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Foreign Currency Translation

On January 1, 20X8, Pace Company acquired all of the outstanding stock of Spin PLC, a British company, for $350,000. Spin’s net assets on the date of acquisition were 250,000 pounds (£). On January 1, 20X8, the book and fair values of the Spin’s identifiable assets and liabilities approximated their fair values except for property, plant, and equipment and trademarks. The fair value of Spin’s property, plant, and equipment exceeded its book value by $25,000. The remaining useful life of Spin’s equipment at January 1, 20X8, was 10 years. The remainder of the differential was attributable to a trademark having an estimated useful life of 5 years. Spin’s trial balance on December 31, 20X8, in pounds, follows:

Debits

Credits

Cash

£

70,000

Accounts Receivable (net)

100,000

Inventory

120,000

Property, Plant, and Equipment

330,000

Accumulated Depreciation

£

120,000

Accounts Payable

110,000

Notes Payable

90,000

Common Stock

100,000

Retained Earnings

150,000

Sales

420,000

Cost of Goods Sold

270,000

Operating Expenses

60,000

Depreciation Expense

30,000

Dividends Paid

10,000

Total

£

990,000

£

990,000

Additional Information:

  1. Spin uses the FIFO method for its inventory. The beginning inventory was acquired on December 31, 20X7, and ending inventory was acquired on December 26, 20X8. Purchases of £300,000 were made evenly throughout 20X8.
  2. Spin acquired all of its property, plant, and equipment on March 1, 20X6, and uses straight-line depreciation.
  3. Spin’s sales were made evenly throughout 20X8, and its operating expenses were incurred evenly throughout 20X8.
  4. The dividends were declared and paid on November 1, 20X8.
  5. Pace’s income from its own operations was $150,000 for 20X8, and its total stockholders’ equity on January 1, 20X8, was $1,000,000. Pace declared $50,000 of dividends during 20X8.
  6. Exchange rates were as follows:

March 1, 20X6

=

$

1.20

December 31, 20X7

=

$

1.25

January 1, 20X8

=

$

1.25

November 1, 20X8

=

$

1.26

December 26, 20X8

=

$

1.31

December 31, 20X8

=

$

1.35

Average for 20X8

=

$

1.30

Required:

  1. Prepare a schedule translating the trial balance from British pounds into U.S. dollars. Assume the pound is the functional currency.
  2. Assume that Pace uses the fully adjusted equity method. Record all journal entries that relate to its investment in the British subsidiary during 20X8. Provide the necessary documentation and support for the amounts in the journal entries, including a schedule of the translation adjustment related to the differential.
  3. Prepare a schedule that determines Pace’s consolidated comprehensive income for 20X8.

Prepare and submit only one Excel spreadsheet answering all of the requirements. 

Use Excel formulas to make or evidence each of your calculations of each/any dollar amounts. Do not enter any dollar amounts, directly, for the answers to the requirements unless it is unavoidable for obvious reasons. Use the tab function at the bottom of the Excel file where required to answer each of the requirements.

Name your Excel file when you submit it: MyNameModuleXOption1or2.

Requirements:

  • Show calculations for all questions.
  • Support writing portion of the assignment (if applicable) with credible sources.
  • Use terms, evidence, and concepts from class readings, including professional business language.

Review the week’s CT Assignment grading rubric for more information on expectations and how you will be graded.

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