On January 1, 20X5, Pirate Company acquired all of the outstanding stock of Ship

Question

On January 1, 20X5, Pirate Company acquired all of the outstanding stock of Ship Inc., a Norwegian company, at a cost of $154,800 Ship's net assets on the date of acquisition were 780,000 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 Accounts Receivable (net) Inventory Property, Plant & Equipment Accumulated Depreciation Accounts Payable Notes Pavable Common Stock Retained Earnings Sales Cost of Goods Sold Operating Expenses Depreciation Expense Dividends Paid Total NKr 154,000 225,000 276,000 620,000 NKr 168,100 103,000 198,000 440,000 340,000 666,900 416,500 119,000 55,000 50,500 NKr1,916,000 NKr1,916,000 Additional Information: 1. 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 NKr420,000 were made evenly throughout 20X5 2. Ship acquired all of its property, plant, and equipment on July 1, 20X3, and uses straight-line depreciation 3. Ship's sales were made evenly throughout 20X5, and its operating expenses were incurred evenly throughout 20X5 4. The dividends were declared and paid on July 1, 20X5 5. Pirate's income from its own operations was $261,000 for 20X5, and its total stockholders' equity on January 1, 20X5, was $3,500,000. Pirate declared $200,000 of dividends during 20X5 6. Exchange rates were as follows:

Explanation / Answer

Adjustments for changesin

net assets position during 2015:

Particulars NKS Exchange Rate Usd net assets in beginning of year 7,80,000 0.21 1,63,800

Adjustments for changesin

net assets position during 2015:

Net income(Working Note) 1,31,400 0.2 26,280 Less:Dividend paid(1stjuly) 50,500 0.19 9,595 Net assets trasnlated at 8,60,900 1,80,485 * rates during the year * rates at end of year 8,60,900 0.21 1,80,789 translation adjustment 304 Working note:Calculation of net income Particulars Amount Sales 6,66,900 Less :cost of goods sold 4,16,500 Less:operating expense 1,19,000 Net income 1,31,400

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