On January 1, 2016, Cayce Corporation acquired 100 percent of Simbel Company for consideration transferred with a fair value of $147,600. Cayce is a U.S.-based company headquartered in Buffalo, New York, and Simbel is in Cairo, Egypt. Cayce accounts for its investment in Simbel under the initial value method. Any excess of fair value of consideration transferred over book value is attributable to undervalued land on Simbel’s books. Simbel had no retained earnings at the date of acquisition. Following are the 2017 financial statements for the two operations. Information for Cayce and for Simbel is in U.S. dollars ($) and Egyptian pounds (£E), respectively.
| Cayce Corporation |
Simbel Company |
||||||
| Sales | $ | 240,000 | £E | 915,100 | |||
| Cost of goods sold | (113,800 | ) | (480,100 | ) | |||
| Salary expense | (24,000 | ) | (84,000 | ) | |||
| Rent expense | (9,500 | ) | (51,000 | ) | |||
| Other expenses | (28,500 | ) | (66,500 | ) | |||
| Dividend income—from Simbel | 20,625 | 0 | |||||
| Gain on sale of building, 10/1/17 | 0 | 55,000 | |||||
| Net income | $ | 84,825 | £E | 288,500 | |||
| Retained earnings, 1/1/17 | $ | 343,000 | £E | 153,000 | |||
| Net income | 84,825 | 288,500 | |||||
| Dividends | (49,000 | ) | (75,000 | ) | |||
| Retained earnings, 12/31/17 | $ | 378,825 | £E | 366,500 | |||
| Cash and receivables | $ | 113,300 | £E | 173,500 | |||
| Inventory | 100,500 | 352,000 | |||||
| Prepaid expenses | 30,000 | 0 | |||||
| Investment in Simbel (initial value) | 147,600 | 0 | |||||
| Property, plant & equipment (net) | 478,000 | 480,000 | |||||
| Total assets | $ | 869,400 | £E | 1,005,500 | |||
| Accounts payable | $ | 70,800 | £E | 61,500 | |||
| Notes payable—due in 2020 | 174,275 | 147,500 | |||||
| Common stock | 145,000 | 265,000 | |||||
| Additional paid-in capital | 100,500 | 165,000 | |||||
| Retained earnings, 12/31/17 | 378,825 | 366,500 | |||||
| Total liabilities and equities | $ | 869,400 | £E | 1,005,500 | |||
Additional Information
-
During 2016, the first year of joint operation, Simbel reported income of £E 188,000 earned evenly throughout the year. Simbel declared a dividend of £E 35,000 to Cayce on June 1 of that year. Simbel also declared the 2017 dividend on June 1.
-
On December 9, 2017, Simbel classified a £E 12,500 expenditure as a rent expense, although this payment related to prepayment of rent for the first few months of 2018.
-
The exchange rates for 1 £E are as follows:
| January 1, 2016 | $ | 0.300 |
| June 1, 2016 | 0.290 | |
| Weighted average rate for 2016 | 0.288 | |
| December 31, 2016 | 0.280 | |
| June 1, 2017 | 0.275 | |
| October 1, 2017 | 0.273 | |
| Weighted average rate for 2017 | 0.274 | |
| December 31, 2017 | 0.270 | |
Translate Simbel’s 2017 financial statements into U.S. dollars
and prepare a consolidation worksheet for Cayce and its Egyptian
subsidiary. Assume that the Egyptian pound is the subsidiary’s
functional currency.
Homework Answers
Part 1
|
Sales |
(915100) |
0.274 |
(250737) |
|
Cost of goods sold |
480100 |
0.274 |
131547 |
|
Salary expense |
84000 |
0.274 |
23016 |
|
Rent expense (adjusted) (51000-12500) |
38500 |
0.274 |
10549 |
|
Other expenses |
66500 |
0.274 |
18221 |
|
Gain on sale of fixed asset, 10/1/17 |
(55000) |
0.273 |
(15015) |
|
Net income |
(301000 ) |
(82419) |
|
|
Retained earnings, 1/1/17 |
(153000) |
(43994) |
|
|
Net income |
(301000 ) |
(82419) |
|
|
Dividends |
75000 |
0.275 |
20625 |
|
Retained earnings, 12/31/17 |
(379000 ) |
(105788) |
|
|
Cash and receivables |
173500 |
0.270 |
46845 |
|
Inventory |
352000 |
0.270 |
95040 |
|
Prepaid rent (adjusted) |
12500 |
0.270 |
3375 |
|
Property, plant & equipment |
480000 |
0.270 |
129600 |
|
Total assets |
1018000 |
274860 |
|
|
Accounts payable |
(61500) |
0.270 |
(16605) |
|
Notes payable |
(147500) |
0.270 |
(39825) |
|
Common stock |
(265000) |
0.300 |
(79500) |
|
Additional paid-in capital |
(165000) |
0.300 |
(49500) |
|
Retained earnings, 12/31/17 |
(379000 ) |
(105788) |
|
|
Subtotal |
(291218) |
||
|
Cumulative translation adjustment (negative) |
16358 |
||
|
Total liabilities and equities |
(1018000) |
(274860) |
|
Pounds |
Dollars |
||
|
Retained earnings, 1/1/16 |
0 |
0 |
|
|
Net income 2016 |
(188000) |
0.288 |
(54144) |
|
Dividends 6/1/16 |
35000 |
0.290 |
10150 |
|
Retained earnings, 12/31/16 |
(153000) |
(439944) |
Calculation of Translation Adjustments at 12/31/17
|
Pounds |
Dollars |
||
|
Net assets 1/1/16 (265000+165000) |
(430000) |
0.300 |
(129000) |
|
Net income 2016 |
(188000) |
0.288 |
(54144) |
|
Dividends 6/1/16 |
35000 |
0.290 |
10150 |
|
Net assets 12/31/16 |
(583000) |
(172994) |
|
|
Net assets 12/31/16 at current exchange rate |
(583000) |
0.280 |
(163240) |
|
Translation adjustment, 2016 (negative) |
(9754) |
||
|
Net assets 1/1/17 |
(583000) |
0.280 |
(163240) |
|
Net income 2017 |
(301000 ) |
(82419) |
|
|
Dividends 6/1/17 |
75000 |
0.275 |
20625 |
|
Net assets 12/31/17 |
(809000) |
(225034) |
|
|
Net assets 12/31/17 at current exchange rate |
(809000) |
0.270 |
(218430) |
|
Translation adjustment, 2017 (negative) |
(6604) |
||
|
Cumulative translation adjustment, 12/31/17 (negative) |
(16358) |
Part 2
CAYCE CORPORATION
Consolidation worksheet
|
Adjustments and elimination |
Consolidated balances |
||||
|
Account |
Cayce |
Simbel |
Dr. |
Cr. |
|
|
Sales |
(240000) |
(250737) |
(490737) |
||
|
Cost of goods sold |
113800 |
131547 |
245347 |
||
|
Salary expense |
24000 |
23016 |
47016 |
||
|
Rent expense (adjusted) |
9500 |
10549 |
20049 |
||
|
Other expenses |
28500 |
18221 |
46721 |
||
|
Divided income |
(20625) |
0 |
20625 |
0 |
|
|
Gain on sale of fixed asset, 10/1/17 |
0 |
(15015) |
(15015) |
||
|
Net income |
(84825) |
(82419) |
(146619) |
||
|
Retained earnings, 1/1/17 |
(343000) |
(43994) |
43994 |
(43994) |
(386994) |
|
Net income |
(84825) |
(82419) |
(146619) |
||
|
Dividends |
49000 |
20625 |
(20625) |
49000 |
|
|
Retained earnings, 12/31/17 |
(378825) |
(105788) |
(484613) |
||
|
Cash and receivables |
113300 |
46845 |
160145 |
||
|
Inventory |
100500 |
95040 |
195540 |
||
|
Prepaid rent |
30000 |
3375 |
33375 |
||
|
Investment |
147600 |
43994 |
(191594) |
0 |
|
|
Fixed assets |
478000 |
129600 |
18600 |
(1860) |
624340 |
|
Total assets |
869400 |
274860 |
1013400 |
||
|
Accounts payable |
(70800) |
(16605) |
(87405) |
||
|
Notes payable |
(174275) |
(39825) |
(214100) |
||
|
Common stock |
(145000) |
(79500) |
79500 |
(145000) |
|
|
Additional paid-in capital |
(100500) |
(49500) |
49500 |
(100500) |
|
|
Retained earnings, 12/31/17 |
(378825) |
(105788) |
(484613) |
||
|
Subtotal |
(291218) |
(1031618) |
|||
|
Cumulative translation adjustment (negative) |
16358 |
1860 |
16496 |
||
|
Total liabilities and equities |
(869400) |
(255852) |
(1013400) |
The excess of cost over book value is calculated as follows:
Purchase price............................................................ $147600
Book value, 1/1/16....................................................
Common stock.......................................................... (79500)
Additional paid-in capital........................................ (49500)
Excess of purchase price over book value $ 18600
18600/0.3 = 62000
Revaluation = (62000*(0.27-0.30)) = -1860
Add Answer to:
On January 1, 2016, Cayce Corporation acquired 100 percent of
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On January 1, 2016, Cayce Corporation acquired 100 percent of Simbel Company for consideration transferred with...
On January 1, 2016, Cayce Corporation acquired 100 percent of
Simbel Company for consideration transferred with a fair value of
$147,600. Cayce is a U.S.-based company headquartered in Buffalo,
New York, and Simbel is in Cairo, Egypt. Cayce accounts for its
investment in Simbel under the initial value method. Any excess of
fair value of consideration transferred over book value is
attributable to undervalued land on Simbel’s books. Simbel had no
retained earnings at the date of acquisition. Following are...
On January 1, 2016, Cayce Corporation acquired 100 percent of Simbel Company for consideration transferred with...
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On January 1, 2016, Cayce Corporation acquired 100 percent of Simbel Company for consideration transferred with a fair value of $129,600. Cayce is a U.S.-based company headquartered in Buffalo, New York, and Simbel is in Cairo, Egypt. Cayce accounts for its investment in Simbel under the initial value method. Any excess of fair value of consideration transferred over book value is attributable to undervalued land on Simbel’s books. Simbel had no retained earnings at the date of acquisition. Following are...
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New York, and Simbel is in Cairo, Egypt. Cayce accounts for its
investment in Simbel under the initial value method. Any excess of
fair value of consideration transferred over book value is
attributable to undervalued land on Simbel’s books. Simbel had no
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Simbel Company for consideration transferred with a fair value of
$141,300. Cayce is a U.S.-based company headquartered in Buffalo,
New York, and Simbel is in Cairo, Egypt. Cayce accounts for its
investment in Simbel under the initial value method. Any excess of
fair value of consideration transferred over book value is
attributable to undervalued land on Simbel’s books. Simbel had no
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fair value of consideration transferred over book value is
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Simbel Company for consideration transferred with a fair value of
$147,600. Cayce is a U.S.-based company headquartered in Buffalo,
New York, and Simbel is in Cairo, Egypt. Cayce accounts for its
investment in Simbel under the initial value method. Any excess of
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Simbel Company for consideration transferred with a fair value of
$141,300. Cayce is a U.S.-based company headquartered in Buffalo,
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fair value of consideration transferred over book value is
attributable to undervalued land on Simbel’s books. Simbel had no
retained earnings at the date of acquisition. Following are...
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Simbel Company for consideration transferred with a fair value of
$141,300. Cayce is a U.S.-based company headquartered in Buffalo,
New York, and Simbel is in Cairo, Egypt. Cayce accounts for its
investment in Simbel under the initial value method. Any excess of
fair value of consideration transferred over book value is
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