Chapter 11, Problem 11.3P

To determine

Consolidated Worksheet:

Consolidated worksheet is a tool used to prepare consolidated financial statement of a parent company and its subsidiaries. It shows the individual book values of both companies, the necessary adjustment and eliminations and the final consolidated values.

:Preparation of Consolidated worksheet.

Answer to Problem 11.3P

Combined net income is equal to -7,919,550.

Explanation of Solution

Following is thepreparation of consolidated worksheet.

Consolidated Worksheet

S Company

Trail balance translation-December 31, 2018

Account	Balance (FC)	Relevant Exchange rate (in $)	Balance ($)
Cash	2,840,000	1.31	3,720,000
Account receivable	3,990,000	1.31	5,226,900
Inventory	5,800,000	1.31	7,598,000
Fixed Assets	15,000,000	1.31	19,650,000
Accumulated depreciation	(6,800,000)	1.31	(8,908,000)
Account Payable	(1,580,000)	1.31	(2,069,800)
Long-term debt	(5,000,000)	1.31	(6,550,000)
Common Stock	(3,000,000)	1.20	(3,600,000)
Paid-in capital in excess of par	(2,000,000)	1.20	(2,400,000)
Retained earnings- January 1, 2018	(7,950,000)	(refer note: 1)	(9,880,000)
Sales	(10,000,000)	1.33	(13,300,000)
Cost of goods sold	7,500,000	1.33	9,975,000
Operating expenses	1,200,000	1.33	1,596,000
Cumulative translation adjustment			(1,058,500)
Total	0		0

Note: 1

Calculation of   retained earnings balance:

Particulars	Amount (in $)
Balance as on January 1, 2016 $(12,000,000\text{ FC}\times \text{\$1}\text{.20)}$	5,040,000
Income − 2016 $(1,750,000\text{ FC}\times \text{\$1}\text{.28)}$	2,240,000
Income − 2017 $(2,000,000\text{ FC}\times \text{\$1}\text{.30)}$	2,600,000
Total	9880,000

Following is the P’s & S’s corporation consolidated financial statement:

P’s & S’s corporation consolidated financial statement

For the year ended December 31, 2018

Particulars	Trail Balance		Elimination and Adjustment		Consolidated Income statement (in $)	Consolidated Balance Sheet (in $)
	P(in $)	S(in $)	Dr. (in $)	Cr. (in $)
Cash	4,050,000	3,720,000				7,770,400
Account Receivable	5,270,000	5,226,900				10,496,000
Inventory	5,540,000	7,598,000				13,138,000
Investment in S	20,969,000			1,729,000 (refer note A)
				15,880,000 (refer note B)
				3,360,000 (refer note C)
Fixed assets	21,000,000	19,650,000	655,000 (refer note C)			41,305,000
Accumulated Depreciation	-12,560,000	-8,908,000		196,500 (refer note D)		-21,664,500
Additional Equipment			3,013,000 (refer note C)	451,950 (refer note D)		2,561,050
Account Payable	-3,450,000	-2,069,800				-5,519,800
long-term Debt	-10,000,000	-6,550,000				-16,550,000
Common stock- Parent Company	-4,000,000					-4,000,000
Common Stock- Subsidiary company		-3,600,000	3,600,000 (refer note B)
Paid-in capital in excess of par- Parent	-6,500,000					-6,500,000
Paid-in capital in excess of par- Subsidiary		-2,400,000	2,400,000 (refer note B)
Retained Earnings Jan 1, 2018- Parent	-12,180,000		425,700 (refer note D)			-11,754,300
Retained Earnings Jan 1, 2018- Subsidiary		-9,880,000	9,880,000 (refer note B)
Sales	-26,000,000	-13,300,000			-39,300,000
Cost of goods sold	16,380,000	9,975,000			26,355,000
Operating Expense	3,210,000	1,596,000	219,450 (refer note D)		5,025,450
Subsidiary Income	-1,729,000		1,729,000 (refer note A)
Cumulative translation adjustment		-1,058,500	3,300 (refer note D)	308,000 (refer note C)		-1,363,200
Total	0	0	21,925,450	21,925,450
Combined Net Income					-7,919,550	-7,919,550

Elimination and adjustment:

Note: A

Subsidiary income account ($1,729,000) should be eliminated against the investment account.

Note: B Eliminate the equity balance of the subsidiary on January 1, 2018, against the investment account.

Note: C Distribution of Excess of cost over book value:

Particulars	Amount in FC
Cost to acquire subsidiary	12,000,000
Book Value of Subsidiary	9,200,000
Excess of cost over book value	2,800,000
Less: Adjustment to equipment	500,000
Additional Equipment	2,300,000

Cumulative translation adjustment:

Particulars	Amount in $
Excess of cost over book value in dollars:
January 1, 2016 $(2,800,000\text{ FC}\times \text{\$1}\text{.20)}$	3,360,000
December 31, 2018:
Equipment $(5,000,000\text{ FC}\times \text{\$1}\text{.31)}$	655,000
Additional Equipment <(2,300,000 FC×$1.31)	3,013,000
Cumulative translation adjustment	308,000

Note: D Record Excess Appropriate Depreciation:

Particulars	Amount (in $)
Excess annual depreciation:
Equipment $\left(\frac{500,000\text{ FC}}{10}\right)$	50,000
Additional Equipment $\left(\frac{2,300,000\text{ FC}}{20}\right)$	115,000
Total	165,000
Particulars	Amount (in $)
Accumulated Depreciation in dollars:
December 31,2018:
Equipment $(50,000\times 3\text{ year}\times \text{\$1}\text{.31)}$	196,500
Additional Equipment$(115,000\times 3\text{ year}\times \text{\$1}\text{.31)}$	451,950
Total	648,450
Particulars	Amount (in $)
Current-year depreciation at December 31, 2018, in dollars: $(165,000\text{ FC}\times \text{\$1}\text{.33)}$	219,450
Prior year- Depreciation expense in dollars:
2016 - $(165,000\text{ FC}\times \text{\$1}\text{.28)}$	211,200
2017 - $(165,000\text{ FC}\times \text{\$1}\text{.30)}$	214,500
Total	425,700

Calculation of Cumulative translation adjustment:

  $\text{Cumulative translation adjustment =}\left(\begin{array}{l}\text{Total accumulated depreciation-}\\ \text{Current year depreciation -}\\ \text{Prior year depreciation expense}\end{array}\right)$

  $\text{=\$648,450 - \$219,450 - \$425,700}$

  $=\$3,300$

Hence, cumulative translation adjustment is $3,300.