Translation worksheet, parent accounting
Pel, a U.S. firm, paid $308,000 for all the common stock of Sar of Israel on January 1, 2011, when the exchange rate for sheqels was $0.35. Sar’s equity on this date consisted of 500,000 sheqels common stock and 300,000 sheqels retained earnings. The $28,000 (80,000 sheqels) excess is attributable to a patent with a 10 year amortization period. Sar’s functional currency is the sheqel. Sar’s adjusted trial balance at December 31, 2011, in sheqels is as follows:
|
Sheqels |
Sheqels |
||
|
Debits |
Credits |
||
|
Cash |
40,000 |
Accounts payable |
120,000 |
|
Receivables—net |
50,000 |
Other liabilities |
60,000 |
|
Inventories |
150,000 |
Advance from Pel |
140,000 |
|
Land |
160,000 |
Common stock |
500,000 |
|
Equipment—net |
300,000 |
Retained earnings 1/1 |
300,000 |
|
Buildings—net |
500,000 |
Sales |
600,000 |
|
Expenses |
400,000 |
||
|
Exchange loss (advance) |
20,000 |
||
|
Dividends |
100,000 |
||
|
1,720,000 |
1,720,000 |
On January 2, 2011, Pel advanced $42,000 (120,000 sheqels) to Sar. This advance was shortterm, denominated in U.S. dollars, and made when the exchange rate for sheqels was $0.35. In June 2011, Sar paid a 100,000 sheqel dividend when the exchange rate was $0.33. The average and year end exchange rates for sheqels are $0.32 and $0.30, respectively.
REQUIRED
1. Prepare a worksheet to translate Sar’s adjusted trial balance at December 31, 2011, into U.S. dollars.
2. Prepare the necessary journal entries for Pel to account for its investment in Sar for 2011.