipment [800,000 x (1 50)] Accumulated depreciation [560,000 x (1 50)] Depreciation [80,000 x (1 50)] 20-11: a (25,000 Rupee x P1.24) 20-12: d (5,000 Rupee x P1.30) 20-13: c Investment cost, Jan. 1, 2005 Less: Book and fair value of net assets acquired (300,000 Rp x P1.20) Goodwill Goodwill Impairment Balance Pesos P42,000 4,340 (3,500 Rp x P1.24) P37,660 P402,000 360,000 P 42,000 Rupee 35.000 (P42,000 / P1.20) 3,500 31,500 P41,580 37,660 P 3,920 P16,000 P11,200 P 1,600

Translated balance (31,500 Rp x P1.32) Less: umimpaired goodwill Translation adjustment

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20-14: b Translation adjustment from translating the trial balance Translation adjustment from translating goodwill (per 20-13) Total translation adjustment 20-15: b Investment in Subsidiary account, Jan. 1, 2005 Share in subsidiary net income [(800,000 yen x 70%) x P.57] Translation adjustment (P25,000 x 70%) Share of subsidiary dividends [(50,000 yen x 70%) x P.59] Investment in Subsidiary account, December 31, 2005 20-16: d 20-17: a Phil Peso Initial inventory transfer date: Selling price Cost Profit Balance sheet date (75,000 x 1.70) 20-18: a 20-19: a Net asset beginning Net income Net asset translated at rate: During the year At end of year Translation adjustment (credit) 20-20: a (70,000 rupee x P1.50) P1,210,000 968,000 242,000 Yen 200,000 200,000 400,000 400,000 Exchange Rate .44 .46 .48 Phil Peso 88,000 92,000 180,000 192,000 (12,000) (P127,500 40,000) P120,0001.60 (80,000) 40,000 127,500 Thailand Baht 75,000 B P1,600,000 319,200 17,500 ( 20,650) P1,916,050 P12,000 Cr 3,920 Cr P15,920

75,000 B

20-21: c Investment cost Book value of interest acquired (1,100,000 x 1.10) x .80 Goodwill

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PROBLEMS
Problem 20-1 a. Pilipino Company Translation Working Paper December 31, 2005
Cash Accounts receivable Inventory Plant and equipment Cost of sales Operating expenses Depreciation expenses Total Accumulated Other Comprehensive Income Translation Adjustment Total debits Accumulated depreciation Accounts payable Common stock Retained earnings, Jan. 1 Sales Total credits CR Current Rate AR Average Rate HR Historical Rate Yen 40,000 120,000 100,000 700,000 360,000 140,000 60,000 1,520,000 Exchange Rate .40 CR .40 CR .40 CR .40 CR .425 AR .425 AR .425 AR Phil. Pesos 16,000 48,000 40,000 280,000 153,000 59,500 25,500 622,000 25,000 647,000 240,000 80,000 200,000 400,000 600,000 1,5200,000 .40 .40 .44 .44 .425 CR CR HR HR AR P96,000 32,000 88,000 176,000 255,000 647,000

b. Proof of Translation Adjustment


Yen Net assets at beginning of year Adjustment for changes in net assets Position during year Net income for the year Net assets translated at rates in effect For those items Net assets at end of year Change in translation adjustment during year (to OCI) net decrease (debit) Accumulated OCI translation adjustment,1/1 Accumulated OCI translation adjustment, Dec. 31 (debit) 600,000 40,000 640,000 Translation Rate .44 .425 .40 Phil. Pesos 264,000 17,000 281,000 256,000 25,000 -025,000

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Problem 20-2 (1) Trial Balance Translation Thailand Baht 7,000 20,000 5,000 25,000 100,000 70,000 10,000 30,000 15,000 282,000 10,000 12,000 50,000 60,000 150,000 282,.000 Translation Rate 1.60 CR 1.60 CR 1.60 CR 1.60 CR 1.60 CR 1.50 AR 1.50 AR 1.50 AR 1.54 HR 1.60 1.60 1.80 1.46 1.50 CR CR CR HR AR Philippine Pesos 11,200 32,000 8,000 40,000 160,000 105,000 15,000 45,000 23,000 439,300 16,000 19,200 80,000 87,600 225,000 427,800 11,500 439,300

Cash Accounts receivable (net) Receivable from Davao Inventory Plant and equipment Cost of goods sold Depreciation expense Operating expenses Dividends paid Total debits Accumulated depreciation Accounts payable Bonds payable Common stock Sales Total Accumulated other comprehensive Income Translation adj. (credit) Total credits
CR Current Rate AR Average Rate HR Historical Rate

(2)

Proof of Translation Adjustment Thailand Baht 60,000 40,000 (15,000) 85,000 Translation Rate 1.46 1.50 1.54 1.60 Philippine Pesos 87,600 60,000 (23,100) 124,500 136,000 11,500 -011,500

Net assets at beginning of year Adjustments for changes in net asset position during year: Net income for year (sch. 1) Dividends paid Net assets translated at: Rates during year Rates at end of year Change in OCI translation adj. during year Net increase Accumulated OCI translation adjustment Jan. 1 Change in OCI translation adjustment, Dec. 31 (credit)

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Schedule 1: Sales Cost of goods sold Depreciation expense Operating expenses Net income 150,000 Thailand Baht ( 70,000) ( 10,000) ( 30,000) 40,000 Thailand Baht

(b) The change in the translation adjustment of P11,500 is included as a credit in the other comprehensive income on the Statement of Comprehensive Income. The other comprehensive income is then accumulated and reported in the stockholders equity section of the consolidated balance sheet as presented below: Net assets Common stock Retained earnings, Dec. 31 Accumulated Other Comprehensive Income Total Problem 20-3 a. Translation Work paper Brunei $ 1.600 2,500 4,000 35,000 17,000 7,000 3,000 1,500 71,600 9,000 2,600 20,000 10,000 30,000 71,600 Exchange Rate 33 CR 33 CR 33 CR 33 CR 31 AR 31 AR 31 AR 32 HR 31 33 30 30 31 AR CR HR HR AR Philippine Pesos 52,800 82,500 132,500 1,155,000 527,000 217,000 93,000 48,000 2,307,300 297,000 85,800 600,000 300,000 930,000 2,212,800 94,500 2,307,300 P136,000 P 87,600 36,900 11,500 P136,000

Cash Accounts receivable Inventory Plant and equipment Cost of sales Operating expenses Depreciation expense Dividends Total debits Accumulated depreciation Accounts payable Common stock Retained earnings, Jan. 1 Sales Total Accumulated OCI Translation Adjustment Total credits

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Proof of Translation Adjustment (not required) Brunei $ Net assets at beginning of year Adjustment for net assets position during the year: Net income Dividends paid Net assets translated at rates in effect for those items Net assets at end of year Change in translation adjustment during Year to OCI net increase (credit) Accumulated OCI translation adj. 1/1 Accumulated OCI translation Adjustment 12/31 (credit) 30,000 3,000 (1,500) 31,500 Translation rate 30 31 32 33 Philippine Pesos 900,000 93,000 (48,000) 945,000 1,039,500 94,500 -094,500

b. Jan. 2:

Parent Company entries affecting Investment in Moslem Co. (equity method) Investment in Moslem Co. Cash To record investment cost. Cash Investment in Moslem Co. To record dividends received 900,000 900,000 48,000 48,000 93,000 93,000 94,500 94,500

Oct. 15:

Dec. 31:

Investment in Moslem Co. Investment income To record equity in income of Moslem Investment in Moslem Co. Other Comprehensive Income Translation adjustment To record parents share of change in translation Adjustment

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Problem 20-4 UK Company Translation Working Paper Year Ended December 31, 2005
In Pounds Income Statement Sales Cost of sales Depreciation expense Other expenses Net income carried forward Retained Earnings Statement Balance, 1/1 Net income from above Balance, 12/31 Balance Sheet Cash Accounts receivable Inventories, at cost Prepaid expenses Property, plant and equipment (net) Total assets Accounts payable Current portion of long-term debt Long-term debt Capital stock Retained earnings from above Total Cumulative translation adjustment: Balance, 1/1 Current translation adjustment Balance, 12/31 Total liabilities and stockholders equity Translation Code: C = Current rate H = Historical rate A = Average rate B = Balance in Philippine pesos at the beginning of the year. F = Per Income Statement 90,000 (80,000) (1,500) (5,750) 2,750 2,500 2,750 5,250 2,500 4,000 5,500 750 9,000 21,750 3,500 500 7,500 5,000 5,250 67.60 67.60 67.60 67.60 67.60 67.60 67.60 67.60 67.20 Exchange Rate P67.50 67.50 67.50 67.50 (A) (A) (A) (A) In Phil. Pesos 6,075,000 (5,400,000) (101,250) (388,125) 185,625 119,500 185,625 305,125 169,000 270,400 371,800 50,700 608,400 1,470,300 236,600 33,800 507,000 336,000 1,418,525 50,000 1,775 51,775 1,470,300

B F

(C) (C) (C) (C) (C) (C) (C) (C) (H)

G 21,750

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Problem 20-5 Goodluck Corporation Foreign Exchange Translation Worksheet Year Ended December 31, 2005
Trial Balance (In Pounds) 15,000 25,000 60,000 80,000 420,000 150,000 40,000 10,000 800,000 50,000 40,000 120,000 200,000 50,000 250,000 90,000 Trial Balance (In Pesos) 14,250 23,750 57,000 76,000 399,000 135,000 36,000 9,000 750,000 47,500 38,000 114,000 180,000 45,000 217,500 70,000 1,500 36,500 (45,000) 750,000 180,000 Income Statement (In Pesos) Balance Sheet (In Pesos) 14,250 23,750 57,000 76,000 399,000

Cash Marketable securities Accounts receivable Inventories Property, plant and equip-net Cost of goods sold Depreciation expense Other expenses Totals Accounts payable Current portion of LT debt Long-term debt Sales Other revenues Capital stock Retained earnings, 1/1 FC translation adjustment Balance, 1/1 Current year Net income Totals Translation Code: A = Average rate B = Current rate H = Historical rate G = Given B = Balancing amount

Exchange Rate 0.95 C 0.95 C 0.95 C 0.95 C 0.95 C 0.90 A 0.90 A 0.90 A 0.95 0.95 0.95 0.90 0.90 0,87 G G B B C C C A A H

135,000 36,000 9,000 180,000

570,000 47,500 38,000 114,000

180,000 45,000 217,500 70,000 1,500 36,500 45,000 570,000

800,000

Problem 20-6 a. Direct and indirect exchange rates January 1, 2007 December 31, 2007 December 31, 2008 Direct A$ P.03333=1 P.02857=1 P .025=1 Indirect A$30=P1 A$35=P1 A$40=P1

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The peso strengthened during 2007 because the number of A$ one Phil. Peso could acquire at the end of the year (35) is greater than the number of A$ that could be acquired at the beginning of the year (30); therefore, the value of the peso has increased relative to the A$ during 2007. The peso continued to strengthen during 2008. b. Translated December 31, 2007, balance sheet: Subsidiarys Trial Balance _ (in A$)__ A$ 100,000 400,000 680,000 1,000,000 R 2,230,000 Direct Exchange Rate P.02857 P.02857 P.02857 P.02857 Translated Trial Balance ( in $)___ P 2,857 12,857 19,428 28,570 P 63,712

Cash Receivables Inventory Fixed assets Total Accumulated other comprehensive income translated adjustment (debit) Total debits

2,903 P 66,615 P.02857 P.02857 P.03333 P.03333 P 7,428 35,713 16,665 6,809 P 66,615

Current payables Long-term debt Common stock Retained earnings Total credits

A$ 260,000 1,250,000 500,000 220,000 A$2,230,000

P.03333= average of beginning and ending exchange rates, rounded to 4 decimal points: P.030945= [(P.03333 + P.02856) /2] (Not required: Proof of translation adjustment (debit) of P 2,903) ___A$___ Net assets, 1/1/07 A$ 500,000 Adjustment for changes in net assets during year: Net income 220,000 Net assets translated at: Rates during year Rates at end of year A$ 720,000 Change in translation Adjustment during year (debit) Translation _ Rate_ P.03333 P.03095 P.02857 _Dollars_ P 16,665 6,809 P 23,474 (20,570) P 2,904*

*Difference of P1 (P 2,904 P 2,903) due to rounding of exchange rates.

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c. Translated December 31, 2008, balance sheet: Subsidiarys Trial Balance (in A$) A$ 80,000 550,000 720,000 900,000 A$ 2,250,000 Direct Exchange __Rate P.025 P.025 P.025 P.025 Translated Trial Balance (in P)__ P 2,000 13,750 18,000 22,500__ P56,250 5,635___ P61,885

Cash Receivables Inventory Fixed assets Accumulated other comprehensive incometranslation adjustment (debit) Total debits

(a)The retained earnings in pesos would begin with the December 31, 2007, peso balance (P6,809) that would be carried forward. To this would be added 2008s net income of A$90,000, which is the change in retained earnings in A$ multiplied by the 2008 exchange rate of P.02679 [(P.02857 + P.025/2)] which equals P2, 411. Therefore, translated retained earnings on December 31, 2008, is P9, 220 (P9, 220= P6, 809 + P2, 411) (Not required: Proof of translation adjustment (debit) of P5, 635) Australian Dollar A$ 720,000 Translation _ Rate P.02857 P.02679

Net assets, 1/1/08 Adjustment for changes in net assets during year: Net income 90,000 Net assets translated at: rates during year Other comprehensive incomerate at end of year A$ 810,000 Change in other comprehensive income- translation adjustment during year (debit) Accumulated other comprehensive income- translation adjustment, 1/1/08 Accumulated other comprehensive income- translation adjustment, 12/31/08 (debit) d.

Pesos___ P20, 570 2,411___ P22, 981

P.025

(20,250)__ P2, 731 2,904___ P5, 635

The P2, 731 change in the accumulated other comprehensive income- translation adjustment during 2008 would be reported as a component of other comprehensive income on 2008 statement of other comprehensive income.

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