Pet acquired 80 percent of the common stock of Sul for $4,000,000 on January 2, 2011, when the stockholders' equity of Sul consisted of 5,000,000 euros capital stock and 2,000,000 euros retained earnings. The spot rate for euros on this date was $0.50. Any cost/book value difference attributable to a patent is to be amortized over a 10-year period, and Sul's functional currency is the euro.

Accounts from Sul's adjusted trial balance in euros at December 31, 2011, are as follows:

Relevant exchange rates in U.S. dollars for euros are as follows:Current exchange rate December 31, 2011 ... $0.60Average exchange rate 2011 ......... 0.55Exchange rate applicable to dividends ..... 0.54REQUIRED1. Prepare a translation worksheet for Sul at December 31, 2011.2. Calculate Pet's income from Sul for 2011 on the basis of a one-line consolidation.3. Determine the correct balance of Pet's investment in Sul at December 31,2011.

Transcribed Image Text:

Debits € 1,000,000 2,000,000 4,000,000 8,000,000 4,000,000 800,000 2,700,000 Cash Accounts receivable Inventories Equipment Cost of sales Depreciation expense Operating expenses Dividends 500,000 € 23,000,000 Credits € 2,400,000 3,600,000 5,000,000 2,000,000 Accumulated depreciation-equipment Accounts payable Capital stock Retained earnings January 1 Sales 10,000,000 € 23,000,000