Question

On January 1, 20X5, Pirate Company acquired all of the outstanding stock of Ship Inc., a Norwegian company, at a cost of $160,200. 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	156,000
Accounts Receivable (net)		223,000
Inventory		272,000
Property, Plant & Equipment		617,000
Accumulated Depreciation				NKr	167,000
Accounts Payable					102,000
Notes Payable					200,000
Common Stock					450,000
Retained Earnings					250,000
Sales					751,000
Cost of Goods Sold		421,000
Operating Expenses		116,000
Depreciation Expense		67,000
Dividends Paid		48,000
Total	NKr	1,920,000		NKr	1,920,000

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 NKr420,000 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 $226,000 for 20X5, and its total stockholders’ equity on January 1, 20X5, was $3,500,000. Pirate declared $160,000 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

Required:
a. Prepare a schedule translating the trial balance from Norwegian kroner into U.S. dollars. Assume the krone is the functional currency. (If no adjustment is needed, select 'no entry necessary'.)

b. 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, including a schedule of the translation adjustment related to the differential. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. jan 1 record the purchasse of ship inc.

2. july 1 Record the dividend received from the foreign subsidiary.

3. dec 31 Record the equity in the net income of the foreign subsidiary.

4. dec 31 Record the parent's share of the translation adjustment from the translation of the subsidiary's accounts.

5. dec 31 Record the amortization of the differential.

6. dec 31 Record the translation adjustment applicable to the differential.

c. Prepare a schedule that determines Pirate’s consolidated comprehensive income for 20X5. (Amounts to be deducted should be indicated with a minus sign.)

Income from pirates operations for 20x5 exclusive of income from the norwegian subsidiary

Pirates net income

pirates consolidated comprehensive income

d. Compute Pirate’s total consolidated stockholders’ equity at December 31, 20X5.

consolidated stockholders equity

Answer 1