WTC Manufacturing, Inc., has an 80% interest in a foreign subsidiary, Mofoco Manufacturing. Relevant details regarding WTC’s investment in Mofoco are as follows:
Date of acquisition... . . .. . . . . .. ... .. .. . . . . .. . .. . . .. .... .. . .. . . .. . . . . . April30, 2016
Price paid for an 80% interest . . .. ... .... .. . . .. . .. . . . . .. .. .. . .. . . . . .. . . . $3,600,000
Mofoco credit balances as of June 30, 2016, in foreign currency (FC):
Common stock. .. . . . .. . . .. .. .. ... .. . . .. .. . . . . . .. .. .. ... . . . . .. . . .. .... 1,200,000 FC
Contributed capital in excess of par value.. .. . . . . . .. . . . . .. ... .. .. . . . . .. . 1,800,000 FC
Retained earnings . . . .. . . . . .. ... .. .. . . . . .. . .. . . .. .... .. . .. . . .. . . . . .. 800,000 FC
Excess of cost over book value traceable to:
Equipment with a remaining useful life of 8 1/3 years . . . .. . . .. . .. .... .. . . . 100,000 FC
Goodwill . .. .. .. . .. . . . . .. .. .. . .. . . . . .. . . . . . .. .. .. .. .. . . . .. . . .. .. ... The balance
Although Mofoco maintains its books of record in the foreign currency (FC), its functional currency is the U.S. dollar. The partial pre-closing trial balance for the year ended 2017 as it relates to shareholders’ equity of Mofoco is as follows:
Debit (Credit)
Common Stock .. . . ... .. .. .. .. .. . . . .. . . .. .. . .... .. .. .. .. . . . .. (1,200,000) FC
Contributed Capital in Excess of Par Value . . . .. . . . . . .. .... .. ... . . . (1,800,000)
Retained Earnings as of December 31, 2016. .. . . . . . .. .... .. ... . . . (1,000,000)*
Sales .. .... .. . . .. . .. .... .. .. .. . .. . . . . .. . . ... .. .... .. . . . . . ..... (3,100,000)
Cost of Inventory Sold (excluding depreciation) . .. . . . . . .. .. .. .. . . 2,200,000
Depreciation Expense .. .. .... .. ... . . .. . . . . .. . .. .. .. .... .. . .. ... 179,500
Patent Amortization. ... .. .. .. .. .. . . . .. . . .. .. . .... .. .. .. .. . . . ..... 20,000
Other Operating Expenses .. .... .. . .. . . .. . . . . . .. .. .. .. .... . .. .... 294,500
Losson Disposal of Depreciable Assets.. . . . . .. . . . . . .. .... .. ... . . . 1,500
*The re-measured value of retained earnings on December 31, 2016, was $1,390,000.
Mofoco employs the FIFO inventory method and inventory available for sale during 2017 consisted of a beginning balance of 300,000 FC, acquired in the fourth quarter of 2016, and purchases during quarters 1 through 4 of 2017 of 400,000 FC, 620,000 FC, 700,000 FC, and 380,000 FC, respectively. Depreciation expense is based on a 10-year useful life, no residual or salvage values, and the straight-line method. The 2017 depreciation expense is traceable to depreciable assets acquired as follows:
January 1, 2015, acquisition . . .. ... .... .. . . .. . .. . . . . .. .. 1,060,000 FC
June30, 2016, acquisition .. . . .. ... .... .. . . .. . .. . . . . .. .. 450,000
March 31,2017, acquisition . . .. ... .... .. . . .. . .. . . . . .. .. 600,000
When the depreciable assets were acquired on March 31, 2017, Mofoco also disposed of depreciable assets with historical costs as follows: 160,000 FC acquired on January 1, 2015, and 60,000 FC acquired on June 30, 2016. The sales proceeds from the disposition of assets were 120,000 FC for the assets acquired on January 1, 2015 and 58,000 FC for the assets acquired on June 30, 2016. The patent amortization is traceable to a patent that was acquired on June 30, 2016, and is being amortized over 12 years by the straight-line method. Relevant exchange rates are as follows:
January 1, 2015 ........................ 1FC = $1.40
April30, 2016 ........ 1FC = 1.41
June30, 2016 ....... 1FC = 1.38
March 31, 2017 ....... 1FC = 1.36
2016 Average....... 1FC = 1.42
2017 Average....... 1FC = 1.35
December 31, 2017 ..... 1FC = $1.32
Fourth quarter 2016 average .. 1FC = 1.35
First quarter 2017 average ... 1FC = 1.34
Second quarter 2017 average..... 1FC = 1.35
Third quarter 2017 average .. 1FC = 1.32
Fourth quarter 2017 average ... 1FC = 1.31
Required
1. Given the pre-closing trial balance for the year ended 2017 as it relates to shareholders’ equity of Mofoco, calculate the re-measured U.S. dollar values.
2. Calculate the amount of 2017 consolidated net income that is traceable to the non-controlling interest.