P12-17 Translation, Journal Entries, Consolidated Comprehensive Income, and
Stockholders’ Equity
On January 1, 20X5, Taft Company acquired all of the outstanding stock of Vikix, Inc. a Norwegian
company at a cost of $151,200. Vikix’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 Vikix’s property, plant, and equipment exceeded its book value by $18,000. The remaining
useful life of Vikix’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. Vikix’s trial balance on
December 31, 20X5, in kroner, follows:
Debits Credits
Cash NKr 150,000
Accounts Receivable (net) 200,000
Inventory 270,000
Property, Plant, and Equipment 600,000
Accumulated Depreciation NKr 150,000
Accounts Payable 90,000
Notes Payable 190,000
Common Stock 450,000
Retained Earnings 250,000
Sales 690,000
Cost of Goods Sold 410,000
Operating Expenses 100,000
Depreciation Expense 50,000
Dividends Paid 40,000
Total NKr1,820,000 NKr1,820,000
660 Chapter 12 Multinational Accounting: Translation of Foreign Entity Statements
Baker−Lembke−King:
Advanced Financial
Accounting, Sixth Edition
12. Multinational
Accounting: Translation of
Foreign Entity Statements
Text © The McGraw−Hill
Companies, 2004
Additional Information
1. Vikix uses the FIFO method for its inventory. The beginning inventory was acquired on December
31, 20X4, and its ending inventory was acquired on December 15, 20X5. Purchases of NKr420,000
were made evenly throughout 20X5.
2. Vikix acquired all of its property, plant, and equipment on July 1, 20X3, and uses straight-line
depreciation.
3. Vikix’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. Taft’s income from its own operations was $275,000 for 20X5, and its total stockholders’ equity on
January 1, 20X5, was $3,500,000. Taft declared $100,000 of dividends during 20X5.
6. Exchange rates were as follows:
July 1, 20X3 NKr1 $.15
December 30, 20X4 NKr1 $.18
January 1, 20X5 NKr1 $.18
July 1, 20X5 NKr1 $.19
December 15, 20X5 NKr1 $.205
December 31, 20X5 NKr1 $.21
Average for 20X5 NKr1 $.20
Required
a. Prepare a schedule translating the trial balance from Norwegian kroner into U.S. dollars. Assume the
kroner is the functional currency.
b. Assume that Taft uses the basic 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, including a schedule of the translation adjustment related to the
differential.
c. Prepare a schedule that determines Taft’s consolidated comprehensive income for 20X5.
d. Compute Taft’s total consolidated stockholders’ equity at December 31, 20X5.
