Par of Chicago acquired all the outstanding capital stock of Sar of London on Ja

Question

Par of Chicago acquired all the outstanding capital stock of Sar of London on January 1, 2011, i $1,280,000. The exchange rate for British pounds was $1.60 and Sar's stockholders' equity was £800,000, consisting of £500,000 capital stock and £300,000 retained earnings. The functional curre of Sar is the U.S. dollar Exchange rates for British pounds for 2011 are as follows: Current rate December 31, 2010 Current rate December 31, 2011 Average exchange rate for 2011 Exchange rate for dividends $1.60 1.70 1.65 1.64 Sar's cost of goods sold consists of £200,000 inventory on hand at January 1,2011, and pu chases of £600,000 less £150,000 inventory on hand at December 31, 2011, that was acquired at exchange rate of $1.68. All of Sar's plant assets were on hand when Par acquired Sar, and Sar's other expenses paid in cash or relate to accounts payable.

Explanation / Answer

Sar's remeasurement adjusted trial balance at december 31, 2011, in U.S. dollars

Particulars Trial Balance (in British pounds) Exchange Rate (in US $) Trial Balance (in US $) Debits Cash 50,000 1.70 85,000 Accounts receivables 200,000 1.70 340,000 Short term note receivables 50,000 1.70 85,000 inventories 150,000 1.70 255,000 Land 300,000 1.60 480,000 Building - net 400,000 1.60 640,000 Equipment - net 500,000 1.60 800,000 Cost of Sales 650,000 1.65 1,072,500 Depreciation expenses 200,000 1.60 320,000 Other expenses 400,000 1.65 660,000 Dividends 100,000 1.64 164,000 Foreign currency loss 43,500 3,000,000 4,945,000 Credits Accounts payable 180,000 1.70 306,000 Bonds payable - 10% 500,000 1.70 850,000 Bond interest payable 20,000 1.70 34,000 Capital stock 500,000 1.60 800,000 Retained earnings 300,000 1.60 480,000 Sales 1,500,000 1.65 2,475,000 3,000,000 4,945,000

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