Entity theory method:
Golden Bells Inc. is a foreign subsidiary of Northern Bells Ltd., a Canadian company. Northern Bells had purchased 90% of the outstanding shares of Golden Bells at the beginning of 20X9 for 20,160 foreign currency (FC) units. At the acquisition date, Golden Bells' balance sheet in FC units is as follows:
|
|
DR
|
CR
|
|
Current monetary assets
|
14,000
|
|
|
Inventory
|
11,200
|
|
|
Equipment (net)
|
28,000
|
|
|
Current liabilities
|
|
12,600
|
|
Long term debt
|
|
22,400
|
|
Common shares
|
|
14,000
|
|
Retained earnings
|
______
|
4,200
|
|
|
53,200
|
53,200
|
At the acquisition date, the only acquisition differential was in regard to the equipment, which had a fair value of 30,800 FC and an estimated remaining useful life of 10 years.
The relevant exchange rates for 20X9 are as follows:
January 1 FC 1 = $1.10
September 15 FC 1 = $1.20
December 31 FC 1 = $1.25
Average rate for 20X9 FC 1 = $1.18
Balance Sheets
December 31, 20X9
|
|
Northern
Bells Ltd.
$
|
Golden
Bells Inc.
FC
|
|
Assets:
|
|
|
|
Current monetary assets
|
44,173
|
23,800
|
|
Inventory
|
42,000
|
15,400
|
|
Investment in Golden Bells
|
22,176
|
-
|
|
Equipment (net)
|
84,000
|
25,200
|
|
Total assets
|
192,349
|
64,400
|
|
Liabilities:
|
|
|
|
Current monetary liabilities
|
36,400
|
16,800
|
|
Long-term debt
|
56,000
|
22,400
|
|
Total liabilities
|
92,400
|
39,200
|
|
Shareholders' equity:
|
|
|
|
Common shares
|
42,000
|
14,000
|
|
Retained earnings
|
57,949
|
11,200
|
|
Total shareholders' equity
|
99,949
|
25,200
|
|
Total liabilities and shareholders' equity
|
192,349
|
64,400
|
Income Statements
Year Ended December 31, 20X9
|
|
Northern
Bells Ltd.
$
|
Golden
Bells Inc.
FC
|
|
Sales
|
503,849
|
140,000
|
|
Dividend income
|
6,300
|
____-___
|
|
Total revenue
|
510,149
|
140,000
|
|
Cost of goods sold
|
252,000
|
82,600
|
|
Operating expenses
|
217,000
|
44,800
|
|
Total expenses
|
469,000
|
127,400
|
|
Net income
|
41,149
|
12,600
|
At the end of 20X9, Northern Bells and Golden Bells declared dividends of $30,800 and 5,600 FC, respectively.
Golden Bells' goods in inventory at the end of 20X9 were from a special purchase made September 15, 20X9.
Golden Bells had a goodwill impairment loss of 140 FC that occurred evenly throughout 20X9.
Northern Bell uses the entity theory method to consolidate its subsidiary.