On January 1, 20X5, Pirate Company acquired all of the outstanding stock of Ship Inc., a Norwegian company, at a cost of $169,200. Ship'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 Ship's property, plant, and equipment exceeded its book value by $18,000. The remaining useful life of Ship'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. Ship's trial balance on December 31, 20X5, in kroner, follows:

  

Required:

a. Prepare a schedule remeasuring the trial balance from Norwegian kroner into U.S. dollars. 

b. Assume that Pirate uses the fully adjusted 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

c. Prepare a schedule that determines Pirate's consolidated net income for 20X5..

d. Compute Pirate's total consolidated stockholders' equity at December 31, 20X5.

Transcribed Image Text:

Debits NKr 154,000 222,000 286,000 611,000 Credits Cash Accounts Receivable (net) Inventory Property, Plant & Equipment Accumulated Depreciation Accounts Payable Notes Payable Conmon Stock Retained Earnings Sales NKr 152,e00 91,e00 200,ee0 430,e00 270,e00 775,000 Cost of Goods sold Operating Expenses Depreciation Expense Dividends Paid 412,000 123,000 66,000 44,000 Total NKr1,918,000 NKr1,918,000 Additional Information: 1. Ship uses the FIFO method for its inventory. The beginning inventory was acquired on December 31, 20X4, and ending inventory was acquired on December 15. 20X5. Purchases of NKr430,000 were made evenly throughout 20x5. 2. Ship acquired all of its property, plant, and equipment on July 1, 20X3, and uses straight-line depreciation. 3 Ship'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. Pirate's income from its own operations was $237,000 for 20X5, and its total stockholders' equity on January 1, 20x5, was $3,500,000. Pirate declared S110,000 of dividends during 20X5. 6. Exchange rates were as follows: NKr July 1, 20x3 December 30, zex4 January 1, 2ex5 July 1, 20x5 December 15, 20xs December 31, 2ex5 Average for 20X5 1 - 0.15 1- 0.18 1- 0.18 1 - 0.19 1 -0.205 1- 0.21 1- 0.20 Debits NKr 154,000 222,000 286,000 611,000 Credits Cash Accounts Receivable (net) Inventory Property, Plant & Equipment Accumulated Depreciation Accounts Payable Notes Payable Conmon Stock Retained Earnings Sales NKr 152,e00 91,e00 200,ee0 430,e00 270,e00 775,000 Cost of Goods sold Operating Expenses Depreciation Expense Dividends Paid 412,000 123,000 66,000 44,000 Total NKr1,918,000 NKr1,918,000 Additional Information: 1. Ship uses the FIFO method for its inventory. The beginning inventory was acquired on December 31, 20X4, and ending inventory was acquired on December 15. 20X5. Purchases of NKr430,000 were made evenly throughout 20x5. 2. Ship acquired all of its property, plant, and equipment on July 1, 20X3, and uses straight-line depreciation. 3 Ship'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. Pirate's income from its own operations was $237,000 for 20X5, and its total stockholders' equity on January 1, 20x5, was $3,500,000. Pirate declared S110,000 of dividends during 20X5. 6. Exchange rates were as follows: NKr July 1, 20x3 December 30, zex4 January 1, 2ex5 July 1, 20x5 December 15, 20xs December 31, 2ex5 Average for 20X5 1 - 0.15 1- 0.18 1- 0.18 1 - 0.19 1 -0.205 1- 0.21 1- 0.20

Answer rating: 100% (QA)

Part A Items Norweign Kroner Exchange rate US Dollar Cash 154000 021 32340 Accounts receivable net 222000 021 46620 Inventory 286000 021 60060 Propert... View the full answer