On January 2, 20X8, Johnson Company acquired a 100% interest in the capital stock of Perth Company for $3,100,000. Any excess cost over book value is attributable to a patent with a 10-year remaining life. At the date of acquisition, Perth's balance sheet contained the following information: Perth's income statement for 20X8 is as follows: The balance sheet of Perth at December 31, 20X8, is as follows: Perth declared and paid a dividend of 20,000 FCU on October 1, 20X8. Spot rates at various dates for 20X8 follow: Assume Perth's revenues, purchases, operating expenses, depreciation expense, and income taxes were incurred evenly throughout 20X8.
-Refer to the above information. Assuming the local currency of the country in which Perth Company is located is the functional currency, what are the translated amounts for the items below in U.S. dollars?
A) Option A
B) Option B
C) Option C
D) Option D

Question

On January 2, 20X8, Johnson Company acquired a 100% interest in the capital stock of Perth Company for $3,100,000. Any excess cost over book value is attributable to a patent with a 10-year remaining life. At the date of acquisition, Perth's balance sheet contained the following information:  Perth's income statement for 20X8 is as follows:  The balance sheet of Perth at December 31, 20X8, is as follows:  Perth declared and paid a dividend of 20,000 FCU on October 1, 20X8. Spot rates at various dates for 20X8 follow:  Assume Perth's revenues, purchases, operating expenses, depreciation expense, and income taxes were incurred evenly throughout 20X8.
-Refer to the above information. Assuming the local currency of the country in which Perth Company is located is the functional currency, what are the translated amounts for the items below in U.S. dollars? 
A) Option A 
B) Option B 
C) Option C 
D) Option D

Quizplus · Accepted Answer

The functional currency of Perth Company is assumed to be its local currency. Therefore, the balance sheet and income statement items should be translated using the spot rates at the dates they were incurred. The translated amounts are as follows:

A) Cash: 100,000 FCU x 0.75 = $75,000
B) Inventory: 400,000 FCU x 0.73 = $292,000
C) Property, plant and equipment: (1,000,000 FCU + 500,000 FCU) x 0.70 = $1,050,000
D) Total liabilities: (600,000 FCU + 400,000 FCU + 150,000 FCU) x 0.78 = $852,000

Therefore, option C is the best choice as it presents all the correct translated amounts.

On January 2, 20X8, Johnson Company Acquired a 100% Interest