Accounting Question

College of Administrative and Financial Sciences

Assignment (1)
Deadline: Saturday 01/03/2025 @ 23:59
Course Name: Advanced Financial
Accounting

Student’s Name:

Course Code: ACCT 302

Student’s ID Number:

Semester: II

CRN:
Academic Year: 1446 (2024-2025)

For Instructor’s Use only
Instructor’s Name: Dr. Ashfaque Ahmed
Students’ Grade:
/15
Level of Marks:
Instructions – PLEASE READ THEM CAREFULLY
• The Assignment must be submitted on Blackboard (WORD format only) via
allocated folder.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover
page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students
or other resources without proper referencing will result in ZERO marks. No
exceptions.
• All answered must be typed using Times New Roman (Size 12, Double-spaced)
font. No pictures containing text will be accepted and will be considered
plagiarism).
• Submissions without this cover page will NOT be accepted.

Restricted – ‫مقيد‬

1. Zaid Ltd and Zafar Ltd agreed to merge on January 1, 2019. On the date of the merger
agreement, the companies reported the following data: (5 Marks)

Current Assets
Long Term Assets

Zaid Ltd
Book
Fair Value
Value
190,000
240,000
600,000
500,000

Zafar Ltd
Book
Fair
Value
Value
50,000
62,000
300,000
275,000

Accumulated Depreciation
Total Assets

(130,000)
660,000

(50,000)
300,000

Current Liabilities
Common Stock
Capital in excess of Par Value
Retained Earnings
Total Liabilities

100,000
300,000
40,000
220,000
660,000

Balance Sheet

740,000
120,000

75,000
50,000
10,000
165,000
300,000

337,000
75,000

Zaid Ltd has 15,000 shares of its $20 par value shares outstanding on January 1, 20X3, and
Zafar Ltd has 10,000 shares of $5 par value stock outstanding. The market values of the
shares are $400 and $75, respectively.
Required:
Zaid Ltd issues 1,000 shares of stock in exchange for all of Zafar Ltd’s net assets. Prepare a
balance sheet for the combined entity immediately following the merger.

Solution:
2) Plant Inc. a calendar year reporting company acquired 80% of Seed Inc.’s outstanding
common stock for $ 484,000 on Dec. 31, 2018, when the fair value of Seed’s Net Assets was $
568,000. The following data summarize the fair value calculation:
(7 Marks )
Book Value Element
Common Stock
Retained Earnings

Amount $
150,000
135,000

Life Remaining

(9700)
48,000
96,000

2 Months
Indefinite
8 Years

Under –Or-Over Valuation
Inventory
Land
Equipment

Restricted – ‫مقيد‬

Covenant –Not-To Compete
Goodwill Element

40,000
108,700
568,000

Total Cost

5 Years
Indefinite

Plant Inc. & Seed Inc.
Worksheet
As at Dec. 31, 2018
Balance Sheet
Cash
Account Receivable
Inventory
Investment in Seed Book Value
Excess Cost
Land
Building & Equipment
Accumulated Depreciation
Total Assets

Plant ($)
148,000
103,500
152,500

Seed ($)
47,000
118,000
126,000

228,000
226,400
168,000
400,000
-16,000
1,410,400

127,000
309,000
-102,000
625,000

Payable & Accruals
Long Term Assets
Common Stock
Retained Earnings
Total Liabilities & Equity

265,400
290,000
450,000
405,000
1,410,400

120,000
220,000
150,000
135,000
625,000

You are required to
(a) Prepare an Analysis of the Investment Account Through Dec. 31, 2018. Show clearly Book
Value and Excess Value calculation by preparing tables.
(b) Prepare all consolidation (Elimination Entries) as of Dec. 31, 2018.
(c) Prepare a Consolidated Worksheet as at Dec. 31, 2018.

Solution:

Restricted – ‫مقيد‬

3. Baskin Corporation pays $ 420,000 for Camlin Inc. and that the estimated FMV of
Assets, Liabilities and Equity are as follows:
(3 Mark)
Account Receivable
Inventory
PP & E
Total Assets

100,000
50,000
200,000
350,000

Liabilities

70,000

Retained Earnings

80,000

Common Stock

200,000

Liabilities & Equities

350,000

Determine the amount of Goodwill.

Solution:

Restricted – ‫مقيد‬

College of Administrative and Financial Sciences

Assignment (1)
Deadline: Saturday 01/03/2025 @ 23:59
Course Name: Advanced Financial
Accounting

Student’s Name:

Course Code: ACCT 302

Student’s ID Number:

Semester: II

CRN:
Academic Year: 1446 (2024-2025)

For Instructor’s Use only
Instructor’s Name: Dr. Ashfaque Ahmed
Students’ Grade:
/15
Level of Marks:
Instructions – PLEASE READ THEM CAREFULLY
• The Assignment must be submitted on Blackboard (WORD format only) via
allocated folder.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover
page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students
or other resources without proper referencing will result in ZERO marks. No
exceptions.
• All answered must be typed using Times New Roman (Size 12, Double-spaced)
font. No pictures containing text will be accepted and will be considered
plagiarism).
• Submissions without this cover page will NOT be accepted.

Restricted – ‫مقيد‬

1. Zaid Ltd and Zafar Ltd agreed to merge on January 1, 2019. On the date of the merger
agreement, the companies reported the following data: (5 Marks)

Current Assets
Long Term Assets

Zaid Ltd
Book
Fair Value
Value
190,000
240,000
600,000
500,000

Zafar Ltd
Book
Fair
Value
Value
50,000
62,000
300,000
275,000

Accumulated Depreciation
Total Assets

(130,000)
660,000

(50,000)
300,000

Current Liabilities
Common Stock
Capital in excess of Par Value
Retained Earnings
Total Liabilities

100,000
300,000
40,000
220,000
660,000

Balance Sheet

740,000
120,000

75,000
50,000
10,000
165,000
300,000

337,000
75,000

Zaid Ltd has 15,000 shares of its $20 par value shares outstanding on January 1, 20X3, and
Zafar Ltd has 10,000 shares of $5 par value stock outstanding. The market values of the
shares are $400 and $75, respectively.
Required:
Zaid Ltd issues 1,000 shares of stock in exchange for all of Zafar Ltd’s net assets. Prepare a
balance sheet for the combined entity immediately following the merger.

Solution:
2) Plant Inc. a calendar year reporting company acquired 80% of Seed Inc.’s outstanding
common stock for $ 484,000 on Dec. 31, 2018, when the fair value of Seed’s Net Assets was $
568,000. The following data summarize the fair value calculation:
(7 Marks )
Book Value Element
Common Stock
Retained Earnings

Amount $
150,000
135,000

Life Remaining

(9700)
48,000
96,000

2 Months
Indefinite
8 Years

Under –Or-Over Valuation
Inventory
Land
Equipment

Restricted – ‫مقيد‬

Covenant –Not-To Compete
Goodwill Element

40,000
108,700
568,000

Total Cost

5 Years
Indefinite

Plant Inc. & Seed Inc.
Worksheet
As at Dec. 31, 2018
Balance Sheet
Cash
Account Receivable
Inventory
Investment in Seed Book Value
Excess Cost
Land
Building & Equipment
Accumulated Depreciation
Total Assets

Plant ($)
148,000
103,500
152,500

Seed ($)
47,000
118,000
126,000

228,000
226,400
168,000
400,000
-16,000
1,410,400

127,000
309,000
-102,000
625,000

Payable & Accruals
Long Term Assets
Common Stock
Retained Earnings
Total Liabilities & Equity

265,400
290,000
450,000
405,000
1,410,400

120,000
220,000
150,000
135,000
625,000

You are required to
(a) Prepare an Analysis of the Investment Account Through Dec. 31, 2018. Show clearly Book
Value and Excess Value calculation by preparing tables.
(b) Prepare all consolidation (Elimination Entries) as of Dec. 31, 2018.
(c) Prepare a Consolidated Worksheet as at Dec. 31, 2018.

Solution:

Restricted – ‫مقيد‬

3. Baskin Corporation pays $ 420,000 for Camlin Inc. and that the estimated FMV of
Assets, Liabilities and Equity are as follows:
(3 Mark)
Account Receivable
Inventory
PP & E
Total Assets

100,000
50,000
200,000
350,000

Liabilities

70,000

Retained Earnings

80,000

Common Stock

200,000

Liabilities & Equities

350,000

Determine the amount of Goodwill.

Solution:

Restricted – ‫مقيد‬

ACCT 302 Revision

Ch 13 Governmental Entities: Special Funds and Government-wide Financial Statements: Governmental Funds
Special Revenue Funds

Capital Projects Funds

General Fund

Debt Service Funds

Permanent Funds:

Purpose: To account for the
proceeds of specifc revenue
sources that are legally
restricted to expenditure for
specifc purposes.
With the excepton of
infows for Capital projects
and Expendable trusts.
Includes resources and
expenditures for
operatons, such as public
libraries, when a separate
tax is levied for their
support.
Infows: Usually from
specifc taxes or nontax
sources not directly related
to services provided.

Purpose: To account for fnancial
resources used for the acquisiton or
constructon of major capital facilites
Except for those fnanced by:
Proprietary Funds and
Trust Funds
A temporary fund related to the
acquisiton or constructon of a specifc
capital project.
At the completon of the project:
The fund is closed and
The project ’s cost is recorded as a
capital asset in the GCA-GLTL general
ledger.
Outlows: Costs incurred during
constructon are charged to
expenditures.
Inflows: oond sales and transfers from
the General Fund.
GCA = General Capital Assets
GLTL = General Long Term Liabilites

General rule:
All activites
should be
accounted for in
the general fund
unless
specifcally
required by law
or
The nature of
the activites is
proprietary or
fduciary.

Purpose: To account for the
serivicing of debt initally recorded
as a liability in the GCA-GLTL
general ledger.
“Serivicing of Debt” is the payment
of
(1) interest and
(2) debt principal at maturity.
The accountng is the same as for
the general fund.
Unusual Features:
Interest is not accrued untl the
due date.
Principal payments are not
recorded as liabilites untl
Examples of general long-term
debt obligatons:
Serial bonds
Term bonds
Special assessment bonds
Notes and warrants
Capital leases the due date.

Are established when
there is a donor restricton
requiring that
the fund principal be
preserived and
the income from these
permanent funds be used
to beneft the
goivernment’s programs or
its general citienry.
The accountng for
permanent funds is similar
to that of the general fund.

The Proprietary Funds:
Enterprise Funds

Internal Service Funds

Enterprise Funds account for actvites that provide
services primarily to the public
Examples: Gas, electric, water utlites
Accountng like business accountng.
Measurement focus on all economic resources and
the accrual basis of accountng.
Report fxed assets, which are depreciated, and
long-term debt.
Focus on income determinaton and capital
maintenance.

Purpose: to account for activites that proivide
serivices solely to other departments.
These serivices are not aivailable to the general public,
making it diferent from the enterprise fund.
Accountng like business accountng.
Measurement focus on all economic resources and
the accrual basis of accountng.
Report fxed assets, which are depreciated, and longterm debt.

The Fiduciary Funds

Trust Funds

Agency Funds
Agency Funds serive as conduits for the transfer of money.
Purpose: to account for the investng and using of This role is purely custodial in nature.
money in accordance with stpulated provisions of Since the assets belong to someone else, assets always equal
trust indenture agreements or statutes.
liabilites.
Pension Trust Funds
Investment Trust Funds
Private-Purpose Trust Funds
The following items do not exist for agency funds:
Private-purpose Trust Funds account for property A fund balance/equity
held under trust arrangements which beneft:
An operatng statement
Individuals
Private organizatons
Agency funds account for resources held by a goivernmental unit as a
Other governments
custodial agent for
Trust funds use the accrual basis of accountng.
indiividuals,
Financial statements required:
priivate organiiatons,
The statement of fduciary net assets
other funds, or
includes all trusts and agency funds
other goivernmental units.
the statement of changes in fduciary net assets.
Agency funds use the accrual basis of accountng.
includes only the trust funds because agency funds The fnancial statement for agency funds is the statement of fduciary
do not have a net asset balance.
net assets

Chapter 12 Governmental Entities: Introduction
and General Fund Accounting
Governmental Fund Types

Proprietary Fund Types

Fiduciary Fund Types

These actvites do not resemble commercial actvites.
Used to provide basic governmental services to the public
Each entty creates only one general fund, but it ay create
more than one of each of the other types of funds

These activites resemble
commercial activites. Can
measure proftability or
capital maintenance

Holding and managing
assets owned by
others (e.g., pension
assets).

GF General fund
SRF Special revenue funds
DSF Debt service funds
CPF Capital projects funds
PF Permanent funds

The objective is to recoiver the
unit’s costs hrough user
PTF Pension trust
charges
funds
ITF Inivestment trust
funds
P-PTF PriivateEF Enterprise funds
purpose trust funds
ISF Internal serivice funds
AF Agency funds

Financial statements
Balance sheet
Statement of revenues, expenditures and changes in fund
balance
 The fve governmental funds use the current fnancial
resources measurement focus

• The modifed accrual basis of accountng recogniies reivenues when they become aivailable
and measureable and expenditures when liabilites become measurable and incurred.
• Assume that at January 1, 20X1, the frst day of the new fscal period, the city council of oarb
City approives the operatng budget for the general fund, proividing for $900,000 in reivenue
and $850,000 in expenditures. Record the entry
ESTIMATED REVENUES CONTROL

900,000

•

APPROPRIATIONS CONTROL

850,000

•

oUDGETARY FUND oALANCE—UNASSIGNED

50,000

•

Record general fund budget for year.

• Assume that at January 1, 20X1, the frst day of the new fscal period, the city council of oarb
City approives the operatng budget for the general fund, proividing for $700,000 in reivenue
and $850,000 in expenditures. Record the entry
• ESTIMATED REVENUES CONTROL

700,000

• oUDGETARY FUND oALANCE—UNASSIGNED 150,000
•

APPROPRIATIONS CONTROL

850,000

Chapter 10 Partnerships:
Formation, Operation, and Changes in Membership
• Defniton of a Partnership
• Secton 202 of the UPA (Uniform Partnership Act) 1997 states that “. . . the associaton of two
or more persons to carry on as co-owners of a business for proft forms a partnership . . .” This
defniton encompasses three distnct factors:
• 1. Associaton of two or more persons. The “persons” are usually indiividuals; howeiver, they
also may be corporatons or other partnerships.
• 2. To carry on as co-owners. This means that each partner has the apparent authority,
unless restricted by the partnership agreement, to act as an agent of the partnership for
transactons in the ordinary course of business of the kind carried on by the partnership.
These transactons can legally bind the partnership to third partes.
• 3. ousiness for proft. A partnership may be formed to perform any legal business, trade,
profession, or other serivice. Howeiver, the partnership must atempt to make a proft;
therefore, not-for-proft enttes such as fraternal groups may not be organiied as
partnerships.

Types of Partnerships

General
Partnerships

Limited Partnerships

Limited Liability
Partnerships (LLPs)

All partners have
Limited partners haive
A partner’s personal
unlimited liability.
limited liability to
assets are at risk only for
Creditors can go
partnership creditors if the his or her own negligence
afer the personal
partnership is unable to pay and wrongdoing,
assets of any or all of its debts.
the negligence and
the partners.
Limited partners’ risk is
wrongdoing of those
limited to their inivested
under his or her control,
capital.
but not debts.
Thus, personal assets are
Since 1993, many
not at risk.
accountng frms haive
At least one of the partners changed from general
must be a general partner. partnerships to LLPs.

Limited Liability Limited
Partnerships (LLLPs)
Like a limited partnership, must
haive at least one general partner.
General partners manage the
partnership.
oig diference relates to the
liability of general partners:
No personal liability for
partnership obligatons (like a
limited partner)
Not liable for wrongdoing of
other partners—just personal
decisions and decisions of those
superivised

• The essential features of partnership are as follows:
• Two or more person – partnership is the association of two or more
• Registration – Registration of a partnership is not However, if the partners so decide, they may get the firm registered with the registrar of firms.
•

Liability of partnership – Each partner is liable jointly and severally with all other partners to the third party for all the acts of the firm, while he is a

•

Mutual agreement – The agreement becomes the basis of relationship between the partners if not in written an oral agreement is equally

•

Business – The business of the partnership can be carried on by any one of them, acting for Partners are agents as well as the principals of the firm.

•

Sharing of profit – The agreement between the partners must be to share profits of a business.

•

Management and control – Every partner has a right to take part in the management of the firm.

• Partnership Agreement
• A written expression of what the partners have agreed to.
• Examples of areas addressed:
• Manner of sharing profits.
• Limitations on withdrawals.
• Rights of partners.
• Settling with withdrawing partners.
• Expulsion of partners.
• Conflicts of interest.

•

Alt, a sole proprietor, has been deiveloping sofware for seiveral types of computers. The business has the following account
balances as of December 31, 20X0:
Cash $
3,000
Liabilites $10,000
Iniventory
7,000
Alt, Capital 15,000
Equipment
20,000
Less:
Accumulated Depreciaton (5,000)
Total Assets $25,000
Total Liabilites and Capital $25,000
Alt needs additonal technical assistance to meet the increasing sales and ofers olue an interest in the business. Alt and
olue agree to form a partnership. Alt’s business is audited, and its net assets are appraised.
The audit and appraisal disclose that $1,000 of liabilites haive not been recorded, iniventory has a market ivalue of $9,000,
and the equipment has a fair ivalue of $19,000.
Alt and olue prepare and sign a partnership agreement that includes all signifcant operatng policies. olue will contribute
$10,000 cash for a one-third capital interest. The Ao Partnership is to acquire all of Alt’s business and assume its debts. The
entry to record the inital capital contributon on the partnership’s books is: January 1, 20X1 (1)
Cash
Iniventory
Equipment
Liabilites
Alt, Capital
olue, Capital

13,000
9,000
19,000
11,000
20,000
10,000

(olue brings 10000 for 1/3 share, So olues share is 2/3 with 20000)

• Andy and orandy wish to form the A&o partnership. Andy contributes land
with a book ivalue of $100,000 and a current ivalue of $125,000 and a
building with a book ivalue of $150,000 and a current ivalue of $200,000.
Spencer will contribute cash.
• If the partners plan to share profts and losses equally afer the formaton of
the partnership and assuming they haive agreed to equal capital
contributons, how much cash will orandy haive to contribute to form the
partnership?
• Pass Journal entry to be recorded.
• Answer:
$325,000
• Cash
$125,000
• Land
$200,000
• ouilding
Andy’s Cap
$325,000
•
$325,000
• orandy’s Cap

• The partnership of Alex and James has the following proivisions:
• Alex and James receiive salary allowances of $37,000 and $18,000, respectively.
• Interest is imputed at 10% on the aiverage capital inivestment.
• Any remaining proft or loss is shared between Alex and James in a 3:2 rato,
respectively.
• Aiverage Capital inivestments: Alex, $ 50,000; James, 130,000
• REQUIRED 1. Prepare a schedule showing how the proft would be diivided,
assuming the partnership proft or loss is:
a. $ 57,000
•
b.
$ (34,000)
•

Income Summary 57,000
Capital, Alex
32,400
Capital, James
24,600

Capital, Alex 22,200
Capital, James11,800
Income Summary

34,000

Scot and Stephanie are partners with capital balances of $15,000 and $10,000, and they share
profts and losses in the rato of 3:2, respectively. Zoe inivests $10,000 cash for a 25% interest in
the capital and profts of the new partnership. The partners agree that the implied partnership
goodwill is to be recorded simultaneously with the admission of Zoe.
REQUIRED
Calculate the frm’s total implied goodwill.
Prepare the entry or entries to record the admission of Zoe.
Answer:
New implied value:

$ 10,000 ÷

25%

Old implied value:

$ 25,000

÷

= $40,000

75%

= $33.333

Tangible net assets: $ 25,000

+ 10,000 = $35,000

Implied Goodwill =

 $35,000 = $5,000

$ 40,000

Goodwill belongs to old partners (because $35,000 is less than $40,000). [Implies that
they “gave” less for her relatve share of the business.]

Entry to record Goodwill
Goodwill Dr
Capital, Scot

5,000
Cr

3,000

Capital, Stephanie Cr 2,000
Entry to record Capital
Cash 10,000
Capital, Zoe

10,000

• Debra and Merina sell electronic equipment and supplies through their
partnership. They wish to expand their computer lines and decide to
admit Wayne to the partnership. Debra’s capital is $200,000, Merina’s
capital is $160,000, and they share income in a rato of 3:2, respectively.
• Required Record Wayne’s admission for each of the following
independent situatons:
• a.Wayne directly purchases half of Merina’s inivestment in the partnership
for $80,000.

Merina, Capital

Wayne, Capital

80,000

80,000

• The reivaluing of assets / goodwill method.
Reivalue the balance sheet by recording goodwill or reivaluing tangible
assets. Thus, we now haive a bigger “pie” to diivide up among the partners.
Assume C contributes $150,000 (FMV of ivalue owned by A and o) for a 1/3
interest in assets, profts, and losses
• Cash
Capital, C
•

150,000
150,000

• The bonus method.
• Do not reivalue the balance sheet.
• Only leaives the book ivalue of tangible net assets on the balance sheet.
oetsy contributes $54,000 cash for a 25% interest in the new net assets of
the partnership (that has existng equity of $180,000).
• Use the Bonus Method. oetsy’s capital account is credited:

The new partnership’s opening inventory is to be valued by the FIFO method. A&J Co.
used the LIFO method. The LIFO inventory represents 85% of its FIFO value. If the
inventory of A&J Co. is SR.119,000 the value according to FIFO would be increased
by:
Answer:
85% 0f FIFO = 119,000
FIFO = 119,000/0.85 = 140,000
FIFO increase by (140,000-119,000) SR 21,000

Legal Aspects: Withdrawing from a Partnership
Disassociaton A broad term that refers to when a partner is no longer
associated with a partnership.
Dissoluton A narrow term that refers to when a
(1) partnership is dissolived, and
(2) its afairs must be wound up.
Thus, the partnership’s existence is terminated.

Legal Aspects: Withdrawing from a Partnership
Disassociaton
A broad term that refers to when a partner is no longer associated
with a partnership.
Dissoluton
A narrow term that refers to when a
(1) partnership is dissolived, and
(2) its afairs must be wound up.
Thus, the partnership’s existence is terminated.

Chapter 09 Multinational Accounting:
Issues in Financial Reporting and Translation of
Foreign Entity Statements
• Functonal currency
• “The currency of the primary economic enivironment in which the entty operates; normally that is the currency of the
enivironment in which an entty primarily generates and receiives cash”
• Used to diferentate between foreign operatons that are self-contained and integrated into a local enivironment, and those
that are an extension of the parent and integrated with the parent
• Disclosure Requirements
• FASB 52 requires the aggregate foreign transacton gain or loss included in income to be separately disclosed in the
income statement or in an accompanying note
• If not disclosed as a one-line item on the income statement, this disclosure is usually a one-sentence footnote
summarizing the foreign operatons
• Income taxes
• Deferred taxes need not be recognized if the undistributed earnings will be indefnitely reinvested in the subsidiary
• If the parent expects eventually to receive the presently undistributed earnings of a foreign subsidiary, deferred tax recogniton is
required, and the tax entry would be:

• Translaton when a third currency is the functonal currency
• If the enttyys books and records are not expressed in its functonal currency, the following two-step process must be used:
• Remeasure the subsidiaryys fnancial statements into the functonal currency
• The statements expressed in the functonal currency are then translated into U.S. dollars

•

Translaton is the most common method used
Re-measurement
Applied when the local currency is the foreign enttyys is the restatement of the foreign enttyys fnancial
functonal currency
statements from the local currency that the entty used
Current rate is used to convert the local currency into the foreign enttyys functonal currency
balance sheet account balances into U.S. dollars
Required only when the functonal currency is diferent
Any translaton adjustment that occurs is a from the currency used to maintain the books and
component of comprehensive income
records of the foreign entty
Revenues and expenses are translated using the The method used is called the temporal method
average rate for the reportng period
Nonmonetary items are usually translated at the
This method is called the current rate method
historical rate
Each periodys other comprehensive income (OCI) is Revenues and expenses are translated using the average
closed to accumulated other comprehensive income rate
(AOCI)
Any imbalance that occurs because of the applicaton of
An appropriate ttle, such as “Accumulated Other the temporal method is included in the calculaton of net
Comprehensive Income,” is used to describe this income on the income statement
stockholdersy equity item

Account ttle

Required Exchange Rate under
temporal method

Cash
Accounts receivable
Inventory
Notes receivable
Plant assets
dividends
Cost of goods sold
Depreciaton expense
Other expenses
Sales
Accumulated depreciaton

Required Exchange Rate
under current rate
method
Current rate
Current rate
Current rate
Current rate
Current rate
Historical rate
Aiverage rate
Aiverage rate
Aiverage rate
Aiverage rate
Current rate

Accounts payable
Notes payable
Common stocks
Retained earnings

Current rate
Current rate
Historical rate
Historical rate

Current rate
Current rate
Historical rate
Historical rate

Current rate
Current rate
Historical rate
Current rate
Historical rate
Historical rate
Aiverage rate
Historical rate
Aiverage rate
Aiverage rate
Historical rate

• Disclosure Requirements
• FASB 52 requires the aggregate foreign transacton gain or loss included in income to be
separately disclosed in the income statement or in an accompanying note
• If not disclosed as a one-line item on the income statement, this disclosure is usually a
one-sentence footnote summarizing the foreign operatons
• Income taxes
• Deferred taxes need not be recognized if the undistributed earnings will be indefnitely reinvested in
the subsidiary
• If the parent expects eventually to receive the presently undistributed earnings of a foreign
subsidiary, deferred tax recogniton is required, and the tax entry would be:

• Translaton when a third currency is the functonal currency
• If the enttyys books and records are not expressed in its functonal currency, the following two-step
process must be used:
• Remeasure the subsidiaryys fnancial statements into the functonal currency
• The statements expressed in the functonal currency are then translated into U.S. dollars

•

Chapter 08 Multinational Accounting: Foreign
Currency Transactions and Financial Instruments
• Determinaton of exchange rates
• Exchange rates change because of a number of economic factors afectng the
supply of and demand for a naton’s currency.
• Factors causing fluctuatons are a naton’s
• Level of infaton
• Balance of payments
• Changes in a countryys interest rate
• Investment levels
• Stability and process of governance

• Changes in exchange rates
• Strengthening of the U.S. dollar—direct exchange rate decreases, implies:
• Taking less U.S. currency to acquire one FCU
• One U.S. dollar acquiring more FCUs

• Weakening of the U.S. dollar—direct exchange rate increases, implies:
• Taking more U.S. currency to acquire one FCU
• One U.S. dollar acquiring fewer FCUs

• Spot Rates versus Current Rates
• The spot rate is the exchange rate for immediate deliivery of currencies.
• The current rate is defned simply as the spot rate on the entty’s balance sheet date.

• Forward Exchange Rates
• The forward rate on a giiven date is not the same as the spot rate on the same date.
• Expectatons about the relative ivalue of currencies are built into the forward rate.
• The Spread:
• The diference between the forward rate and the spot rate on a giiven date.
• Giives informaton about the perceiived strengths or weaknesses of currencies

•

• Assume that a U.S. company acquires €5,000 from its bank on January 1, 20X1, for use in future
purchases from German companies. The direct exchange rate is $1.20 = €1; thus, the company
pays the bank $6,000 for €5,000, as follows:
• U.S. dollar equiivalent ivalue = Foreign currency units x Direct exchange rate
•
$6,000 = €5,000 x $1.20
• The following entry records this exchange of currencies:
• January 1, 20X1
•
Foreign Currency Units (€ ) 6,000
•
Cash
6,000
• On July 2, 20X1, the exchange rate is $1.100 = €1. The following adjustng entry is required in
preparing fnancial statements on July 1:
• July 1, 20X1
•
Foreign Currency Transacton Loss 500
•
Foreign Currency Units (€ ) 500
•

On October 1, 2021, a manufacturing company in Egypt imported raw materials of 100,000 $ from the United States by leter of credit and it will pay for the raw materials afer 6 months
against promissory note. (4.0 marks)
• Exchange rates of Egyptan pound against us $ were as follows:
• October 1, 2021
15.70
• December 31, 2021
15, 60
• March 31, 2022
18.5
• Required: a. Pass journal entries to record purchasing raw materials.
• b. Pass journal entries to record the impact of change in exchange rates at the end of the year.
• c. journal entries to record payment of liabilities on March 31, 2022.
Answer:
a. October 1, 2021
•

Dr. Inventory 1, 570,000

•

Cr. Notes payable 1,570,000

•
a. December 31, 2021
•

Dr. notes payable

•

Cr.

10,000

Foreign currency translation gains 10,000

• March 31, 2022
•
•

Dr. Foreign currency translation loss 200,000
Cr.

Notes payable

•

Dr. foreign currency units

•

Cr. Cash

200,000
1,850,000
1,850,000

• Dr. Notes payable 1,850,000
•
•

Cr. Foreign currency units 1,850,000,000

2. A U.S. company acquired € 10,000
from its bank on January 1, 2014,
for use in future purchases from
German Companies. The direct
exchange rate was $ 1.25 = € 1 on
that date. On July 1, 2014, the
exchange rate is $ 1.20 = € 1.
Prepare journal entry on both the
dates.
Soluton:
Jan. 1, 2014
(€)……… Dr.
Cash

Foreign Currency Units
12500
12500

July 1, 2014 Foreign Currency
Transacton Loss… Dr.
500
Foreign Currency Units (€)
500

Chapter 07 Intercompany Transfers of
Services and Noncurrent Assets
• The following illustratons proivide an oiveriview of the intercompany
sale process using land as an example.
• T1—Purchase by Parent Company from outsider for $10,000.
• T2—Sale from Parent Company to Subsidiary Corporaton for
$15,000.
• T3—Sale from Subsidiary Corporaton to outsider for $25,000
• Prepare the consolidaton entry(ies) as of 12/31/X5 and 12/31/X6.
• Prepare the consolidaton entry at 12/31/X7, assuming that Sub sold
the land in 20X7 for $25,000.

What is the major diference between
Compare “Actual” with “As
depreciable and non-depreciable assets?
if ”
Depreciaton—DUH!
“Actual” = How the
Adds complexity because you have a
transferred asset and
“moving target” instead of a statonary
related accounts actually
target. However, the concepts are the same! appear on the companiesy
Adjust for:
books
Unrealized gain (same as with land)
“ As if ” = How the
Diferences in depreciaton expense
transferred asset and
The goal is to get back to the assetys old
related accounts would
basis “as if ” it were stll on the books of the have appeared if the asset
original owner.
had stayed on the original
One diference—depreciated going forward ownerys books
based on the new estmated new life.
The diference between the
Same as a change of depreciaton estmates two gives the eliminaton
on any companyys books
entry or entries

Whatys not
relevant?
The original
ownerys
remaining useful
life at the
transfer date.
Whatys relevant?
The acquirerys
estmated
remaining useful
life (if diferent
from the original
remaining life).

Ch 6 Intercompany Inventory
Transactions
• The following intercompany transactons occurred during the year:
• Parent loaned $100 to Sub. To keep things simple, assume that there is no
interest reivenue or interest expense associated with this loan.
• Parent made a sale to Sub for $200 cash. The iniventory had originally cost
Parent $120. Sub then sold that same iniventory to an outsider for $300.
• Parent made a sale to Sub for $300 cash. The iniventory had originally cost
Parent $180. Sub has not yet sold that same iniventory to an outsider. (Don’t
forget equity method entry!)

• oased on our “conceptual discussion,” what consolidaton worksheet
entries would you make?

Equity Method Entry:
Income from Sub 120
Inivestment in Sub

120

Pushdown Accounting
In the subsidiary’s general ledger:
Adjust assets and liabilities to FV
based on the parent’s acquisition price.
This establishes a new basis of accounting.
Record goodwill.
Record “Revaluation Capital” for the difference

Non-Push-Down Accounting:
Don’t touch the subsidiary’s general ledger
Make fair value adjustments and record goodwill in consolidation (on the worksheets).

•

On January 1st, 2017, ALEX Corp creates a subsidiary, YEN Corp, and inivests $1,000,000 cash in
exchange for all of the $1 par common stock (100,000 shares).
Required:
What journal entries would for ALEX and YEN make at the tme of the investment? Using the Cost
method.
Answer:
Journal entries in ALEX books:
January 1st, 2017 Inivestment in Salam Corp $1,000,000
Cash $1,000,000
Record the inivestments of new subsidiary.
Journal entries in YEN books:
January 1st, 2017 Cash $1,000,000
Common Stock $100,000
Additonal PIC—CS $900,000
Record the inivestments from the parent.
•
•

• . For

20X8, Sempre (80% owned by Para) reported $1,600,000 of
intercompany sales (1/3 markup on cost) to Para, which resold
$1,400,000 of this inventory by 12/31/X8. The unrealized profit at
12/31/X8 is:

C + 1/3C = 1,600,000
C= 1,200,000
GP = 400,000
GP% = 400,000/1,600,000 = 25%
Iniventory held = 1,600,000-1,400,000 = 200,000
Unrealiied proft = 200,000 x 25% = 50,000

Ch 5 Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book
Value

Journal Entry of Excess Value Reclassification from the following information assuming that the subsidiary is 100% owned
.Decrease in the Book Value of Notes Receivable $ 60,000
Increase in the Book Value of Land $ 130,000
Value of Old Goodwill $ 100,000
Value of New Goodwill $ 280,000
Increase in the Book Value of Building & Equipment $ 110,000
Increase in the Book Value of Patent 90,000
Decrease in the Book Value of Long Term Debt $ 70,000
Answer :
Land A/C………………………Dr. 130,000
Building & Equipment A/C …. Dr. 110,000
Patent A/C……………………Dr. 90,000
Long Term Debt………………Dr. 70,000
Goodwill A/C (New)…………Dr. 280,000
To Notes Receivable 60,000
To Goodwill A/C (Old) 100,000
To Investment in Subsidiary 520,000

•

Ch 4 Consolidation of Wholly Owned Subsidiaries
Acquired at More than Book Value
• Armys-Length Transactons
• “Transactons that take place between completely independent partes.”
• Armys Length Transactons
• The only transactons that can be reported in the consolidated statements.
• We want to report the results of our interactons with outside partes!

• Non-Armys Length Transactons
• Usually referred to as “related party transactons.”
• Include all intercompany transactons.

• Three things to think about:
• Note receiivable / payable
• Interest reivenue / expense
• Interest receiivable / payable
• Note Payable (sub) XXX
•
Note Receiivable (parent) XXX
• Interest Reivenue (parent) XXX
•
Interest Expense (sub)XXX
• Interest Payable (sub) XXX
•
Interest Receiivable (parent) XXX

• X Company owns 100 percent of the capital stock of both Mars Corporation and Venus Corporation. Mars
purchases merchandise inventory from Venus at 125 percent of Venus’s cost. During 20X8, Venus sold
inventory to Mars that it had purchased for $25,000. Mars sold all of this merchandise to unrelated customers for
$56,892 during 20X8. In preparing combined financial statements for 20X8, X’s bookkeeper disregarded the
common ownership of Mars and Venus. what amount should be eliminated from cost of goods sold in the
combined income statement for 20X8?
• Answer Cost 25,000 x 125% = 31250
• Elvis Company purchases inventory for $70,000 on Mar 19, 20X8 and sells it to Graceland Corporation for
$95,000 on May 14, 20X8. Graceland still holds the inventory on December 31, 20X8, and determines that its
market value (replacement cost) is $82,000 at that time. Graceland writes the inventory down from $95,000 to
its lower market value of $82,000 at the end of the year. Elvis owns 75 percent of Graceland what amount of
inventory should be eliminated in the consolidation worksheet for 20X8?
• Answer 12,000
• what amount should Graceland write down inventory in its books? Answer 13,000

Ch 3 The Reporting Entity and Consolidation of Less-than-Wholly-Owned Subsidiaries with No Diferential
Benefts of consolidaton
 Presented primarily for those
partes having a long-run interest
in the parent company:
 shareholders,
 long-term creditors, or
 other resource providers.
 Provide a means of obtaining a
clear picture of the total
resources of the combined entty
that are under the parent’s
control.

Limitatons of consolidaton
 Results of indiividual companies
not disclosed (hides poor
performance).
 Financial ratos are not necessarily
representative of any single
company in the consolidaton.
 Similar accounts of diferent
companies may not be entrely
comparable.
 Informaton is lost any tme data
sets are aggregated.

Variable Interest Relatonships
 Situatons in which an entty receiives benefts and/or is exposed to risks similar to those receiived from haiving a majority ownership interest.
 Results from contractual arrangements.


Contractual Arrangement Types:
 Optons
 Leases
 Guarantees of asset recoivery ivalues
 Guarantees of debt repayment



Contractual arrangements may exist simultaneously with a less than majority ownership in a VIE.

Diferent Approaches to
Consolidation

On 1/1/X2, P, Inc. invested $480,000 in S, Inc (80% owned) and NCI shareholders invested $120,000.
For 20X2, Smith:
(1) earned $70,000,
(2) declared dividends of $60,000, and
(3) paid dividends of $50,000.
What amounts does Pocahontas report for the following items?
NCI in net income for 20X2
NCI in net assets at 12/31/X2
Parent’s retained earnings increase
Answer
NCI in net income for 20X2

$14,000

NCI in net assets at 12/31/X2

$122,000

Parent’s retained earnings increase

$56,000

Ch 2
Reporting Intercorporate Investments and Consolidation of Wholly
Owned Subsidiaries with No Diferential
• The method used to account for investments in common stock depends
on:
• the leivel of influence or control that the inivestor is able to exercise oiver the
inivestee.
• choices made by the inivestor because of optons aivailable.

• The Cost Method
• Used for reportng inivestments in equity securites when both consolidaton and
equity-method reportng are inappropriate

• The Equity Method
• Used when the inivestor exercises signifcant influence oiver the operatng and
fnancial policies of the inivestee and consolidaton is not appropriate
• May not be used in place of consolidaton if consolidaton is appropriate
• Its primary use is in reportng nonsubsidiary inivestments

• Consolidaton
• Inivolives combining for fnancial reportng the indiividual assets, liabilites,
reivenues, and expenses of two or more related companies as if they were part of a
single company
• Normally is appropriate when one company, referred to as the parent, controls
another company, referred to as a subsidiary
• A subsidiary that is not consolidated with the parent is referred to as an
unconsolidated subsidiary and is shown as an inivestment on the parent’s balance
sheet.

• 1/1/X4, P corp invested $650,000 in Sleeper (100% owned). For
20X4, Sleeper:
•
(1) earned $90,000,
•
(2) declared dividends of $60,000, and
•
(3) paid dividends of $40,000.
• What amounts does P corp report?
•
Cost Equity
• Investment income for 20X4
$60,000 $90,000
• Investment in Sleeper at year-end $650,000 $680,000
• Retained earnings increase
$60,000 $90,000

Ch 1

Intercorporate Acquisitions and Investments in Other Entities


Components used in determining goodwill:


The fair value of the consideration given by the acquirer



The fair value of any interest in the acquiree already held by the acquirer



The fair value of the noncontrolling interest in the acquiree, if any



The new basis of accounting depends on the acquirer’s purchase price (FMV) + the NCI’s (FMV).



The depreciation cycle for fixed assets starts over based on current values and estimates.



If acquisition price > FMV, goodwill exists.





Recognize as an asset.



Do not amortize.



Evaluate periodically for possible impairment.

If acquisition price FMV of Net Assets





FMV Given
Purchase answer to see full
attachment