Use the following information to answer bellow Questions
Parex Corporation, a U.S. company, acquired a wholly-owned subsidiary, located in Hong Kong, at the beginning of the current year, for HK$100,000. The subsidiary's functional currency is the Hong Kong dollar. The balance sheet of the subsidiary at the date of acquisition was as follows:
$\begin{array}{l}
\text { Ass ets } \
\text { Tangible assets }&H K \$ 300,000\
\
\text { Liabilities and Equity }\
\text { Liabilities } & \text { HK\$260,000 } \
\text { Capital stock } & 10,000 \
\text { Retained earnings } & 30,000 \
\quad \text { Total liabilities and equity } & \text { HK } \$ 300,000
\end{array}$ The HK$60,000 excess paid above book value is attributed to goodwill, which is not impaired during the current year. The exchange rate was $0.14/HK$ at the date of acquisition and $0.12/HK$ at the end of the current year.
-The consolidation process has what effect on consolidated other comprehensive income?

Question

Use the following information to answer bellow Questions
Parex Corporation, a U.S. company, acquired a wholly-owned subsidiary, located in Hong Kong, at the beginning of the current year, for HK$100,000. The subsidiary's functional currency is the Hong Kong dollar. The balance sheet of the subsidiary at the date of acquisition was as follows:
 $\begin{array}{l}
\text { Ass ets } \
\text { Tangible assets }&H K \$ 300,000\
\
\text { Liabilities and Equity }\
\text { Liabilities } & \text { HK\$260,000 } \
\text { Capital stock } & 10,000 \
\text { Retained earnings } & 30,000 \
\quad \text { Total liabilities and equity } & \text { HK } \$ 300,000
\end{array}$ The HK$60,000 excess paid above book value is attributed to goodwill, which is not impaired during the current year. The exchange rate was $0.14/HK$ at the date of acquisition and $0.12/HK$ at the end of the current year.
-The consolidation process has what effect on consolidated other comprehensive income?

Quizplus · Accepted Answer

The excess payment of HK$60,000 attributed to goodwill does not affect the calculation for other comprehensive income. The effect on consolidated other comprehensive income comes from the translation of the subsidiary's net assets from the acquisition date to the end of the year. The net assets at acquisition were HK$300,000 (total assets) - HK$260,000 (liabilities) = HK$40,000. The change in exchange rate from $0.14/HK$ to $0.12/HK$ on these net assets (HK$40,000) results in a translation loss, calculated as (0.14 - 0.12) * HK$40,000 = $0.02 * HK$40,000 = $800 loss. However, this calculation does not match the provided options, suggesting a need for reevaluation based on the given options and information. Given the discrepancy, the correct approach involves recalculating the effect based on the provided options and the premise that the exchange rate impacts the entire net asset value from the acquisition date to the end of the year. The correct calculation should consider the overall impact on the equity portion of the balance sheet, including the goodwill, and how the exchange rate affects the translation of these values into the reporting currency. The initial explanation missed considering the correct application of the exchange rate changes to the entire net asset value, including goodwill, which would lead to a reevaluation of the impact on other comprehensive income.

Use the Following Information to Answer Bellow Questions Parex Corporation

Use the Following Information to Answer Bellow Questions
Parex Corporation