Due to increasing pressures to expand globally, Pinehurst Corp. acquired a 100% interest in a Loch Lomond
Question:
Due to increasing pressures to expand globally, Pinehurst Corp. acquired a 100% interest in a Loch Lomond Corp., a foreign company, on January 1, 2019. Pinehurst paid 12,000,000 Euros and Loch Lomond’s equity consisted of the following:
Common Stock 3,000,000 €
Paid-in Capital in Excess of Par 2,000,000 €
Retained Earnings 4,200,000 €
On the date of acquisition, equipment with a 10-year life was undervalued by 1,000,000€. The trial balance for Loch Lomond as of December 31, 2021 appears below:
All amounts in Euros | ||||
Cash | 2,840,000 | |||
Accounts Receivable | 3,990,000 | |||
Inventory | 5,800,000 | |||
PP&E (net) | 8,200,000 | |||
Cost of Goods Sold | 7,500,000 | |||
Other Expenses | 1,200,000 | |||
Totals | 29,530,000 | |||
Accounts Payable | 1,080,000 | |||
Bonds Payable | 4,900,000 | |||
Common Stock | 3,000,000 | |||
Paid-in Capital in Excess of Par | 2,000,000 | |||
Retained Earnings | 8,550,000 | |||
Sales Revenue | 10,000,000 | |||
Totals | 29,530,000 |
Loch Lomond earned 1,750,000 in 2019, 2,600,000 in 2020 and 1,300,000 in 2021 (all amounts in Euros). Loch Lomond does not pay dividends.
Relevant EUR/USD exchange rates are as follows:
1 € =
1/1/19 $1.20
2019 average $1.28
1/1/20 $1.25
2020 average $1.30
12/31/20 $1.31
2021Average $1.33
12/31/21 $1.35
Pine hurst has determined that the Euro is the functional currency of Loch Lomond Corp.
Required
1. Determine the AAP in Euros
2. Prepare a translation worksheet for Loch Lomond for 20121
3. Calculate the change in the cumulative translation adjustment account balance in 2019, 2020, and 2021
4. Determine Pine hurst’s “Income from Loch Lomond” and OCI Gain/Loss from this investment in 2021 (be sure to specify whether it is an OCI gain or loss)
5. Determine the 12/31/21 balance in Pine hurst’s “Investment in Loch Lomond” account
Intermediate Accounting IFRS
ISBN: 978-1119372936
3rd edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield