Translation
Alamo Inc. purchased 80 percent of the outstanding stock of Western Ranching Company, located in Australia, on January 1, 20X3. The purchase price in Australian dollars (A$) was A$200,000, and A$40,000 of the differential was allocated to plant and equipment, which is amortized over a 10-year period. The remainder of the differential was attributable to a patent. Alamo Inc. amortizes the patent over 10 years. Western Ranching’s trial balance on December 31, 20X3, in Australian dollars is as follows:
| Debits | Credits |
Cash | A$ 44,100 |
|
Accounts Receivable (net) | 72,000 |
|
Inventory | 86,000 |
|
Plant and Equipment | 240,000 |
|
Accumulated Depreciation |
| A$ 60,000 |
Accounts Payable |
| 53,800 |
Payable to Alamo Inc. |
| 10,800 |
Interest Payable |
| 3,000 |
12% Bonds Payable |
| 100,000 |
Premium on Bonds |
| 5,700 |
Common Stock |
| 90,000 |
Retained Earnings |
| 40,000 |
Sales |
| 579,000 |
Cost of Goods Sold | 330,000 |
|
Depreciation Expense | 24,000 |
|
Operating Expenses | 131,500 |
|
Interest Expense | 5,700 |
|
Dividends Paid | 9,000 |
|
Total | A$942,300 | A$942,300 |
Additional Information
1. Western Ranching uses average cost for cost of goods sold. Inventory increased by A$20,000 during the year. Purchases were made uniformly during 20X3. The ending inventory was acquired at the average exchange rate for the year.
2. Plant and equipment were acquired as follows:
Date | Cost |
January 20×1 | A$180,000 |
January 1, 20×3 | 60,000 |
3. Plant and equipment are depreciated using the straight-line method and a 10-year life, with no residual value.
4. The payable to Alamo is in Australian dollars. Alamo’s books show a receivable from Western Ranching of $6,480.
5. The 10-year bonds were issued on July 1, 20X3, for A$106,000. The premium is amortized on a straight-line basis. The interest is paid on April 1 and October 1.
6. The dividends were declared and paid on April 1.
7. Exchange rates were as follows:
January 20×1 | A$1 | = $0.93 |
August 20×1 | A$1 | = 0.88 |
January 1, 20×3 | A$1 | = 0.70 |
April 1, 20×3 | A$1 | = 0.67 |
July 1, 20×3 | A$1 | = 0.64 |
December 31, 20×3 | A$1 | = 0.60 |
20×3 average | A$1 | = 0.65 |
Required
a.Prepare a schedule translating the December 31, 20X3, trial balance of Western Ranching from Australian dollars to U.S. dollars.
b.Prepare a schedule providing a proof of the translation adjustment.
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