On January 1, 20X8, Transport Corporation acquired 75 percent interest in Steams
ID: 2394337 • Letter: O
Question
On January 1, 20X8, Transport Corporation acquired 75 percent interest in Steamship Company for $300,000. Steamship is a Norwegian company. The local currency is the Norwegian kroner (NKr). The acquisition resulted in an excess of cost-over-book value of $25,000 due solely to a patent having a remaining life of 5 years. Transport uses the fully adjusted equity method to account for its investment. Steamship's December 31, 20X8, trial balance has been translated into U.S. dollars, requiring a translation adjustment debit of $8,000. Steamship's net income translated into U.S. dollars is $35,000. It declared and paid an NKr 20,000 dividend on June 1, 20X8. Relevant exchange rates are as follows:
January 1, 20X8
NKrl = $0.20
June 1, 20X8
NKrl = $0.23
December 31, 20X8
NKrl = $0.24
Average for 20X8
NKrl = $0.22
Assume the kroner is the functional currency.
1. Based on the preceding information, what amount of translation adjustment is required for an increase in the differential?
A. $3,000
B. $5,500
C. $4,500
D. $5,000
2. Based on the preceding information, in the journal entry to record the amortization of the patent for 20X8 on the parent's books, Investment in Steamship Company will be debited for:
A. $5,000
B. $5,500
C. $4,500
D. $3,000
January 1, 20X8
NKrl = $0.20
June 1, 20X8
NKrl = $0.23
December 31, 20X8
NKrl = $0.24
Average for 20X8
NKrl = $0.22
Explanation / Answer
Answer -
1. Based on the preceding information, what amount of translation adjustment is required for an increase in the differential?
Answer - C. $4,500
2. Based on the preceding information, in the journal entry to record the amortization of the patent for 20X8 on the parent's books, Investment in Steamship Company will be debited for:
Answer - B. $5,500