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translation and calculation of translation adjustment on january 1 20×4 alum corpora 733727

Translation and Calculation of Translation Adjustment

On January 1, 20X4, Alum Corporation acquired DaSilva Company, a Brazilian subsidiary, by purchasing all its common stock at book value. DaSilva’s trial balances on January 1, 20X4, and December 31, 20X4, expressed in Brazilian reals (BRL), follow:

January 1, 20X4

December 31, 20X4

Debit

Credit

Debit

Credit

Cash

BRL 62,000

BRL 57,700

Accounts Receivable (net)

83,900

82,000

Inventories

95,000

95,000

Prepaid Insurance

5,600

2,400

Plant & Equipment

250,000

350,000

Accumulated Depreciation

BRL 67,500

BRL 100,000

Intangible Assets

42,000

30,000

Accounts Payable

20,000

24,000

Income Taxes Payable

30,000

27,000

Interest Payable

1,000

1,100

Notes Payable

20,000

20,000

Bonds Payable

120,000

120,000

Common Stock

80,000

80,000

Additional Paid In Capital

150,000

150,000

Retained Earnings

50,000

50,000

Sales

500,000

Cost of Goods Sold

230,000

Insurance Expense

3,200

Depreciation Expense

32,500

Amortization Expense

12,000

Operating Expense

152,300

Dividends Paid

25,000

Total

BRL538,500

BRL538,500

BRL1,072,100

BRL1,072,100

Additional Information

1. DaSilva uses FIFO inventory valuation. Purchases were made uniformly during 20X4.

Ending inventory for 20X4 is composed of units purchased when the exchange rate was $0.25.

2. The insurance premium for a two year policy was paid on October 1, 20X3.

3. Plant and equipment were acquired as follows:

Date

Cost

January 1, 20X1

BRL200,000

July 10, 20X2

50,000

April 7, 20X4

100,000

4. Plant and equipment are depreciated using the straight line method and a 10 year life, with no residual value. A full month’s depreciation is taken in the month of acquisition.

5. The intangible assets are patents acquired on July 10, 20X2, at a cost of BRL60,000. The estimated life is five years.

6. The common stock was issued on January 1, 20X1.

7. Dividends of BRL10,000 were declared and paid on April 7. On October 9, BRL15,000 of dividends were declared and paid.

8. Exchange rates were as follows:

BRL

$

January 1, 20X1

1 =

 0.45

July 10, 20X2

1 =

 0.40

October 1, 20X3

1 =

 0.34

January 1, 20X4

1 =

 0.30

April 7, 20X4

1 =

 0.28

October 9, 20X4

1 =

 0.23

December 31, 20X4

1 =

 0.20

20X4 average

1 =

 0.25

Required

a. Prepare a schedule translating the December 31, 20X4, trial balance of DaSilva from reals to dollars assuming the real is the functional currency.

b. Prepare a schedule calculating the translation adjustment as of the end of 20X4. The net assets on January 1, 20X4, were BRL280,000.

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