Question

Exercise 13-7

Dorsey Corporation purchased 90% of the common stock of Lansing Company on January 1, 2008. The cost of the investment was equal to the book value interest acquired. Lansing Company operates two retail stores and an exporting business in London that specializes in buying and selling British tweeds. The subsidiary provided the following financial statements in pounds to the parent company:

LANSING COMPANY Consolidated Income and Retained Earnings Statement for the Year Ended December 31, 2014
Sales		2,730,000
Cost of Goods Sold		(1,510,000	)
Depreciation Expense		(295,000	)
Other Expenses		(422,000	)
Net Income		503,000
1/1 Retained Earnings		829,000
		1,332,000
Less: Dividends Declared and Paid, December 31		(346,000	)
12/31 Retained Earnings		986,000

LANSING COMPANY Balance Sheet December 31, 2014
Cash and Receivables		1,150,000
Inventory		494,000
Property, Plant, and Equipment		3,120,000
Total		4,764,000
Current Liabilities		508,000
Long-Term Notes Payable		1,100,000
Common Stock		2,170,000
Retained Earnings		986,000
Total		4,764,000

Lansing Company was incorporated on January 1, 2006, at which time all the property, plant, and equipment was purchased. The long-term notes were issued to partially finance the purchase of the fixed assets.

Direct exchange rates for the British pound are as follows:

January 1, 2006		$1.8996
January 1, 2008		1.8365
Average for the last quarter 2013		1.5300
January 1, 2014		1.4919
December 31, 2014		1.4730
Average for 2014		1.4788
Average for August–December 2014		1.4950

The January 1, 2014, retained earnings balance of Lansing in dollars was $1,467,706, and the cumulative translation adjustment was a debit balance of $935,510. The beginning inventory of £443,000 was acquired during the last quarter of 2013 and the ending inventory was acquired during the last five months of 2014. Sales were made and purchases and other expenses were incurred evenly during the year.

Translate the December 31, 2014, account balances of Lansing Company into dollars assuming that the pound is the functional currency of Lansing Company. (Round answers to 0 decimal places, e.g. 5,125. Enter loss and debit cumulative translation adjustment using either a negative sign preceding the number e.g. -2,945 or parentheses e.g. (2,945).)

		Adjusted Trial Balance (£)		Translation Rate		Adjusted Trial Balance ($)
Consolidated Income and Retained Earnings Statement
Cost of Goods SoldDepreciation ExpensesDividendsNet Income / (Loss)Net Income to Retained EarningsOther ExpensesRetained Earnings - 1/1Retained Earnings - 12/31SalesTotal Cost & ExpensesTotal Revenues				$
Cost of Goods SoldDepreciation ExpensesDividendsNet Income / (Loss)Net Income to Retained EarningsOther ExpensesRetained Earnings - 1/1Retained Earnings - 12/31SalesTotal Cost & ExpensesTotal Revenues
Cost of Goods SoldDepreciation ExpensesDividendsNet Income / (Loss)Net Income to Retained EarningsOther ExpensesRetained Earnings - 1/1Retained Earnings - 12/31SalesTotal Cost & ExpensesTotal Revenues
Cost of Goods SoldDepreciation ExpensesDividendsNet Income / (Loss)Net Income to Retained EarningsOther ExpensesRetained Earnings - 1/1Retained Earnings - 12/31SalesTotal Cost & ExpensesTotal Revenues
Cost of Goods SoldDepreciation ExpensesDividendsNet Income / (Loss)Net Income to Retained EarningsOther ExpensesRetained Earnings - 1/1Retained Earnings - 12/31SalesTotal Cost & ExpensesTotal Revenues
Cost of Goods SoldDepreciation ExpensesDividendsNet Income / (Loss)Net Income to Retained EarningsOther ExpensesRetained Earnings - 1/1Retained Earnings - 12/31SalesTotal Cost & ExpensesTotal Revenues
AddLess : Cost of Goods SoldDepreciation ExpensesDividendsNet Income / (Loss)Net Income to Retained EarningsOther ExpensesRetained Earnings - 1/1Retained Earnings - 12/31SalesTotal Cost & ExpensesTotal Revenues
Cost of Goods SoldDepreciation ExpensesDividendsNet Income / (Loss)Net Income to Retained EarningsOther ExpensesRetained Earnings - 1/1Retained Earnings - 12/31SalesTotal Cost & ExpensesTotal Revenues
Balance Sheet
Total

Answer 1

Please find below table useful to compute desired results: -

А B C D 1 Consolidated Income and Retained Earnings Statement 2 Particulars Amount in (£) Translation rate* Amounts in (S) 3 Sales 2730000 1.4788 =B3*C3 4 Cost of Goods Sold -1510000 1.4788 =B4%C4 5 Depreciation Expense -295000 1.4788 =B5*C5 6 Other Expense -422000 1.4788 =B6*C6 7 Net Income =SUM(B3-B6) =SUMD3:D6) 8 Retained Earnings - Beg. 829000 Given 1467706 9 Balance =B7+B8 =D7+D8 10 Less: Dividend Declared and paid -346000 1.473 =B10*C10 11 Retained Earnings - End. =B9+B10 =D9+D10 12 *Average Rate for the period 13 14 Balance Sheet 15 Assets Amount in (£) Translation rate Amounts in (S) 16 Cash and Receivables 1150000 1.473 =B16*C16 17 Merchandise Inventory* 494000 1.473 =B17*C17 18 Property, plant and Equipment 3120000 1.473 =B18*C18 19 Total =SUMB16-B18) =SUMD16:D18) 20 Liabilities 21 Current Liabilities 508000 1.473 =B21*C21 22 Long term Notes Payable 1100000 1.473 =B22*C22 23 Common Stock 2170000 1.8365 =B23*C23 24 Retained Earnings 986000 =D11 25 Translation Adjustment =D19-SUM(D21:D24) 26 Total =SUM(B21:B24) =SUMD21-D25) 27 *Historical rate for inventory

End results would be as follows:-

B 12 с 1 Consolidated Income and Retained Earnings Statement 2 Particulars Amount in (£) Translation rate* Amounts in ($) | 3 Sales 2,730,000 4,037.124 4 Cost of Goods Sold (1,510,000) 1.4788 (2.232.988) 5 Depreciation Expense (295,000) 1.4788 (436,246) 6 Other Expense (422,000) 1.4788 (624,054) 7 Net Income 503,000 743,836 8 Retained Earnings - Beg. 829,000 Given 1,467,706 9 Balance 1,332,000 2,211,542 10 Less: Dividend Declared and paid (346,000) 1.4730 (509,658) 11 Retained Earnings - End. 986,000 1,701,884 *Average Rate for the period 13 Balance Sheet 15 Assets Amount in (£) Translation rate | Amounts in (S) | 16 Cash and Receivables 1.150.000 1.4730 1.693,950 17 Merchandise Inventory* 494.000 1.4730 18 Property, plant and Equipment 3,120,000 1.4730 4,595,760 19 Total 4.764,000 7,017,372 20 Liabilities 21 Current Liabilities 508,000 1.4730 748.284 22 Long term Notes Payable 1.100.000 1.4730 1,620,300 23 Common Stock 2.170.000 1.8365 3.985.205 24 Retained Earnings 986,000 1,701,884 | 25 Translation Adjustment (1,038,301)| 26 Total 4,764,000 7,017,372 27 * Historical rate for inventory 14 727,662