Parent accounting under the equity method
Pla purchased a 40 percent interest in Sor, a foreign company, on January 1, 2011, for $342,000, when Sor’s stockholders’ equity consisted of 3,000,000 LCU capital stock and 1,000,000 LCU retained earnings. Sor’s functional currency is its local currency unit. The exchange rate at this time was $0.15 per LCU. Any excess allocated to patents is to be amortized over 10 years. A summary of changes in the stockholders’ equity of Sor during 2011 (including relevant exchange rates) is as follows:
|
LCUs |
Exchange Rate |
U.S. Dollars |
|
|
Stockholders’ equity January 1, 2011 |
4,000,000 |
$0.15 C |
$600,000 |
|
Net income |
800,000 |
0.14 A |
112,000 |
|
Dividends |
(400,000) |
0.14 C |
(56,000) |
|
Equity adjustment |
(84,000) |
||
|
Stockholders’ equity December 31, 2011 |
4,400,000 |
0.13 C |
$572,000 |
REQUIRED: Determine the following:
1. Excess patent from Pla’s Investment in Sor on January 1, 2011
2. Excess patent amortization for 2011
3. Unamortized excess patent at December 31, 2011
4. Equity adjustment from patents for 2011
5. Income from Sor for 2011
6. Investment in Sor balance at December 31, 2011