Case 5.2 On January 2, 2017, Sun Company, a us, based company, acquired for 2,00

Question

Case 5.2 On January 2, 2017, Sun Company, a us, based company, acquired for 2,000,000 francs an 80% interest in Moon Company, a Swiss company. On January, 2, 2017, Moon Company reported a retained earnings balance of 480,000 francs. Moon's books are maintained in francs and are in conformity with U.S. generally accepted accounting principles. Trial financial statements for Moon as of December 31, 2018, are presented here: Balance Sheet Cash Account Receivables Inventory (FIFO cost) Land Building (net) Equipment (net) 962,500 660,000 1,037,500 500,000 550,000 405,000 4,115,000 Total Assets Accounts Payable Short-Term Notes Payables Bonds Payable Common Stock Additional Paid in Capital Retained Earnings 1/1 Net income Dividends Total Liabilities and Equity 800,000 650,750 850,000 960,000 300,000 513,000 416,250 (375,000) 4,115,000 Income Statements Sales Cost of Goods Sold Depreciation Expenses Other Expenses Income Tax Expenses 3,775,000 (2,312,500) (125,000) (818,750) (102,500) 416,250 Other information follows: 1. 2. 3. Beginning Inventory of 830,000 francs was acquired when the exchange rate was $0.165. Purchases of Inventory made uniformly throughout 2018 were 2,520,000 francs All plant assets were acquired before the parent obtained a controlling interest in the subsidiary

Explanation / Answer

Part A Translation Balance Sheet      Francs        Rate               U.S.$ Cash 962,500 $0.19 182,875 Accounts Receivable 660,000 0.19 125,400 Inventories 1,037,500 0.19 197,125 Land 500,000 0.19 95,000 Buildings (net) 550,000 0.19 104,500 Equipment (net) 405,000 0.19 76950 4,115,000 781,850 Accounts Payable 800,000 0.19 152,000 Short-term Notes Payable 650,750 0.19 123,643 Bonds Payable 850,000 0.19 161,500 Common Stock 960,000 0.15 144,000 Additional Paid-in Capital 300,000 0.15 45,000 Retained Earnings 554,250 81,708 Cumulative Translation Adjustment (Credit)       -----    73,999 4,115,000 781,850 Income Statement Sales 3,775,000 0.176 664,400 Closing Inventories (at cost) 1,037,500 0.176 182,600 Total 4,812,500 847,000 Opening Inventories 830,000 0.176 146,080 Purchases 2,520,000 0.176 443,520 Gross Margin (balancing figure) 1,462,500 0.176 257,400 Total 4,812,500 847,000 Less (from gross margin) Depreciation 125,000 0.176 22,000 Other Expenses 818,750 0.176 144,100 Income Tax Expenses 102,500 0.176 18,040 Net Income 416,250 0.176 73,260 Part B Verification of the Translation Adjustment Translation      Francs        Rate               U.S.$ Exposed net asset position - 1/1 1,773,000* $0.17 301,410 Adjustments for changes in net asset position during the year: Net income for the year 416,250 0.176 73,260 Dividends declared -375,000 0.18 -67,500 Net asset position translated using rate in effect at date of transaction --- 307,170 Exposed net asset position - 12/31 1,814,250 0.19 344,708 Change in cumulative translation adjustment during the year - net increase 37,538 Cumulative translation adjustment - 1/1 (Given) 36,462 Cumulative translation adjustment - 12/31 (Credit balance) 74,000**            ** Difference of $1.00 ($74,000 compared to $73,999) due to rounding.

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