Equity-Method Entries for a Foreign Subsidiary
Thames Company is located in London, England. The local currency is the British pound (£). On January 1, 20X8, Dek Company purchased an 80 percent interest in Thames for $400,000, which resulted in an excess of cost-over-book value of $48,000 due solely to a trademark having a remaining life of 10 years. Dek uses the equity method to account for its investment.
Dek’s December 31, 20X8, trial balance has been translated into U.S. dollars, requiring a translation adjustment debit of $6,400. Thames’s net income translated into U.S. dollars is $60,000. It declared and paid a £15,000 dividend on May 1, 20X8. Relevant exchange rates are as follows:
January 1, 20×8 | £1 | = $1.60 |
May 1, 20×8 | £1 | = $1.64 |
December 31, 20×8 | £1 | = $1.65 |
Average for 20×8 | £1 | = $1.63 |
Required
a. Record the dividend received by Dek from Thames.
b. Prepare the entries to record Dek’s equity in the net income of Thames and the parent’s share of the translation adjustment.
c. Show a calculation of the differential reported on the consolidatedbalance sheet of December 31, 20X8, and the translation adjustment from differential.
d. Record the amortization of the trademark on Dek’s books.
e. Calculate the amount of the translation adjustment reported on the statement of comprehensive income as an element of other comprehensive income.
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