Question

On January 1, 2016, Cayce Corporation acquired 100 percent of Simbel Company for consideration transferred with a fair value of $129,600. Cayce is a U.S.-based company headquartered in Buffalo, New York, and Simbel is in Cairo, Egypt. Cayce accounts for its investment in Simbel under the initial value method. Any excess of fair value of consideration transferred over book value is attributable to undervalued land on Simbel’s books. Simbel had no retained earnings at the date of acquisition. Following are the 2017 financial statements for the two operations. Information for Cayce and for Simbel is in U.S. dollars ($) and Egyptian pounds (£E), respectively

	Cayce Corporation				Simbel Company
Sales	$	208,000			£E	823,100
Cost of goods sold		(97,800	)			(432,100	)
Salary expense		(20,000	)			(76,000	)
Rent expense		(7,500	)			(47,000	)
Other expenses		(22,500	)			(60,500	)
Dividend income—from Simbel		15,125				0
Gain on sale of building, 10/1/17		0				35,000
Net income	$	75,325			£E	242,500
Retained earnings, 1/1/17	$	323,000			£E	137,000
Net income		75,325				242,500
Dividends		(29,000	)			(55,000	)
Retained earnings, 12/31/17	$	369,325			£E	324,500
Cash and receivables	$	111,300			£E	151,500
Inventory		98,500				308,000
Prepaid expenses		30,000				0
Investment in Simbel (initial value)		129,600				0
Property, plant & equipment (net)		414,000				460,000
Total assets	$	783,400			£E	919,500
Accounts payable	$	62,800			£E	55,500
Notes payable—due in 2020		139,775				141,500
Common stock		125,000				245,000
Additional paid-in capital		86,500				153,000
Retained earnings, 12/31/17		369,325				324,500
Total liabilities and equities	$	783,400			£E	919,500

Additional Information

• During 2016, the first year of joint operation, Simbel reported income of £E 168,000 earned evenly throughout the year. Simbel declared a dividend of £E 31,000 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 10,500 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, 2017		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.

req A. fill out translation worksheet (please show working notes after the sheet, thanks!)

account	egyptian pounds	exchange rate	dollars
sales
COGS
salary expense
rent expense (adjusted)
other expenses
gain on sale of fixed assets 10/1/17
net income
retained earnings 1/1/17
net income
dividends
retained earnings 12/31/17
cash & receivables
inventory
prepaid rent (adjusted)
PPE
total assets
A/P
Notes payable
common stock
APIC
retained earnings 12/31/17
subtotal
cumulative translation adjustment (positive or negative)
total liabilities and equities

Answer 1

Answer :

Req a.

Translation Worksheet
Accounts	Egyptian Pounds (£E)	Exchange Rate	Dollar ($)
Sales	(823,100)	0.274	(225,529)
Cost of Goods sold	432,100	0.274	118,395
Salary expense	76,000	0.274	20,824
Rent expense (Adjusted)*	36,500	0.274	10,001
Other expense	60,500	0.274	16,577
Gain on sale of building, 10/1/17	(35,000)	0.273	(9,555)
Net Income	(253,000)		(69,287)
Retained earnings 1/1/17	(137,000)	W.N 1	(39,394)
Net income	(253,000)	above	(69,287)
Dividends	55,000	0.275	15,125
Retained Earnings 12/31/17	(335,000)		(93,556)
Cash and receivables	151,500	0.270	40,905
Inventory	308,000	0.270	83,160
Prepaid rent (adjusted)*	10,500	0.270	2,835
Property, plant and equipment	460,000	0.270	124,200
Total Assets	£E 930,000		$251,100
Account payable	(55,500)	0.270	(14,985)
Notes payable	(141,500)	0.270	(38,205)
Common stock	(245,000)	0.300	(73,500)
Additional paid in capital	(153,000)	0.300	(45,900)
Retained earnings 12/31/17	(335,000)	above	(93,556)
Subtotal			(266,146)
Cumulative translation adjustment (negative)		W.N 2	15,046
Total liabilities and equity	£E(930,000)		$(251,100)

* Prepayment of rent made for 2018 for £E 10,500 should be reclassified from rent expense to prepaid rent paid in Simbel's book.

Working Notes :

1. Translation of Retained earnings on 1/1/17-

Retained earnings 1/1/16	-0-		-0-
Net income for 2016	(168,000)	0.288	(48,384)
Dividend paid 6/1/16	31,000	0.290	8,990
Retained earnings 1/1/17	£E(137,000)		$(39,394)

2. Calculation of cumulative translation adjustment:

	Pounds (£E)	Rate	Dollar ($)
Net assets 1/1/16 (245,000 + 153,000)	(398,000)	0.300	(119,400)
Net Income, 2016	(168,000)	0.288	(48,384)
Dividends , 6/1/16	31,000	0.290	8,990
Net assets, 12/31/16	(535,000)		(158,794)
Net assets, 12/31/16 at current exchange rates	(535,000)	0.280	(149,800)
Translation adjustment, 2017 (negative) (1)			(8,994)
Net assets, 1/1/17	(535,000)	0.280	(149,800)
Net Income, 2017	(253,000)	above	(69,287)
Dividends, 6/1/17	55,000	0.275	15,125
Net assets , 12/31/17	(733,000)		(203,962)
Net assets 12/31/17 at current exchange rate	(733,000)	0.270	(197,910)
Translation adjustment, 2017 (negative) (2)			(6,052)
Cumulative translation adjustment, 12/31/2017 (negative)		(1) + (2)	$(15,046)

Req. B

Working Notes :