Question

On January 1, 20X5, Pirate Company acquired all of the outstanding stock of Ship Inc., a Norwegian company, at a cost of $158,400. Ship's net assets on the date of acquisition were 700,000 kroner (NKr). On January 1, 20X5, the book and fair values of the Norwegian subsidiary's identifiable assets and liabilities approximated their fair values except for property, plant, and equipment and patents acquired. The fair value of Ship's property, plant, and equipment exceeded its book value by $18,000. The remaining useful life of Ship's equipment at January 1, 20X5, was 10 years. The remainder of the differential was attributable to a patent having an estimated useful life of 5 years. Ship's trial balance on December 31, 20X5, in kroner, follows:

	Debits			Credits
Cash	NKr	157,000
Accounts Receivable (net)		210,000
Inventory		297,000
Property, Plant & Equipment		605,000
Accumulated Depreciation				NKr	156,000
Accounts Payable					109,000
Notes Payable					191,000
Common Stock					450,000
Retained Earnings					250,000
Sales					756,000
Cost of Goods Sold		413,000
Operating Expenses		120,000
Depreciation Expense		65,000
Dividends Paid		45,000
Total	NKr	1,912,000		NKr	1,912,000

Additional Information:

1. Ship uses the FIFO method for its inventory. The beginning inventory was acquired on December 31, 20X4, and ending inventory was acquired on December 15, 20X5. Purchases of NKr430,000 were made evenly throughout 20X5.
2. Ship acquired all of its property, plant, and equipment on July 1, 20X3, and uses straight-line depreciation.
3. Ship’s sales were made evenly throughout 20X5, and its operating expenses were incurred evenly throughout 20X5.
4. The dividends were declared and paid on July 1, 20X5.
5. Pirate's income from its own operations was $244,000 for 20X5, and its total stockholders' equity on January 1, 20X5, was $3,600,000. Pirate declared $120,000 of dividends during 20X5.
6. Exchange rates were as follows:

	NKr		$
July 1, 20X3	1	=	0.15
December 30, 20X4	1	=	0.18
January 1, 20X5	1	=	0.18
July 1, 20X5	1	=	0.19
December 15, 20X5	1	=	0.205
December 31, 20X5	1	=	0.21
Average for 20X5	1	=	0.20

Assume that Pirate uses the fully adjusted equity method. Record all journal entries that relate to its investment in the Norwegian subsidiary during 20X5. Provide the necessary documentation and support for the amounts in the journal entries. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
P.S Can you please explain how to find Amortization of differential???

Answer 1

ship Inc Trial Balance Translation a December 31, 20X5 Exchange Balance Balance Dollars Item Kroner Rate Cash Accounts Receivable (net) Inventory Property, Plant, and Equipment Cost of Goods Sold Operating Expenses Depreciation Expense Dividends Paid Remeasurement loss 157000 0.21 32,970 210,000 297,000 0.21 44,100 0.205 60,885 605,000 0,18 108,900 w.note 413,000 75,515 120,000 0.2 24,000 S 65,000 0.18 11,700 45,000 0.19 8,550 1,660 Total Debits 1912000 368.280 Accumulated Depreciation Accounts Payable Notes Payable 156000 0.18 28,080 109,000 0.21 22,890 191.000 0.21 40,110 Common Stock Retained Earnings Sales Total 450,000 0.18 81,000 250,000 0.18 45.000 0.2 756000 151,200 1912000 368.280 Date credit debit Accounts Jan-01 Investment in Ship company 158,400 cash S 158,400 Jul-01 Cash 8,550 Investment in Ship company S 8,550 Dec-31 Investment in Ship company 38,325 income from subsidiary Sales 38,325 151,200 Less: Cost of goods sold operating expenses depreciation Income (75,515) (24,000) (11,700) S 39,985 Less:remeasurement loss income recorded (1,660) S 38,325 Dec-31 Income from subsidiary 4,680 investment in Vikix company 4,680

Working Notes Investment value 158,400 Book value 126,000 32,400 excess attributed to Life Amortization 10 1800 PPE 18,000 14,400 5 2880 patent 4680 Beginning inventory purchases Cless:ending inv 280,000 0.18 50400 430000 0.2 86000 -297,000 0.205 -60885 413000 75515 Ques 3 Taft's consolidated comprehensive income for 20X5: 1 Income from Taft's operations for 20X5, exclusive of income from the Norwegian subsidiary 2 Add: Income from the Norwegian subsidiary for 20X5 244000 38,325 3 Deduct: Amortization of differential for 20X5 (4,680) Equals Net Income 277,645 Ques 4 Taft's consolidated stockholders' equity at December 31, 20X5 1 Taft's stockholders' equity at Jan. 1, 20X5 S 3,600,000 2 Add: Net income for 20X5 277,645 3 Deduct: Dividends declared by Taft during 20X5 (120,000) Consolidated Stockholders' Equity at Dec. 31, 20X5 3,757,645