Palermo Inc. purchased 80 percent of the outstanding stock of Salina Ranching Company, located in Australia, on January 1, 20X3. The purchase price in Australian dollars (A$) was A$200,000, and A$40,000 of the differential was allocated to plant and equipment, which is amortized over a 10-year period. The remainder of the differential was attributable to a patent. Palermo Inc. amortizes the patent over 10 years. Salina Ranching's trial balance on December 31, 20X3, in Australian dollars is as follows:$

$$\begin{array}{lrr} & \textbf{Debits} & \textbf{Credits}\\ \\ \text{Cash} & \text{A\$\hspace{5pt}44,100}\\ \text{Accounts Receivable (net)} &72,000\\ \text{Inventory} & 86,000\\ \text{Plant \& Equipment} & 240,000\\ \text{Accumulated Depreciation} && \text{A\$\hspace{5pt}60,000}\\ \text{Accounts Payable} && 53,800\\ \text{Payable to Palermo Inc.} && 10,800\\ \text{Interest Payable} &&3,000\\ \text{12\\\% Bonds Payable} &&100,000\\ \text{Premium on Bonds} &&5,700\\ \text{Common Stock} && 90,000\\ \text{Retained Earnings} &&40,000\\ \text{Sales} && 579,000\\ \text{Cost of Goods Sold} &330,000\\ \text{Depreciation Expense} & 24,000\\ \text{Operating Expenses} & 131,500\\ \text{Interest Expense} & 5,700\\ \text{Dividends Paid} &9,000\\ \hline \text{Total} & \underline{\underline{\text{A\$942,300}}} & \underline{\underline{\text{A\$942,300}}}\\ \end{array}$$

$$**Additional Information** 1. Salina Ranching uses average cost for cost of goods sold. Inventory increased by A\$20,000 during the year. Purchases were made uniformly during 20X3. The ending inventory was acquired at the average exchange rate for the year. 2. Plant and equipment were acquired as follows:$$

$$\begin{array}{lr} \textbf{Date} & \textbf{ Cost } \\ \\ \text{January 20X1} & \text{A\$180,000} \\ \text{January 1, 20X3} & 60,000 \\ \end{array}$$

$3. Plant and equipment are depreciated using the straight-line method and a 10-year life with no residual value.

4. The payable to Palermo is in Australian dollars. Palermo's books show a receivable from Salina Ranching of$6,480.

5. The 10-year bonds were issued on July 1, 20X3, for A$106,000. The premium is amortized on a straight-line basis. The interest is paid on April 1 and October 1.

6. The dividends were declared and paid on April 1.

7. Exchange rates were as follows:

$$\begin{array}{lr} & \textbf{A\$ \hspace{10pt} \$} \\ \text{January 20X1} & 1 = 0.93\\ \text{August 20X1} & 1 = 0.88\\ \text{January 1, 20X3} & 1 = 0.70\\ \text{April 1, 20X3} & 1 = 0.67\\ \text{July 1, 20X3} & 1 = 0.64\\ \text{December 31, 20X3} & 1 = 0.60\\ \text{20X3 average} & 1 = 0.65\\ \end{array}$$

Assume that the Australian dollar (AS) is the functional currency and that Palermo uses the fully adjusted equity method for accounting for its investment in Salina Ranching. A December 31, 20X3, trial balance for Palermo Inc. follows. Use this translated trial balance for completing this problem.

$$\begin{array}{lrr} \textbf{Item} & \textbf{Debit} & \textbf{Credit}\\ \\ \text{Cash} & \$\hspace{10pt}38,000\\ \text{Accounts Receivable (net)} & 140,000\\ \text{Receivable from Salina Ranching} & 6,480\\ \text{Inventory} & 128,000\\ \text{Plant \& Equipment} &500,000\\ \text{Investment in Salina Ranching} & 152,064\\ \text{Cost of Goods Sold} & 600,000\\ \text{Depreciation Expense} & 28,000\\ \text{Operating Expenses} & 204,000\\ \text{Interest Expense} & 2,000\\ \text{Dividends Declared} & 50,000\\ \text{Translation Adjustment} & 22,528\\ \text{Accumulated Depreciation} && \$\hspace{10pt}90,000\\ \text{Accounts Payable} && 60,000\\ \text{Interest Payable} && 2,000\\ \text{Common Stock} &&500,000\\ \text{Retained Earnings, January 1, 20X3} &&179,656\\ \text{Sales} && 1,000,000\\ \text{Income from Subsidiary} &&39,416\\ \hline \text{Total} & \underline{\underline{\$1,871,072}} & \underline{\underline{\$1,871,072}}\\ \end{array}$$

Required

Prepare a set of elimination entries, in general journal form, for the entries required to prepare a comprehensive consolidation worksheet (including other comprehensive income) as of December 31, 20X3.

Palermo Inc. purchased 80 percent of the outstanding stock of Salina Ranching Company, located in Australia, on January 1, 20X3. The purchase price in Australian dollars (A$) was A$200,000, and A$40,000 of the differential was allocated to plant and equipment, which is amortized over a 10-year period. The remainder of the differential was attributable to a patent. Palermo Inc. amortizes the patent over 10 years. Salina Ranching's trial balance on December 31, 20X3, in Australian dollars is as follows:$

$$\begin{array}{lrr} & \textbf{Debits} & \textbf{Credits}\\ \\ \text{Cash} & \text{A\$\hspace{5pt}44,100}\\ \text{Accounts Receivable (net)} &72,000\\ \text{Inventory} & 86,000\\ \text{Plant \& Equipment} & 240,000\\ \text{Accumulated Depreciation} && \text{A\$\hspace{5pt}60,000}\\ \text{Accounts Payable} && 53,800\\ \text{Payable to Palermo Inc.} && 10,800\\ \text{Interest Payable} &&3,000\\ \text{12\\\% Bonds Payable} &&100,000\\ \text{Premium on Bonds} &&5,700\\ \text{Common Stock} && 90,000\\ \text{Retained Earnings} &&40,000\\ \text{Sales} && 579,000\\ \text{Cost of Goods Sold} &330,000\\ \text{Depreciation Expense} & 24,000\\ \text{Operating Expenses} & 131,500\\ \text{Interest Expense} & 5,700\\ \text{Dividends Paid} &9,000\\ \hline \text{Total} & \underline{\underline{\text{A\$942,300}}} & \underline{\underline{\text{A\$942,300}}}\\ \end{array}$$

$$**Additional Information** 1. Salina Ranching uses average cost for cost of goods sold. Inventory increased by A\$20,000 during the year. Purchases were made uniformly during 20X3. The ending inventory was acquired at the average exchange rate for the year. 2. Plant and equipment were acquired as follows:$$

$$\begin{array}{lr} \textbf{Date} & \textbf{ Cost } \\ \\ \text{January 20X1} & \text{A\$180,000} \\ \text{January 1, 20X3} & 60,000 \\ \end{array}$$

$3. Plant and equipment are depreciated using the straight-line method and a 10-year life with no residual value.

4. The payable to Palermo is in Australian dollars. Palermo's books show a receivable from Salina Ranching of$6,480.

5. The 10-year bonds were issued on July 1, 20X3, for A$106,000. The premium is amortized on a straight-line basis. The interest is paid on April 1 and October 1.

6. The dividends were declared and paid on April 1.

7. Exchange rates were as follows:

$$\begin{array}{lr} & \textbf{A\$ \hspace{10pt} \$} \\ \text{January 20X1} & 1 = 0.93\\ \text{August 20X1} & 1 = 0.88\\ \text{January 1, 20X3} & 1 = 0.70\\ \text{April 1, 20X3} & 1 = 0.67\\ \text{July 1, 20X3} & 1 = 0.64\\ \text{December 31, 20X3} & 1 = 0.60\\ \text{20X3 average} & 1 = 0.65\\ \end{array}$$

Required

Assume that the U.S. dollar is the functional currency and that Palermo uses the fully adjusted equity method for accounting for its investment in Salina Ranching.

Provide the necessary documentation and support for the amounts recorded in the journal entries for the following transactions:

$\quad\quad$ (1) Record the initial investment on January 1, 20X3.

$\quad\quad$ (2) Record the dividend the parent company received.

$\quad\quad$ (3) Recognize the parent company's share of the equity income from the subsidiary.

$\quad\quad$ (4) Record the amortizations of the differential.

Palermo Inc. purchased 80 percent of the outstanding stock of Salina Ranching Company, located in Australia, on January 1, 20X3. The purchase price in Australian dollars (A$) was A$200,000, and A$40,000 of the differential was allocated to plant and equipment, which is amortized over a 10-year period. The remainder of the differential was attributable to a patent. Palermo Inc. amortizes the patent over 10 years. Salina Ranching's trial balance on December 31, 20X3, in Australian dollars is as follows:$

$$\begin{array}{lrr} & \textbf{Debits} & \textbf{Credits}\\ \\ \text{Cash} & \text{A\$\hspace{5pt}44,100}\\ \text{Accounts Receivable (net)} &72,000\\ \text{Inventory} & 86,000\\ \text{Plant \& Equipment} & 240,000\\ \text{Accumulated Depreciation} && \text{A\$\hspace{5pt}60,000}\\ \text{Accounts Payable} && 53,800\\ \text{Payable to Palermo Inc.} && 10,800\\ \text{Interest Payable} &&3,000\\ \text{12\\\% Bonds Payable} &&100,000\\ \text{Premium on Bonds} &&5,700\\ \text{Common Stock} && 90,000\\ \text{Retained Earnings} &&40,000\\ \text{Sales} && 579,000\\ \text{Cost of Goods Sold} &330,000\\ \text{Depreciation Expense} & 24,000\\ \text{Operating Expenses} & 131,500\\ \text{Interest Expense} & 5,700\\ \text{Dividends Paid} &9,000\\ \hline \text{Total} & \underline{\underline{\text{A\$942,300}}} & \underline{\underline{\text{A\$942,300}}}\\ \end{array}$$

$$**Additional Information** 1. Salina Ranching uses average cost for cost of goods sold. Inventory increased by A\$20,000 during the year. Purchases were made uniformly during 20X3. The ending inventory was acquired at the average exchange rate for the year. 2. Plant and equipment were acquired as follows:$$

$$\begin{array}{lr} \textbf{Date} & \textbf{ Cost } \\ \\ \text{January 20X1} & \text{A\$180,000} \\ \text{January 1, 20X3} & 60,000 \\ \end{array}$$

$3. Plant and equipment are depreciated using the straight-line method and a 10-year life with no residual value.

4. The payable to Palermo is in Australian dollars. Palermo's books show a receivable from Salina Ranching of$6,480.

5. The 10-year bonds were issued on July 1, 20X3, for A$106,000. The premium is amortized on a straight-line basis. The interest is paid on April 1 and October 1.

6. The dividends were declared and paid on April 1.

7. Exchange rates were as follows:

$$\begin{array}{lr} & \textbf{A\$ \hspace{10pt} \$} \\ \text{January 20X1} & 1 = 0.93\\ \text{August 20X1} & 1 = 0.88\\ \text{January 1, 20X3} & 1 = 0.70\\ \text{April 1, 20X3} & 1 = 0.67\\ \text{July 1, 20X3} & 1 = 0.64\\ \text{December 31, 20X3} & 1 = 0.60\\ \text{20X3 average} & 1 = 0.65\\ \end{array}$$

Required

Assume that the Australian dollar (AS) is the functional currency and that Palermo uses the fully adjusted equity method for accounting for its investment in Salina Ranching.

Provide the necessary documentation and support for the amounts recorded in the journal entries, including a schedule of the translation adjustment related to the differential.

Prior to adjustment at the end of the year, the balance in Trucks is $296,900 and the balance in Accumulated Depreciation—Trucks is$99,740. Details of the subsidiary ledger are as follows:

$$\begin{array}{lccccc} \begin{array}{l} \textbf { Truck } \\ \textbf { No. } \end{array} & \textbf { Cost } & \begin{array}{c} \textbf { Estimated } \\ \textbf { Residual } \\ \textbf { Value } \end{array} & \begin{array}{c} \textbf { Estimated } \\ \textbf { Useful } \\ \textbf { Life } \end{array} & \begin{array}{c} \textbf { Accumulated } \\ \textbf { Depreciation } \\ \textbf { at Beginning } \\ \textbf { of Year } \end{array} & \begin{array}{c} \textbf { Miles } \\ \textbf { Operated } \\ \textbf { During } \\ \textbf { Year } \end{array} \\ \hline 1 & \$ 80,000 & \$ 15,000 & 250,000 \text { miles } & - & 21,000 \text { miles } \\ 2 & 54,000 & 6,000 & 300,000 & \$ 14,400 & 33,500 \\ 3 & 72,900 & 10,900 & 200,000 & 60,140 & 8,000 \\ 4 & 90,000 & 22,800 & 240,000 & 25,200 & 22,500 \end{array}$$

Journalize the entry to record depreciation for the year.

On January 1, 20X5, Pirate Company acquired all of the outstanding stock of Ship Inc., a Norwegian company, at a cost of $151,200. Ship's net assets on the date of acquisition were 700,000 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:

$$\begin{array}{lrr} & \textbf{Debits} & \textbf{Credits}\\ \\ \text{Cash} & \text{NKr\hspace{8pt}150,000}\\ \text{Accounts Receivable (net)} & 200,000\\ \text{Inventory} & 270,000\\ \text{Property, Plant \& Equipment} & 600,000\\ \text{Accumulated Depreciation} & & \text{NKr\hspace{8pt}150,000}\\ \text{Accounts Payable} & & 90,000 \\ \text{Notes Payable} & & 190,000 \\ \text{Common Stock} & & 450,000 \\ \text{Retained Earnings} && 250,000 \\ \text{Sales} &&690,000 \\ \text{Cost of Goods Sold} & 410,000\\ \text{Operating Expenses} & 100,000 \\ \text{Depreciation Expense} & 50,000 \\ \text{Dividends Paid} & 40,000\\ \hline \text{Total} & \underline{\underline{\text{NKr 1,820,000}}} & \underline{\underline{\text{NKr 1,820,000}}} \\ \end{array}$$

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 NKr 420,000 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 $275,000 for 20X5, and its total stockholders' equity on January 1, 20X5, was$3,500,000. Pirate declared $100,000 of dividends during 20X5.

6. Exchange rates were as follows:

$$\begin{array}{lccc} & \textbf{NKr} && \textbf{\$}\\ \\ \text{July 1, 20X3} & 1& = & 0.15\\ \text{December 30, 20X4} & 1 & = & 0.18\\ \text{January 1, 20X5} & 1 & = & 0.18\\ \text{July 1, 20X5} & 1 & = & 0.19\\ \text{December 15, 20X5} & 1 & = & 0.205\\ \text{December 31, 20X5} & 1 & = & 0.21\\ \text{Average for 20X5} & 1 & = & 0.20\\ \end{array}$$

Required

Prepare a schedule translating the trial balance from Norwegian kroner into U.S. dollars. Assume the krone is the functional currency.

On January 1, 20X5, Pirate Company acquired all of the outstanding stock of Ship Inc., a Norwegian company, at a cost of $151,200. Ship's net assets on the date of acquisition were 700,000 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:

$$\begin{array}{lrr} & \textbf{Debits} & \textbf{Credits}\\ \\ \text{Cash} & \text{NKr\hspace{8pt}150,000}\\ \text{Accounts Receivable (net)} & 200,000\\ \text{Inventory} & 270,000\\ \text{Property, Plant \& Equipment} & 600,000\\ \text{Accumulated Depreciation} & & \text{NKr\hspace{8pt}150,000}\\ \text{Accounts Payable} & & 90,000 \\ \text{Notes Payable} & & 190,000 \\ \text{Common Stock} & & 450,000 \\ \text{Retained Earnings} && 250,000 \\ \text{Sales} &&690,000 \\ \text{Cost of Goods Sold} & 410,000\\ \text{Operating Expenses} & 100,000 \\ \text{Depreciation Expense} & 50,000 \\ \text{Dividends Paid} & 40,000\\ \hline \text{Total} & \underline{\underline{\text{NKr 1,820,000}}} & \underline{\underline{\text{NKr 1,820,000}}} \\ \end{array}$$

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 NKr 420,000 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 $275,000 for 20X5, and its total stockholders' equity on January 1, 20X5, was$3,500,000. Pirate declared $100,000 of dividends during 20X5.

6. Exchange rates were as follows:

$$\begin{array}{lccc} & \textbf{NKr} && \textbf{\$}\\ \\ \text{July 1, 20X3} & 1& = & 0.15\\ \text{December 30, 20X4} & 1 & = & 0.18\\ \text{January 1, 20X5} & 1 & = & 0.18\\ \text{July 1, 20X5} & 1 & = & 0.19\\ \text{December 15, 20X5} & 1 & = & 0.205\\ \text{December 31, 20X5} & 1 & = & 0.21\\ \text{Average for 20X5} & 1 & = & 0.20\\ \end{array}$$

Required

Assume the U.S. dollar is the functional currency, not the krone. Pirate uses the fully adjusted equity method. Record all journal entries that relate to its investment in the Norwegian subsidiary during 20X5. Provide the necessary documentation and support for the amounts in the journal entries.

Palermo Inc. purchased 80 percent of the outstanding stock of Salina Ranching Company, located in Australia, on January 1, 20X3. The purchase price in Australian dollars (A$) was A$200,000, and A$40,000 of the differential was allocated to plant and equipment, which is amortized over a 10-year period. The remainder of the differential was attributable to a patent. Palermo Inc. amortizes the patent over 10 years. Salina Ranching's trial balance on December 31, 20X3, in Australian dollars is as follows:$

$$\begin{array}{lrr} & \textbf{Debits} & \textbf{Credits}\\ \\ \text{Cash} & \text{A\$\hspace{5pt}44,100}\\ \text{Accounts Receivable (net)} &72,000\\ \text{Inventory} & 86,000\\ \text{Plant \& Equipment} & 240,000\\ \text{Accumulated Depreciation} && \text{A\$\hspace{5pt}60,000}\\ \text{Accounts Payable} && 53,800\\ \text{Payable to Palermo Inc.} && 10,800\\ \text{Interest Payable} &&3,000\\ \text{12\\\% Bonds Payable} &&100,000\\ \text{Premium on Bonds} &&5,700\\ \text{Common Stock} && 90,000\\ \text{Retained Earnings} &&40,000\\ \text{Sales} && 579,000\\ \text{Cost of Goods Sold} &330,000\\ \text{Depreciation Expense} & 24,000\\ \text{Operating Expenses} & 131,500\\ \text{Interest Expense} & 5,700\\ \text{Dividends Paid} &9,000\\ \hline \text{Total} & \underline{\underline{\text{A\$942,300}}} & \underline{\underline{\text{A\$942,300}}}\\ \end{array}$$

$$**Additional Information** 1. Salina Ranching uses average cost for cost of goods sold. Inventory increased by A\$20,000 during the year. Purchases were made uniformly during 20X3. The ending inventory was acquired at the average exchange rate for the year. 2. Plant and equipment were acquired as follows:$$

$$\begin{array}{lr} \textbf{Date} & \textbf{ Cost } \\ \\ \text{January 20X1} & \text{A\$180,000} \\ \text{January 1, 20X3} & 60,000 \\ \end{array}$$

$3. Plant and equipment are depreciated using the straight-line method and a 10-year life with no residual value.

4. The payable to Palermo is in Australian dollars. Palermo's books show a receivable from Salina Ranching of$6,480.

5. The 10-year bonds were issued on July 1, 20X3, for A$106,000. The premium is amortized on a straight-line basis. The interest is paid on April 1 and October 1.

6. The dividends were declared and paid on April 1.

7. Exchange rates were as follows:

$$\begin{array}{lr} & \textbf{A\$ \hspace{10pt} \$} \\ \text{January 20X1} & 1 = 0.93\\ \text{August 20X1} & 1 = 0.88\\ \text{January 1, 20X3} & 1 = 0.70\\ \text{April 1, 20X3} & 1 = 0.67\\ \text{July 1, 20X3} & 1 = 0.64\\ \text{December 31, 20X3} & 1 = 0.60\\ \text{20X3 average} & 1 = 0.65\\ \end{array}$$

Required

Assume the U.S. dollar is the functional currency. Prepare a schedule remeasuring the December 31, 20X3, trial balance of Salina Ranching from Australian dollars to U.S. dollars.

Easton Company acquires 100% of the outstanding voting shares of Harris Company on January 1, 2019. To obtain these shares, Easton pays $210,000 in cash and issues 5,000 of its$10 par value common stock. On this date, Easton's stock has a fair value of $36 per share, and Harris's book value of stockholders' equity is$280,000. Easton is willing to pay $390,000 for a company with a book value for equity of$280,000 because it believes that (1) Harris buildings are undervalued by $40,000, and (2) Harris has an unrecorded patent that Easton values at$30,000. Easton considers the remaining balance sheet items to be fairly valued (no book-to-fair value difference). The remaining $40,000 of the purchase price excess over book value is ascribed to corporate synergies and other general unidentifiable intangible assets (goodwill). The January 1, 2019, balance sheets at the acquisition date follow:

$$\begin{array}{lrrcc} &\text{ Easton }& \text{ Harris }& \text{Consolidating } & \text{Consolidated}\\ & \text{ Company } & \text{ Company } & \text{ Adjustments }\\ \text{ Cash }& \$\hspace{13pt}84,000 & \$\hspace{13pt}40,000 \\ \text{ Receivables }& 160,000 & 90,000 \\ \text{ Inventory }& 220,000 & 130,000 \\ \text{ Investment in Harris }& 390,000 & - \\ \text{ Land }& 100,000 & 60,000 \\ \text{ Buildings, net }& 400,000 & 110,000 \\ \text{ Equipment, net }& \underline{120,000} & \underline{50,000} \\ \text{ Total assets }& \underline{\underline{\$1 ,474,000}} & \underline{\underline{\$\hspace{8pt}480,000}} \\ \text{ Accounts payable }& \$\hspace{9pt} 160,000 & \$ \hspace{13pt}30,000 \\ \text{ Long-term liabilities }& 380,000 & 170,000 \\ \text{ Common stock }& 500,000 & 40,000 \\ \text{ Additional paid-in capital }& 74,000 & - \\ \text{ Retained earnings }& \underline{\underline{360,000}} & \underline{\underline{240,000}} \\ \text{ Total liabilities \& equity }& \underline{\underline{\$1,474,000}} & \underline{\underline{\$\hspace{8pt}480,000}} \\ \end{array}$$

How will the excess of the purchase price over book value acquired be treated in years subsequent to the acquisition?

On January 1, 20X5, Pirate Company acquired all of the outstanding stock of Ship Inc., a Norwegian company, at a cost of $151,200. Ship's net assets on the date of acquisition were 700,000 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:

$$\begin{array}{lrr} & \textbf{Debits} & \textbf{Credits}\\ \\ \text{Cash} & \text{NKr\hspace{8pt}150,000}\\ \text{Accounts Receivable (net)} & 200,000\\ \text{Inventory} & 270,000\\ \text{Property, Plant \& Equipment} & 600,000\\ \text{Accumulated Depreciation} & & \text{NKr\hspace{8pt}150,000}\\ \text{Accounts Payable} & & 90,000 \\ \text{Notes Payable} & & 190,000 \\ \text{Common Stock} & & 450,000 \\ \text{Retained Earnings} && 250,000 \\ \text{Sales} &&690,000 \\ \text{Cost of Goods Sold} & 410,000\\ \text{Operating Expenses} & 100,000 \\ \text{Depreciation Expense} & 50,000 \\ \text{Dividends Paid} & 40,000\\ \hline \text{Total} & \underline{\underline{\text{NKr 1,820,000}}} & \underline{\underline{\text{NKr 1,820,000}}} \\ \end{array}$$

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 NKr 420,000 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 $275,000 for 20X5, and its total stockholders' equity on January 1, 20X5, was$3,500,000. Pirate declared $100,000 of dividends during 20X5.

6. Exchange rates were as follows:

$$\begin{array}{lccc} & \textbf{NKr} && \textbf{\$}\\ \\ \text{July 1, 20X3} & 1& = & 0.15\\ \text{December 30, 20X4} & 1 & = & 0.18\\ \text{January 1, 20X5} & 1 & = & 0.18\\ \text{July 1, 20X5} & 1 & = & 0.19\\ \text{December 15, 20X5} & 1 & = & 0.205\\ \text{December 31, 20X5} & 1 & = & 0.21\\ \text{Average for 20X5} & 1 & = & 0.20\\ \end{array}$$

Required

Assume the U.S. dollar is the functional currency, not the krone. Compute Pirate's total consolidated stockholders' equity at December 31, 20X5.

On January 1, 20X5, Pirate Company acquired all of the outstanding stock of Ship Inc., a Norwegian company, at a cost of $151,200. Ship's net assets on the date of acquisition were 700,000 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:

$$\begin{array}{lrr} & \textbf{Debits} & \textbf{Credits}\\ \\ \text{Cash} & \text{NKr\hspace{8pt}150,000}\\ \text{Accounts Receivable (net)} & 200,000\\ \text{Inventory} & 270,000\\ \text{Property, Plant \& Equipment} & 600,000\\ \text{Accumulated Depreciation} & & \text{NKr\hspace{8pt}150,000}\\ \text{Accounts Payable} & & 90,000 \\ \text{Notes Payable} & & 190,000 \\ \text{Common Stock} & & 450,000 \\ \text{Retained Earnings} && 250,000 \\ \text{Sales} &&690,000 \\ \text{Cost of Goods Sold} & 410,000\\ \text{Operating Expenses} & 100,000 \\ \text{Depreciation Expense} & 50,000 \\ \text{Dividends Paid} & 40,000\\ \hline \text{Total} & \underline{\underline{\text{NKr 1,820,000}}} & \underline{\underline{\text{NKr 1,820,000}}} \\ \end{array}$$

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 NKr 420,000 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 $275,000 for 20X5, and its total stockholders' equity on January 1, 20X5, was$3,500,000. Pirate declared $100,000 of dividends during 20X5.

6. Exchange rates were as follows:

$$\begin{array}{lccc} & \textbf{NKr} && \textbf{\$}\\ \\ \text{July 1, 20X3} & 1& = & 0.15\\ \text{December 30, 20X4} & 1 & = & 0.18\\ \text{January 1, 20X5} & 1 & = & 0.18\\ \text{July 1, 20X5} & 1 & = & 0.19\\ \text{December 15, 20X5} & 1 & = & 0.205\\ \text{December 31, 20X5} & 1 & = & 0.21\\ \text{Average for 20X5} & 1 & = & 0.20\\ \end{array}$$

Required

Compute Pirate's total consolidated stockholders' equity at December 31, 20X5.

On January 1, 20X5, Pirate Company acquired all of the outstanding stock of Ship Inc., a Norwegian company, at a cost of $151,200. Ship's net assets on the date of acquisition were 700,000 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:

$$\begin{array}{lrr} & \textbf{Debits} & \textbf{Credits}\\ \\ \text{Cash} & \text{NKr\hspace{8pt}150,000}\\ \text{Accounts Receivable (net)} & 200,000\\ \text{Inventory} & 270,000\\ \text{Property, Plant \& Equipment} & 600,000\\ \text{Accumulated Depreciation} & & \text{NKr\hspace{8pt}150,000}\\ \text{Accounts Payable} & & 90,000 \\ \text{Notes Payable} & & 190,000 \\ \text{Common Stock} & & 450,000 \\ \text{Retained Earnings} && 250,000 \\ \text{Sales} &&690,000 \\ \text{Cost of Goods Sold} & 410,000\\ \text{Operating Expenses} & 100,000 \\ \text{Depreciation Expense} & 50,000 \\ \text{Dividends Paid} & 40,000\\ \hline \text{Total} & \underline{\underline{\text{NKr 1,820,000}}} & \underline{\underline{\text{NKr 1,820,000}}} \\ \end{array}$$

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 NKr 420,000 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 $275,000 for 20X5, and its total stockholders' equity on January 1, 20X5, was$3,500,000. Pirate declared $100,000 of dividends during 20X5.

6. Exchange rates were as follows:

$$\begin{array}{lccc} & \textbf{NKr} && \textbf{\$}\\ \\ \text{July 1, 20X3} & 1& = & 0.15\\ \text{December 30, 20X4} & 1 & = & 0.18\\ \text{January 1, 20X5} & 1 & = & 0.18\\ \text{July 1, 20X5} & 1 & = & 0.19\\ \text{December 15, 20X5} & 1 & = & 0.205\\ \text{December 31, 20X5} & 1 & = & 0.21\\ \text{Average for 20X5} & 1 & = & 0.20\\ \end{array}$$

Required

Prepare a schedule that determines Pirate's consolidated comprehensive income for 20X5.

On January 1, 20X5, Pirate Company acquired all of the outstanding stock of Ship Inc., a Norwegian company, at a cost of $151,200. Ship's net assets on the date of acquisition were 700,000 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:

$$\begin{array}{lrr} & \textbf{Debits} & \textbf{Credits}\\ \\ \text{Cash} & \text{NKr\hspace{8pt}150,000}\\ \text{Accounts Receivable (net)} & 200,000\\ \text{Inventory} & 270,000\\ \text{Property, Plant \& Equipment} & 600,000\\ \text{Accumulated Depreciation} & & \text{NKr\hspace{8pt}150,000}\\ \text{Accounts Payable} & & 90,000 \\ \text{Notes Payable} & & 190,000 \\ \text{Common Stock} & & 450,000 \\ \text{Retained Earnings} && 250,000 \\ \text{Sales} &&690,000 \\ \text{Cost of Goods Sold} & 410,000\\ \text{Operating Expenses} & 100,000 \\ \text{Depreciation Expense} & 50,000 \\ \text{Dividends Paid} & 40,000\\ \hline \text{Total} & \underline{\underline{\text{NKr 1,820,000}}} & \underline{\underline{\text{NKr 1,820,000}}} \\ \end{array}$$