Reference no: EM132838055

The Polka Corporation, a U.S. corporation, purchases a British subsidiary on January 1, 2011 by investing $880,000 in exchange for all of the subsidiary's no-par common stock. The British subsidiary, Stripe Corporation, purchased property on April 1, 2011 at a cost of £500,000, with £100,000 allocated to land and £400,000 allocated to the building. The U.S. dollar is Stripe's functional currency, but it keeps its records in pounds. Cost of goods sold of 100,000 pounds consists of 125,000 pounds of inventory on hand at acquisition plus 25,000 pounds of purchases made during the year. The British economy experiences low inflation.

Exchange rates for the pound on various dates are:

January 01, 2011 1£ = $1.60
April 01, 2011 1£ = $1.62
December 31, 2011 1£ = $1.65
2011 average rate 1£ = $1.64
Rate for dividends 1£ = $1.65
Rate for ending inventory 1£ = $1.64

Stripe's adjusted trial balance is presented below for the year ended December 31, 2011.

Debits: In Pounds

Cash £200,000
Accounts receivable 50,000
Notes receivable 49,000
Inventory 50,000
Building 400,000
Land 100,000
Depreciation expense 7,500
Other expenses 115,000
Salary expense 108,000
Cost of goods sold 100,000
Dividends 22,000
Total debits £1,201,500

Credits:

Accumulated depreciation £7,500
Accounts payable 100,000
Common stock 300,000
Retained earnings 250,000
Sales revenue 544,000
Total credits £1,201,500

Problem 1) Remeasurement working papers;

Problem 2) Remeasured income statement (including changes in retained earnings); and

Problem 3) Remeasured balance sheet.