On January 1, 20X8, Transport Corporation acquired 75 percent interest in Steams

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, in the journal entry to record the receipt of dividend from Steamship,

A. Investment in Steamship Company will be credited for $3,450.
B. Cash will be debited for $3,300.
C. Investment in Steamship Company will be credited for $4,000.
D. Cash will be debited for $3,600.

2. Based on the preceding information, in the journal entry to record parent's share of subsidiary's translation adjustment:

A. Other Comprehensive Income — Translation Adjustment will be debited for $8,000.
B. Other Comprehensive Income — Translation Adjustment will be credited for $6,000.
C. Investment in Steamship Company will be credited for $6,000.
D. Investment in Steamship Company will be debited for $8,000.

3. Based on the preceding information, what amount of translation adjustment is required for increase in differential?

A. $3,000
B. $5,500
C. $4,500
D. $5,000

4. 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

Please provide calculations! Thank you!

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

1. Dividend received :

Total Dividend declared : Nkrl 20000

For 75% Stake at the Exchange rate as on 01st June : 20000*75% - 15000*.23 - $ 3450

Ans : A Investment in Steamship Company will be credited for $3,450

2. B Other Comprehensive Income — Translation Adjustment will be debited for $8,000.

Due to Froreign Exchange rate fluctuation

3. Ans. A 3000

4. Amortisation of Patent : $ 25000/5 i.e. $ 5000

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.