Student Name: InstructorClass: McGraw-Hill/Irwin

Problem 10-31

a. Translation of Kingston Subsidiary Trial Balance

Debits CreditsCash Correct! -» $ 12,960 Accounts Receivable Correct! -» 14,580 Equipment Correct! -» 4,860 Accumulated Depreciation $ 972 «- Correct!

Land Correct! -» 8,100 Accounts Payable 4,860 «- Correct!

Notes Payable 8,100 «- Correct!

Common Stock 17,100 «- Correct!

Dividends Paid Correct! -» 6,640 Sales 41,000 «- Correct!

Salary Expense Correct! -» 8,200 Depreciation Expense Correct! -» 984 Miscellaneous Expenses Correct! -» 14,760

Correct! -» $ 71,084 Translation adjustment Correct! -» 948 Totals Correct! -» $ 72,032 $ 72,032 «- Correct!

Calculation of Translation Adjustment

ExchangeKQ Rate Dollar

Net assets, 1/1 - - «- Correct!

Increase in net assets: Common stock issued 10,000 1.71 $ 17,100 «- Correct!

Sales 25,000 1.64 41,000 «- Correct!

Decrease in net assets: Dividends paid (4,000) 1.66 (6,640) «- Correct!

Salary expense (5,000) 1.64 (8,200) «- Correct!

Depreciation expense (600) 1.64 (984) «- Correct!

Miscellaneous expense (9,000) 1.64 (14,760) «- Correct!

Net assets, 12/31 16,400 $ 27,516 «- Correct!

Net assets, 12/31 at current 16,400 1.62 26,568 «- Correct!

exchange rateTranslation adjustment $ 948 «- Correct!

Student Name: InstructorClass: McGraw-Hill/Irwin

Problem 10-31

b. Remeasurement of Kingston Subsidiary Trial Balance

Debits CreditsCash Correct! -» $ 12,960 Accounts Receivable Correct! -» 14,580 Equipment Correct! -» 5,130 Accumulated Depreciation $ 1,026 «- Correct!

Land Correct! -» 7,950 Accounts Payable 4,860 «- Correct!

Notes Payable 8,100 «- Correct!

Common Stock 17,100 «- Correct!

Dividends Paid Correct! -» 6,640 Sales 41,000 «- Correct!

Salary Expense Correct! -» 8,200 Depreciation Expense Correct! -» 1,026 Miscellaneous Expenses Correct! -» 14,760

Correct! -» $ 71,246 Remeasurement loss Correct!-» 840 Totals Correct! -» $ 72,086 $ 72,086 «- Correct!

Calculation of Remeasurement Loss

ExchangeKQ Rate Dollar

Net monetary assets, 1/1 - - «- Correct!

Increase in net monetary assets: Common stock issued 10,000 1.71 $ 17,100 «- Correct!

Sales 25,000 1.64 41,000 «- Correct!

Decrease in net monetary assets: Acquired equipment (3,000) 1.71 (5,130) «- Correct!

Acquired land (5,000) 1.59 (7,950) «- Correct!

Dividends paid (4,000) 1.66 (6,640) «- Correct!

Salary expense (5,000) 1.64 (8,200) «- Correct!

Miscellaneous expense (9,000) 1.64 (14,760) «- Correct!

Net monetary assets, 12/31 9,000 $ 15,420 «- Correct!

Net monetary assets, 12/31 9,000 1.62 14,580 «- Correct!

at current exchange rateRemeasurement loss $ 840 «- Correct!

Given P10-31:

Kingsfield investment in subsidiary (in Kumquats) KQ 10,000 Expended to acquire equipment KQ 3,000 Currency exchange (KQ 1): January 1, 2011 $ 1.71 April 1, 2011 $ 1.59 June 1, 2011 $ 1.66 Weighted average - 2011 $ 1.64 December 31, 2011 $ 1.62

Subsidiary trial balance, December 31, 2011 Debits CreditsCash KQ 8,000 Accounts receivable 9,000 Equipment 3,000 Accumulated depreciation KQ 600 Land 5,000 Accounts payable 3,000 Notes payable (due 2014) 5,000 Common stock 10,000 Dividends paid (6/1/11) 4,000 Sales 25,000 Salary expense 5,000 Depreciation expense 600 Miscellaneous expenses 9,000 Totals KQ 43,600 KQ 43,600

Student Name: InstructorClass: McGraw-Hill/Irwin

Problem 10-32

LIVINGSTON COMPANYIncome Statement

For Year Ending December 31, 2011

Exchange U.S. Goghs Rate Dollars

Sales 270,000 1.58730159 428,571 Cost of goods sold (155,000) 1.58730159 (246,032)Gross profit 115,000 182,539 Operating expenses (54,000) 1.58730159 (85,714)Gain on sale of equipment 10,000 1.72413793 17,241 Net income 71,000 114,066 «- Correct!

Statement of Retained EarningsFor Year Ending December 31, 2011

Exchange U.S. Goghs Rate Dollars

Retained earnings, 1/1/11 216,000 395,000 Net income 71,000 114,066 Less: Dividends paid (26,000) 1.61290323 (41,935)Retained earnings, 12/31/11 261,000 467,131 «- Correct!

Balance SheetDecember 31, 2011

Exchange U.S. Goghs Rate Dollars

AssetsCash 44,000 1.53846154 67,692 Receivables 116,000 1.53846154 178,462 Inventory 58,000 1.53846154 89,231 Fixed assets (net) 339,000 1.53846154 521,538 Total 557,000 856,923 «- Correct!

Liabilities and EquitiesLiabilities 176,000 1.53846154 270,769 Common stock 120,000 2.08333333 250,000 Retained earnings 261,000 467,131 Translation adjustment (130,977)Total 557,000 856,923 «- Correct!

Exchange U.S. Translation Adjustment Goghs Rate Dollars Net assets, 1/1/11 336,000 1.66666667 560,000 Net income, 2011 71,000 114,066 Dividends paid (26,000) (41,935)Net assets, 12/31/11 381,000 632,131 «- Correct!

Net assets at current exchange rate, 12/31/11 381,000 1.53846154 586,154 Translation adjustment, 2011 (negative) 45,977 Cumulative translation adjustment, 1/1/11 (negative) 85,000 Cumulative translation adjustment, 12/31/11 (negative) 130,977 «- Correct!

Given P10-32:

Livingston Company is a wholly owned subsidiary of Rose Corporation

Income StatementFor Year Ending December 31, 2011

Sales GH 270,000 Cost of goods sold (155,000)Gross profit 115,000 Less: Operating expenses (54,000)Gain on sale of equipment 10,000 Net income GH 71,000

Statement of Retained EarningsFor Year Ending December 31, 2011

Retained earnings, 1/1/11 GH 216,000 Net income 71,000 Less: Dividends paid (26,000) Retained earnings, 12/31/11 GH 261,000

Balance SheetDecember 31, 2011

AssetsCash GH 44,000 Receivables 116,000 Inventory 58,000 Fixed assets (net) 339,000 Total assets GH 557,000

Liabilities and EquitiesLiabilities GH 176,000 Common stock 120,000 Retained earnings, 12/31/11 261,000 Total liabilities and equities GH 557,000

Additional information:Exchange rate for $1 when common stock issued GH 0.48 Exchange rate for $1 when fixed assets acquired GH 0.50 Retained earnings translated as of Jan. 1, 2011 $ 395,000 Inventory acquired evenly throughout the yearTranslation adjustment (debit) at Dec. 31, 2010 $ 85,000 Dividends paid Apr. 1, 2011Equipment sold Sept. 1, 2011

Currency exchange ($1): January 1, 2011 GH 0.60 April 1, 2011 GH 0.62 September 1, 2011 GH 0.58

December 31, 2011 GH 0.65 Weighted average rate for 2011 GH 0.63

Student Name: InstructorClass: McGraw-Hill/Irwin

Problem 10-34

a. Remeasurement of Mexican Operations

Debit Credit Exchange Debit Credit(Ps.) (Ps.) Rate (C$) (C$)

Accounts payable 49,000 0.35 17,150 «- Correct!

Accumulated depreciation 19,000 0.25 4,750 «- Correct!

Buildings and equipment 40,000 0.25 10,000 «- Correct!

Cash 59,000 0.35 20,650 «- Correct!

Depreciation expense 2,000 0.25 500 «- Correct!

Inventory (beginning-income statement) 23,000 0.30 6,900 «- Correct!

Inventory (ending-income statement) 28,000 0.34 9,520 «- Correct!

Inventory (ending-balance sheet) 28,000 0.34 9,520 «- Correct!

Purchases 68,000 0.34 23,120 «- Correct!

Receivables 21,000 0.35 7,350 «- Correct!

Salary expense 9,000 0.34 3,060 «- Correct!

Sales 124,000 0.34 42,160 «- Correct!

Main office 30,000 Given 7,530 «- Correct!

Remeasurement loss Fm. Sch. One 10 «- Correct!

Total 250,000 250,000 81,110 81,110

Schedule One-Remeasurement Loss Exchange(Ps.) Rate $C

Net monetary liabilities, 1/1/11 (16,000) 0.32 (5,120) «- Correct!

Increases in net monetary assets-Sales 124,000 0.34 42,160 «- Correct!

Decreases in net monetary assets Purchases (68,000) 0.34 (23,120) «- Correct!

Salary expense (9,000) 0.34 (3,060) «- Correct!

Net monetary assets, 12/31/11 31,000 10,860 «- Correct!

Net monetary assets, 12/31/11 at 31,000 0.35 10,850 «- Correct!

current exchange rateRemeasurement loss 10 «- Correct!

b. and c. Financial Statements for Subsidiary

Income StatementFor the Year Ended December 31, 2011

Part b. Exchange Part c.$C Rate $U.S.

Sales 354,160 0.67 237,287.20 Cost of goods sold (223,500) 0.67 (149,745.00)Gross profit 130,660 87,542.20 Depreciation expense (8,500) 0.67 (5,695.00)Salary expense (29,060) 0.67 (19,470.20)Utility expense (9,000) 0.67 (6,030.00)Gain on sale of equipment 5,000 0.68 3,400.00 Remeasurement loss (10) 0.67 (6.70)Net income 89,090 59,740.30

Correct! Correct!

Student Name: InstructorClass: McGraw-Hill/Irwin

Problem 10-34

Statement of Retained EarningsFor the Year Ended December 31, 2011

Part b. Exchange Part c.$C Rate $U.S.

Retained earnings, 1/1/11 135,530 given 70,421.00 Net income 89,090 above 59,740.30 Dividends paid (28,000) 0.69 (19,320.00)Retained earnings, 12/31/11 196,620 110,841.30

Correct! Correct!

Balance SheetDecember 31, 2011

Part b. Exchange Part c.$C Rate $U.S.

Cash 46,650 0.65 30,322.50 Receivables 75,350 0.65 48,977.50 Inventory 107,520 0.65 69,888.00 Buildings and equipment 177,000 0.65 115,050.00 Accumulated depreciation (31,750) 0.65 (20,637.50) Total 374,770 243,600.50

Accounts payable 52,150 0.65 33,897.50 Notes payable 76,000 0.65 49,400.00 Common stock 50,000 0.45 22,500.00 Retained earnings 196,620 above 110,841.30 Cumulative translation adjustment Fm. Sch. Two 26,961.70 Total 374,770 243,600.50

Correct! Correct!

Schedule Two-Translation AdjustmentPart b. Exchange Part c.

$C Rate $U.S.Net assets, 1/1/11 185,530 0.70 129,871.00 «- Correct!

Changes in net assets Net income 89,090 Above 59,740.30 «- Correct!

Dividends (28,000) 0.69 (19,320.00) «- Correct!

Net assets, 12/31/11 246,620 170,291.30 «- Correct!

Net assets, 12/31/11 at current rate 246,620 0.65 160,303.00 «- Correct!

Translation adjustment, 2011 (negative) 9,988.30 «- Correct!

Cumulative translation adjustment, 1/1/11 (36,950.00) (positive)Cumulative translation adjustment, 12/31/11 (26,961.70) «- Correct!

(positive)

Given P10-34:

SENDELBACH CORPORATIONLedgers for subsidiary as of December 31, 2009

Main Operation - Canada

Debit Credit(C$) (C$)

Accounts payable 35,000 Accumulated depreciation 27,000 Buildings and equipment 167,000 Cash 26,000 Common stock 50,000 Cost of goods sold 203,000 Depreciation expense 8,000 Dividends paid, 4/1/11 28,000 Gain on sale of equipment, 6/1/11 5,000 Inventory 98,000 Notes payable - due in 2014 76,000 Receivables 68,000 Retained earnings, 1/1/11 135,530 Salary expense 26,000 Sales 312,000 Utility expense 9,000 Branch operation 7,530 Totals 640,530 640,530

Branch Operation - Mexico

Debit Credit(Ps.) (Ps.)

Accounts payable 49,000 Accumulated depreciation 19,000 Buildings and equipment 40,000 Cash 59,000 Depreciation expense 2,000 Inventory (beginning-income statement) 23,000 Inventory (ending-income statement) 28,000 Inventory (ending-balance sheet) 28,000 Purchases 68,000 Receivables 21,000 Salary expense 9,000 Sales 124,000 Main office 30,000 Totals 250,000 250,000

Given P10-34:

SENDELBACH CORPORATION

Additional information:Mexican building and equipment acquired when one peso was worth C$.25Mexican main office account (equity account) 7,530 balance on 12/31/11Currency exchange rates for Mexican operation:

C$ Ps. Weighted average, 2010 0.30 1 January 1, 2011 0.32 1 Weighted-average rate for 2011 0.34 1 December 31, 2011 0.35 1

Cumulative translation adjustment (credit) on 36,950 December 31, 2010 consolidated balance sheetSubsidiary's common stock issued when exchange was $.45=C$1Subsidiary retained earnings at Dec. 31, 2010 Canadian dollar 135,530 Translated figure $ 70,421 Exchange rates for translation purposes:

US$ C$ January 1, 2011 0.70 1 April 1, 2011 0.69 1 June 1, 2011 0.68 1 Weighted-average for 2011 0.67 1 December 31, 2011 0.65 1

Student Name: InstructorClass: McGraw-Hill/Irwin

Problem 10-35

Step One - Translation WorksheetExchange

Account £E Rate U.S. $Sales (800,000) 0.274 (219,200)Cost of goods sold 420,000 0.274 115,080 Salary expense 74,000 0.274 20,276 Rent expense (adjusted) 36,000 0.274 9,864 Other expenses 59,000 0.274 16,166 Gain on sale of fixed asset, 10/1/11 (30,000) 0.273 (8,190)Net income (241,000) (66,004)

Correct! Correct!

Retained earnings, 1/1/11 (133,000) Fm. Sch. One (38,244)Net income (241,000) Above (66,004)Dividends paid 50,000 0.275 13,750 Retained earnings, 12/31/11 (324,000) (90,498)

Correct! Correct!

Cash and receivables 146,000 0.270 39,420 Inventory 297,000 0.270 80,190 Prepaid expense (adjusted) 10,000 0.270 2,700 Fixed assets 455,000 0.270 122,850 Total 908,000 245,160

Correct! Correct!

Accounts payable (54,000) 0.270 (14,580)Notes payable (140,000) 0.270 (37,800)Common stock (240,000) 0.300 (72,000)Additional paid-in capital (150,000) 0.300 (45,000)Retained earnings, 12/31/11 (324,000) Above (90,498)Subtotal (259,878)Cumulative translation adjustment Fm. Sch. Two 14,718 Total (908,000) (245,160)

Correct! Correct!

Student Name: InstructorClass: McGraw-Hill/Irwin

Problem 10-35

Schedule One-Translation of 1/1/11 Retained Earnings

Exchange£E Rate U.S. $

Retained earnings, 1/1/11 - - Net income, 2011 (163,000) 0.288 (46,944)Dividends, 6/1/11 30,000 0.290 8,700 Retained earnings, 1/1/11 (133,000) (38,244)

Correct! Correct!

Schedule Two-Cumulative Translation Adjustment at 12/31/11

Exchange£E Rate U.S. $

Net assets, 1/1/11 (390,000) 0.300 (117,000)Net income, 2011 (163,000) 0.288 (46,944)Dividends, 6/1/11 30,000 0.290 8,700 Net assets, 12/31/11 (523,000) (155,244)

Net assets, 12/31/11 at (523,000) 0.280 (146,440) current exchange rateTranslation adjustment, 2011 (8,804) (negative)Net assets, 1/1/11 (523,000) 0.280 (146,440)Net income, 2011 (241,000) Above (66,004)Dividends, 6/1/11 50,000 0.275 13,750 Net assets, 12/31/11 (714,000) (198,694)

Net assets, 12/31/11 at (714,000) 0.270 (192,780) current exchange rateTranslation adjustment, 2011 (5,914)Cumulative translation adjustment, 12/31/11 (negative) (14,718)

Correct!

Student Name: InstructorClass: McGraw-Hill/Irwin

Problem 10-35

CAYCE CORPORATION AND SIMBEL COMPANYConsolidation Worksheet

For Year Ending December 31, 2011

Cayce Simbel Adjustments and Eliminations Consolidated

Accounts Dollars Dollars Debit Credit Balances

Sales (200,000) (219,200) (419,200) Correct!

Cost of goods sold 93,800 115,080 208,880 Correct!

Salary expense 19,000 20,276 39,276 Correct!

Rent expense 7,000 9,864 16,864 Correct!

Other expenses 21,000 16,166 37,166 Correct!

Dividend income (13,750) - [ I ] 13,750 - Correct!

Gain, 10/1/11 - (8,190) (8,190) Correct!

Net income (72,950) (66,004) (125,204) Correct!

Retained earnings, 1/1/11 (318,000) (38,244) [S] 38,244 [*C] (38,244) (356,244) Correct!

Net income (72,950) (66,004) (125,204) Correct!

Dividends paid 24,000 13,750 [ I ] (13,750) 24,000 Correct!

Retained earnings, 12/31/11 (366,950) (90,498) (457,448) Correct!

Cash and receivables 110,750 39,420 150,170 Correct!Inventory 98,000 80,190 178,190 Correct!Prepaid rent 30,000 2,700 32,700 Correct!Investment 126,000 - [*C] 38,244 [S] (164,244) - Correct!Fixed assets 398,000 122,850 [S] 9,000 [E] (900) 528,950 Correct!

Total 762,750 245,160 890,010 Correct!

Accounts payable (60,800) (14,580) (75,380) Correct!

Notes payable (132,000) (37,800) (169,800) Correct!

Common stock (120,000) (72,000) [S] 72,000 (120,000) Correct!

Additional paid-in capital (83,000) (45,000) [S] 45,000 (83,000) Correct!

Retained earnings, 12/31/11 (366,950) (90,498) (457,448) Correct!

Subtotal (259,878) (905,628) Correct!

Cumulative translation adjustment 14,718 [E] 900 15,618 Correct!

Total (762,750) (245,160) 217,138 (217,138) (890,010) Correct!

[*C] To accrue 2010 increase in subsidiary book value.

[S] To eliminate subsidiary's stockholders' equity and allocate excess purchase price over book value to land (fixed assets).

[ I ] To eliminate intercompany dividend payments recorded by parent as income.

[E] To revalue (write down) excess cost over book value for change in exchange rate since date of acquisition.

Student Name: InstructorClass: McGraw-Hill/Irwin

Problem 10-35

Adjustment and Elimination Entries

*C Investment in Simbel 38,244 Correct! Retained earnings, 1/1/11 38,244

(To accrue 2011 increase in subsidiary book value.)

S Common Stock (Simbel) 72,000 Correct! Additional Paid-in Capital (Simbel) 45,000

Retained earnings, 1/1/11 (Simbel) 38,244 Fixed Assets (revaluation) 9,000 Investment in Simbel 164,244

(To eliminate subsidiary's stockholders' equity accounts and allocate the excess of

purchase over book value to land (fixed assets).)

I Dividend income 13,750 Correct! Dividends paid 13,750

(To eliminate intercompany dividend payments recorded by parent as income.)

E Cumulative translation adjustment 900 Correct! Fixed assets (revaluation) 900

(To revalue (write down) the excess of cost over book value for the change in exchange

rate since the date of acquisition with the counterpart recognized in the consolidated

cumulative translation adjustment.)

Given P10-35:

Cayce purchases interest in Simbel 100%Cost of purchase $ 126,000 Simbel reported income during 2010 163,000 Dividend paid to Cayce on June 1, 2010 30,000 Simbel reported expense that should be prepayment 10,000 Exchange rates between U.S. dollar and Egyptian pound:

U.S.$ £E January 1, 2010 0.300 1 June 1, 2010 0.290 1 Weighted-average for 2010 0.288 1 December 31, 2010 0.280 1 June 1, 2011 0.275 1 October 1, 2011 0.273 1 Weighted-average for 2011 0.274 1 December 31, 2011 0.270 1

Cayce SimbelCorporation Company

U.S.$ £ESales 200,000 800,000 Cost of goods sold (93,800) (420,000)Salary expense (19,000) (74,000)Rent expense (7,000) (46,000)Other expenses (21,000) (59,000)Dividend income-from Simbel 13,750 - Gain on sale of fixed asset, 10/1/11 - 30,000 Net income 72,950 231,000

Retained earnings, 1/1/11 318,000 133,000 Net income 72,950 231,000 Dividends paid (24,000) (50,000)Retained earnings, 12/31/11 366,950 314,000

Cash and receivables 110,750 146,000 Inventory 98,000 297,000 Prepaid expense 30,000 - Investment in Simbel (cost) 126,000 - Fixed assets (net) 398,000 455,000 Total assets 762,750 898,000

Accounts payable 60,800 54,000 Notes payable - due in 2013 132,000 140,000 Common stock 120,000 240,000 Additional paid-in capital 83,000 150,000 Retained earnings, 12/31/11 366,950 314,000 Total liabilities and equities 762,750 898,000

Student Name: InstructorClass: McGraw-Hill/Irwin

Problem 10-36

Part I(a). Czech koruna is the functional currency Current rate method

ExchangeKcs Rate U.S. $

Sales 25,000,000 0.035 875,000 Cost of goods sold (12,000,000) 0.035 (420,000)Depreciation expense-equipment (2,500,000) 0.035 (87,500)Depreciation expense-building (1,800,000) 0.035 (63,000)Research and development expense (1,200,000) 0.035 (42,000)Other expenses (1,000,000) 0.035 (35,000) Net income 6,500,000 227,500 Plus: Retained earnings, 1/1/11 500,000 Given 22,500 Less: Dividends paid, 12/15/11 (1,500,000) 0.031 (46,500) Retained earnings, 12/31/11 5,500,000 203,500

Correct!

Cash 2,000,000 0.030 60,000 Accounts receivable 3,300,000 0.030 99,000 Inventory 8,500,000 0.030 255,000 Equipment 25,000,000 0.030 750,000 Less: accumulated depreciation (8,500,000) 0.030 (255,000)Building 72,000,000 0.030 2,160,000 Less: accumulated depreciation (30,300,000) 0.030 (909,000)Land 6,000,000 0.030 180,000 Total assets 78,000,000 2,340,000

Correct!

Accounts payable 2,500,000 0.030 75,000 Long-term debt 50,000,000 0.030 1,500,000 Common stock 5,000,000 0.050 250,000 Additional paid-in capital 15,000,000 0.050 750,000 Retained earnings, 12/31/11 5,500,000 Above 203,500 Translation adjustment - to balance (438,500) Total liabilities and equities 78,000,000 2,340,000

Correct!

Calculation of Translation AdjustmentExchange

Kcs Rate U.S. $Translation adjustment, 2011 (negative) 202,500 Net assets, 1/1/11 20,500,000 0.040 820,000 Net income, 2011 6,500,000 0.035 227,500 Dividends, 12/15/11 (1,500,000) 0.031 (46,500)Net assets, 12/31/11 25,500,000 1,001,000

Net assets, 12/31/11 at 25,500,000 0.030 765,000 current exchange rateTranslation adjustment, 2011 negative 236,000 Cumulative translation adjustment, 12/31/11 (negative) 438,500

Correct!

Student Name: InstructorClass: McGraw-Hill/Irwin

Problem 10-36

Part I(b). U.S. dollar is the functional currency temporal method

ExchangeKcs Rate U.S. $

Sales 25,000,000 0.035 875,000 Cost of goods sold (12,000,000) Sch. A (493,500)Depreciation expense-equipment (2,500,000) Sch. B (118,000)Depreciation expense-building (1,800,000) Sch. C (85,200)Research and development expense (1,200,000) 0.035 (42,000)Other expenses (1,000,000) 0.035 (35,000)Income before remeasurement gain 6,500,000 101,300 Remeasurement gain, 2011 - 408,000 Net income 6,500,000 509,300 Plus: Retained earnings, 1/1/11 500,000 Given 353,000 Less: Dividends paid, 12/15/11 (1,500,000) 0.031 (46,500) Retained earnings, 12/31/11 5,500,000 815,800

Correct!

Cash 2,000,000 0.030 60,000 Accounts receivable (net) 3,300,000 0.030 99,000 Inventory 8,500,000 0.032 272,000 Equipment 25,000,000 Sch. B 1,180,000 Less: accumulated depreciation (8,500,000) Sch. B (418,000)Building 72,000,000 Sch. C 3,408,000 Less: accumulated depreciation (30,300,000) Sch. C (1,510,200)Land 6,000,000 0.050 300,000 Total assets 78,000,000 3,390,800

Correct!

Accounts payable 2,500,000 0.030 75,000 Long-term debt 50,000,000 0.030 1,500,000 Common stock 5,000,000 0.050 250,000 Additional paid-in capital 15,000,000 0.050 750,000 Retained earnings, 12/31/11 5,500,000 Above 815,800 Total 78,000,000 3,390,800

Correct!

Student Name: InstructorClass: McGraw-Hill/Irwin

Problem 10-36

Schedule A - Cost of goods soldExchange

Kcs Rate U.S. $Beginning inventory 6,000,000 0.043 258,000 Purchases 14,500,000 0.035 507,500 Ending inventory (8,500,000) 0.032 (272,000)Cost of goods sold 12,000,000 493,500

Correct! Correct!

Schedule B - EquipmentExchange

Kcs Rate U.S. $Old Equipment - at 1/1/11 20,000,000 0.050 1,000,000 New Equipment-acquired 1/3/11 5,000,000 0.036 180,000 Total 25,000,000 1,180,000

Correct! Correct!

Acc. Deprec.-Old Equipment 8,000,000 0.050 400,000 Acc.Deprec.-New Equipment 500,000 0.036 18,000 Total 8,500,000 418,000

Correct! Correct!

Deprec. Expense - Old Equip. 2,000,000 0.050 100,000 Deprec. Expense - New Equip. 500,000 0.036 18,000 Total 2,500,000 118,000

Correct! Correct!

Schedule C - BuildingExchange

Kcs Rate U.S. $Old Building - at 1/1/11 60,000,000 0.050 3,000,000 New Building-acq. 3/5/11 12,000,000 0.034 408,000 Total 72,000,000 3,408,000

Correct! Correct!

Acc.Deprec.-Old Building 30,000,000 0.050 1,500,000 Acc.Deprec.-New Building 300,000 0.034 10,200 Total 30,300,000 1,510,200

Correct! Correct!

Deprec. Expense - Old Building 1,500,000 0.050 75,000 Deprec. Expense - New Building 300,000 0.034 10,200 Total 1,800,000 85,200

Correct! Correct!

Student Name: InstructorClass: McGraw-Hill/Irwin

Problem 10-36

Calculation of Remeasurement Gain

ExchangeKcs Rate U.S. $

Net monetary liabilities, 1/1/11 (37,000,000) 0.040 (1,480,000)Increase in monetary assets:Sales 25,000,000 0.035 875,000 Decrease in monetary assets: Purchase of inventory (14,500,000) 0.035 (507,500) Research & development (1,200,000) 0.035 (42,000) Other expenses (1,000,000) 0.035 (35,000) Dividends paid, 12/15/11 (1,500,000) 0.031 (46,500) Purchase of equipment, 1/3/11 (5,000,000) 0.036 (180,000) Purchase of buildings, 3/5/11 (12,000,000) 0.034 (408,000)Net monetary liabilities, 12/31/11 (47,200,000) (1,824,000)

Net monetary liabilities, 12/31/11 at (47,200,000) 0.030 (1,416,000) current exchange rateRemeasurement gain - 2011 (408,000)

Correct!

Student Name: InstructorClass: McGraw-Hill/Irwin

Problem 10-36

Part I(c). U.S. dollar is the functional currency temporal method (no long-term debt)

ExchangeKcs Rate U.S. $

Sales 25,000,000 0.035 875,000 Cost of goods sold (12,000,000) Sch. A (493,500)Depreciation expense-equipment (2,500,000) Sch. B (118,000)Depreciation expense-building (1,800,000) Sch. C (85,200)Research and development expense (1,200,000) 0.035 (42,000)Other expenses (1,000,000) 0.035 (35,000)Income before remeasurement loss 6,500,000 101,300 Remeasurement loss, 2011 - (92,000)Net income 6,500,000 9,300 Plus: Retained earnings, 1/1/11 500,000 Given (147,000)Less: Dividends paid, 12/15/11 (1,500,000) 0.031 (46,500)Retained earnings, 12/31/11 5,500,000 (184,200)

Correct!

Cash 2,000,000 0.030 60,000 Accounts receivable 3,300,000 0.030 99,000 Inventory 8,500,000 0.032 272,000 Equipment 25,000,000 Sch. B 1,180,000 Less: accumulated depreciation (8,500,000) Sch. B (418,000)Building 72,000,000 Sch. C 3,408,000 Less: accumulated depreciation (30,300,000) Sch. C (1,510,200)Land 6,000,000 0.050 300,000 Total assets 78,000,000 3,390,800

Correct!

Accounts payable 2,500,000 0.030 75,000 Long-term debt - 0.030 - Common stock 20,000,000 0.050 1,000,000 Additional paid-in capital 50,000,000 0.050 2,500,000 Retained earnings, 12/31/11 5,500,000 Above (184,200)Total 78,000,000 3,390,800

Correct!

Schedule A - Cost of goods soldExchange

Kcs Rate U.S. $Beginning inventory 6,000,000 0.043 258,000 Purchases 14,500,000 0.035 507,500 Ending inventory (8,500,000) 0.032 (272,000)Cost of goods sold 12,000,000 493,500

Correct! Correct!

Student Name: InstructorClass: McGraw-Hill/Irwin

Problem 10-36

Schedule B - EquipmentExchange

Kcs Rate U.S. $Old Equipment - at 1/1/11 20,000,000 0.050 1,000,000 New Equipment-acquired 1/3/11 5,000,000 0.036 180,000 Total 25,000,000 1,180,000

Correct! Correct!

Acc.Deprec.-Old Equipment 8,000,000 0.050 400,000 Acc.Deprec.-New Equipment 500,000 0.036 18,000 Total 8,500,000 418,000

Correct! Correct!

Deprec. Expense - Old Equip. 2,000,000 0.050 100,000 Deprec. Expense - New Equip. 500,000 0.036 18,000 Total 2,500,000 118,000

Correct! Correct!

Schedule C - BuildingExchange

Kcs Rate U.S. $Old Building - at 1/1/11 60,000,000 0.050 3,000,000 New Building-acq. 3/5/11 12,000,000 0.034 408,000 Total 72,000,000 3,408,000

Correct! Correct!

Acc.Deprec.-Old Building 30,000,000 0.050 1,500,000 Acc.Deprec.-New Building 300,000 0.034 10,200 Total 30,300,000 1,510,200

Correct! Correct!

Deprec. Expense - Old Building 1,500,000 0.050 75,000 Deprec. Expense - New Building 300,000 0.034 10,200 Total 1,800,000 85,200

Correct! Correct!

Calculation of Remeasurement Loss

ExchangeKcs Rate U.S. $

Net monetary liabilities, 1/1/11 13,000,000 0.040 520,000 Increase in monetary assets:Sales 25,000,000 0.035 875,000 Decrease in monetary assets: Purchase of inventory (14,500,000) 0.035 (507,500) Research & development (1,200,000) 0.035 (42,000) Other expenses (1,000,000) 0.035 (35,000) Dividends paid, 12/15/11 (1,500,000) 0.031 (46,500) Purchase of equipment, 1/3/11 (5,000,000) 0.036 (180,000) Purchase of buildings, 3/5/11 (12,000,000) 0.034 (408,000)Net monetary liabilities, 12/31/11 2,800,000 176,000

Net monetary liabilities, 12/31/11 at 2,800,000 0.030 84,000 current exchange rateRemeasurement gain - 2011 92,000

Student Name: InstructorClass: McGraw-Hill/Irwin

Problem 10-36

Correct!

Student Name: InstructorClass: McGraw-Hill/Irwin

Problem 10-36

Part II. Explain the negative translation adjustment in Part I(a) andremeasurement gain or loss in Parts 1(b) and 1(c).

The negative translation adjustment in part 1(a) arises because of two factors: (1) there isa net asset balance sheet exposure and (2) the Czech koruna has depreciated against theU.S. dollar during 2011 (from $.040 at 1/1/11 to $.030 at 12/31/11). A net asset balance sheet exposure exists because all assets are translated at the current exchange rate and exceed total liabilities which are also translated at the current exchange rate.

The remeasurement gain in part I(b) arises because of two factors: (1) there is a net monetaryliability balance sheet exposure and (2) the Czech koruna has depreciated against theU.S. dollar. Under the temporal method, Cash and Accounts Receivable are the onlyassets translated at the current exchange rate (total KCS 5,300,000). Accounts Payableand Long-Term Debt are also translated at the current exchange rate (total KCS52,500,000). Because the Czech koruna amount of liabilities translated at the currentrate exceeds the Czech koruna amount of assets translated at the current rate, a netliability balance sheet exposure exists.

The remeasurement loss in part I(c) arises because of two factors: (1) there is a net monetaryasset balance sheet exposure and (2) the Czech koruna has depreciated against theU.S. dollar during 2011. Cash and Accounts Receivable are the only assets translatedat the current exchange rate (total KCS 5,300,000). Because there is no Long-term Debt in part 1(c), Accounts Payable is the only liability translated at the currentexchange rate (total KCS 2,500,000). Because the Czech koruna amount of the assetstranslated at the current rate exceeds the Czech koruna amount of liabilities translatedat the current rate, a net monetary asset balance sheet exposure exists.

Given P10-36:

Dickmann purchases interest in Rakona, 1/1/10 100%Exchange rate for Czech koruna (Kcs), 1/1/10 $ 0.05 Beginning inventory, 1/1/11 (Kcs), acquired 12/18/10 6,000,000 Exchange rate for Czech koruna (Kcs), 12/18/10 $ 0.043 Ending inventory acquired in latter part of 2011 (Kcs) 8,500,000 Exchange rate for Kcs when ending inventory acquired $ 0.032 Fixed assets on books at acquisition except: Equipment (Kcs) acquired 1/3/11 5,000,000 Buildings (Kcs) acquired 3/5/11 12,000,000 Exchange rates for Kcs at time of acquisition: Equipment $ 0.036 Buildings $ 0.034 Equipment depreciated (straight-line) over years 10 Buildings depreciated (straight-line) over years 40 Dividends declared and paid when exchange rate for Kcs $ 0.031

Exchange rates between U.S. dollar and Czech koruna (Kcs):

U.S.$ Kcs January 1, 2011 0.040 1 Average for 2011 0.035 1 December 31, 2011 0.030 1

Given P10-36:

RAKONA A.S.Balance Sheet

December 31, 2011(in Czech koruma - Kcs)

AssetsCash 2,000,000 Accounts receivable (net) 3,300,000 Inventory 8,500,000 Equipment 25,000,000 Less: accumulated depreciation (8,500,000)Building 72,000,000 Less: accumulated depreciation (30,300,000)Land 6,000,000 Total assets 78,000,000

Liabilities and Stockholders' EquityAccounts payable 2,500,000 Long-term debt 50,000,000 Common stock 5,000,000 Additional paid-in capital 15,000,000 Retained earnings 5,500,000 Total liabilities and stockholders' equity 78,000,000

RAKONA A.S.Statement of Income and Retained Earnings

For the Year Ending December 31, 2011

KcsSales 25,000,000 Cost of goods sold (12,000,000)Depreciation expense-equipment (2,500,000)Depreciation expense-building (1,800,000)Research and development expense (1,200,000)Other expenses (including taxes) (1,000,000)Net income 6,500,000 Plus: Retained earnings, 1/1/11 500,000 Less: Dividends, 2011 (1,500,000)Retained earnings, 12/31/11 5,500,000

Additional information:Part a. Retained earnings in US dollars, 12/31/10 $ 22,500 Cumulative translation adjustment (debit bal.) $ 202,500

Part b.Retained earnings is US dollars, 12/31/10 $ 353,000

Part c.Common stock (Kcs) 20,000,000 Additional paid-in capital (Kcs) 50,000,000

Given P10-36:

Retained earnings in US dollars, 12/31/10 $ 147,000