On January 1, 20X5, Pirate Company acquired all of the outstanding stock of Ship
ID: 2393994 • Letter: O
Question
On January 1, 20X5, Pirate Company acquired all of the outstanding stock of Ship Inc., a Norwegian company, at a cost of $162,000. Ship’s net assets on the date of acquisition were 700,000 kroner (NKr). On January 1, 20X5, the book and fair values of the Norwegian subsidiary’s identifiable assets and liabilities approximated their fair values except for property, plant, and equipment and patents acquired. The fair value of Ship’s property, plant, and equipment exceeded its book value by $18,000. The remaining useful life of Ship’s equipment at January 1, 20X5, was 10 years. The remainder of the differential was attributable to a patent having an estimated useful life of 5 years. Ship’s trial balance on December 31, 20X5, in kroner, follows:
Debits
Credits
Cash
NKr
157,000
Accounts Receivable (net)
202,000
Inventory
272,000
Property, Plant & Equipment
623,000
Accumulated Depreciation
NKr
166,000
Accounts Payable
98,000
Notes Payable
196,000
Common Stock
460,000
Retained Earnings
240,000
Sales
737,000
Cost of Goods Sold
419,000
Operating Expenses
112,000
Depreciation Expense
70,000
Dividends Paid
42,000
Total
NKr
1,897,000
NKr
1,897,000
Additional Information:
Ship uses the FIFO method for its inventory. The beginning inventory was acquired on December 31, 20X4, and ending inventory was acquired on December 15, 20X5. Purchases of NKr430,000 were made evenly throughout 20X5.
Ship acquired all of its property, plant, and equipment on July 1, 20X3, and uses straight-line depreciation.
Ship’s sales were made evenly throughout 20X5, and its operating expenses were incurred evenly throughout 20X5.
The dividends were declared and paid on July 1, 20X5.
Pirate’s income from its own operations was $246,000 for 20X5, and its total stockholders’ equity on January 1, 20X5, was $3,500,000. Pirate declared $180,000 of dividends during 20X5.
Exchange rates were as follows:
NKr
$
July 1, 20X3
1
=
0.15
December 30, 20X4
1
=
0.18
January 1, 20X5
1
=
0.18
July 1, 20X5
1
=
0.19
December 15, 20X5
1
=
0.205
December 31, 20X5
1
=
0.21
Average for 20X5
1
=
0.20
Required:
a. Prepare a schedule translating the trial balance from Norwegian kroner into U.S. dollars. Assume the krone is the functional currency. (If no adjustment is needed, select 'no entry necessary'.)
b. Assume that Pirate uses the fully adjusted equity method. Record all journal entries that relate to its investment in the Norwegian subsidiary during 20X5. Provide the necessary documentation and support for the amounts in the journal entries, including a schedule of the translation adjustment related to the differential.?
c. Prepare a schedule that determines Pirate’s consolidated comprehensive income for 20X5.
d. Compute Pirate’s total consolidated stockholders’ equity at December 31, 20X5.
Debits
Credits
Cash
NKr
157,000
Accounts Receivable (net)
202,000
Inventory
272,000
Property, Plant & Equipment
623,000
Accumulated Depreciation
NKr
166,000
Accounts Payable
98,000
Notes Payable
196,000
Common Stock
460,000
Retained Earnings
240,000
Sales
737,000
Cost of Goods Sold
419,000
Operating Expenses
112,000
Depreciation Expense
70,000
Dividends Paid
42,000
Total
NKr
1,897,000
NKr
1,897,000
Explanation / Answer
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the Norwegian krone used to be presented in 7 Jun 1905 (113 years in the past). The USA buck is used in view that 1 Jan 1791 (226 years ago).
There are four cash for the Norwegian krone ( kr1 , kr5 , kr10 and kr20 ), the us buck has 6 cash ( 1¢ , 5¢ , 10¢ , 25¢ , 50¢ and $1 ),
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