Entity theory method, Financial Accounting

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.

Posted Date: 2/12/2013 5:00:41 AM | Location : United States







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