Parent Company Journal Entries and Translation
Refer to the information given in Problem P12-23 for Alamo and its subsidiary, Western Ranching. Assume that the Australian dollar (A$) is the functional currency and that Alamo uses the basic equity method for accounting for its investment in Western Ranching.
Required
a.Prepare the entries that Alamo would record in 20X3 for its investment in Western Ranching. Your entries should include the following:
(1) Record the initial investment on January 1, 20X3.
(2) Record the dividend received by the parent company.
(3) Recognize the parent company’s share of the equity income of the subsidiary.
(4) Record the amortizations of the differential.
(5) Recognize the translation adjustment required by the parent from the adjustment of the differential.
(6) Recognize the parent company’s share of the translation adjustment resulting from the translation of the subsidiary’s accounts.
b.Provide the necessary documentation and support for the amounts recorded in the journal entries, including a schedule of the translation adjustment related to the differential.
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