ADMS 2500 Lecture Notes - Lecture 3: Perpetual Inventory, Current Liability, Homestar Runner
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Kerry Manufacturing Company is a German subsidiary of a U.S. company. Kerry records its operations | |||||||
and prepares financial statements in euros. However, its functional currency is the British pound. | |||||||
Kerry was organized and acquired by the U.S. company on June 1, 20X4. The cumulative translation | |||||||
adjustment as of December 31, 20X6, was $79,860. The value of the subsidiary's retained earnings expressed | |||||||
in British pounds and U.S. dollars as of December 31, 20X7, was 365,000 pounds and $618,000, respectively. | |||||||
On March 1, 20X7, Kerry declared a dividend of 120,000 euros. The trial balance of Kerry in euros as of | |||||||
December 31, 20X7, is as follows: | |||||||
Debit | Credit | ||||||
Cash | 240,000 | ||||||
Accounts Receivable (net) | 2,760,000 | ||||||
Inventory (at cost) | 3,720,000 | ||||||
Marketable Securities (at cost) | 2,040,000 | ||||||
Prepaid Insurance | 210,000 | ||||||
Depreciable Assets | 8,730,000 | ||||||
Accumulated Depreciation | 1,417,000 | ||||||
Cost of Goods Sold | 17,697,000 | ||||||
Selling, General, and | |||||||
Administrative Expense | 4,762,000 | ||||||
Sales Revenue | 26,430,000 | ||||||
Investment Income | 180,000 | ||||||
Accounts Payable | 2,120,000 | ||||||
Unearned Sales Revenue | 960,000 | ||||||
Loans and Mortgage Payable | 5,872,000 | ||||||
Common Stock | 1,500,000 | ||||||
Paid-in Capital in Excess of Par | 210,000 | ||||||
Retained Earnings | 1,470,000 | ||||||
Total | 40,159,000 | 40,159,000 | |||||
The marketable securities were acquired on November 1, 20X6, and the prepaid insurance was acquired on | |||||||
December 1, 20X7. The cost of goods sold and the ending inventory are calculated by the weighted-average | |||||||
method. | |||||||
The following items are measured in pound at the December 31, 20x7. | |||||||
Euros | Pounds | ||||||
Accumulated depreciation | |||||||
Depreciable Assets | 8,730,000 | 2,671,380 | |||||
Cost of Goods Sold | 17,697,000 | 5,262,294 | |||||
Selling, General, Admin. Expense | 4,762,000 | 1,415,886 | |||||
Accumulated Depreciation | 1,417,000 | 773,915 | |||||
Sales Revenue | 26,430,000 | 7,866,030 | |||||
On November 1, 20X6, Kerry received a customer prepayment valued at 3,000,000 euros. On February 1, | 3000000 | ||||||
20X7, 2,040,000 euros of the prepayment was earned. The balance remains unearned as of December 31, | 2040000 | ||||||
20X7. | 960000 | ||||||
Relevant exchange rates are as follows: | |||||||
Pounds/Euro | $/Pound | ||||||
June 1, 20X4 | 0.31 | $1.60 | |||||
March 1, 20X6 | 0.3 | $1.64 | |||||
November 1, 20X6 | 0.305 | $1.65 | |||||
December 31, 20X6 | 0.31 | $1.68 | |||||
February 1, 20X7 | 0.302 | $1.67 | |||||
March 1, 20X7 | 0.3 | $1.66 | |||||
December 1, 20X7 | 0.29 | $1.64 | |||||
December 31, 20X7 | 0.288 | $1.64 | |||||
20X7 average | 0.297 | $1.66 | |||||
Required: | |||||||
Prepare a remeasured and translated trial balance of the Kerry Manufacturing | |||||||
Company as of December 31, 20X7. | |||||||
ANS: | |||||||
Kerry Manufacturing Company | |||||||
Trial Balance Translation | |||||||
December 31, 20X7 | |||||||
Relevant | Relevant | ||||||
Exchange | Exchange | ||||||
Balance in | Rate | Balance in | Rate | Balance in | |||
Account | Euros | (Pds/Euros) | Pounds | ($/Pds) | Dollars | ||
Cash | 240,000 | ||||||
Accounts Receivable (net) | 2,760,000 | ||||||
Inventory (at cost) | 3,720,000 | ||||||
Marketable Securities (at cost) | 2,040,000 | ||||||
Prepaid Insurance | 210,000 | ||||||
Depreciable Assets | 8,730,000 | ||||||
Cost of Goods Sold | 17,697,000 | ||||||
Selling, General, Admin. Expense | 4,762,000 | ||||||
Exchange Loss | |||||||
Total Debits | 40,159,000 | 12,183,001 | 20,117,316 | ||||
Accumulated Depreciation | 1,417,000 | ||||||
Sales Revenue | 26,430,000 | ||||||
Investment Income | 180,000 | ||||||
Accounts Payable | 2,120,000 | ||||||
Unearned Sales Revenue | 960,000 | ||||||
Loans and Mortgage Payable | 5,872,000 | ||||||
Common Stock | 1,500,000 | ||||||
Paid-in Capital in Excess of Par | 210,000 | ||||||
Retained Earnings | 1,470,000 | ||||||
Cumulative Translation | |||||||
Adjustment | 0 | -19,392 | |||||
Total Credits | 40,159,000 | 12,183,001 | 20,117,316 | ||||
QUESTION 1
The ownership of a corporation is represented by:
shares of stock. | ||
the owner's capital account. | ||
the revenue account. | ||
cash in bank account. |
QUESTION 2
How many classifications does a Capital Stock Account have?
One | ||
Two | ||
Three | ||
Four |
QUESTION 3
The equity contributed by stockholders and equity earned throughbusiness profits represent the stockholders' equity for a:
partnership firm. | ||
sole proprietorship. | ||
corporation. | ||
none of these. |
QUESTION 4
Retained earnings are a part of a/an:
asset account. | ||
permanent account. | ||
stockholders' equity account. | ||
temporary account. |
QUESTION 5
How many sections does an Income Statement have?
Two | ||
Three | ||
Four | ||
Five |
QUESTION 6
Net sales are related to the:
net income section. | ||
gross profit on sales section. | ||
revenue section. | ||
cost of merchandise sold section. |
QUESTION 7
Sales discount and sales return and allowance are:
revenue accounts. | ||
contra revenue accounts. | ||
permanent accounts. | ||
contra expenses accounts. |
QUESTION 8
The total cost related to merchandise purchases during anaccounting period is the:
net purchase. | ||
cost of merchandise sold. | ||
cost of merchandise available for sale. | ||
beginning merchandise inventory. |
QUESTION 9
The gross profit on sale is $65,000, and operating expenses is$35,000. What will be the operating profit?
$65,000 | ||
$35,000 | ||
$100,000 | ||
$30,000 |
QUESTION 10
A balance sheet has the following sections:
Assets, liabilities, and stockholders' equity. | ||
Income, expenses, and stockholders' equity. | ||
Assets, liabilities, and income. | ||
Operating income, operating expenses, and stockholders'equity. |
QUESTION 11
A cash flow statement is used to assess the:
net increase or decrease of cash. | ||
net increases of cash only. | ||
net decrease of cash only. | ||
net profit or loss of business. |