On January 2, 20X8, Johnson Company acquired a 100% interest in the capital stock of Perth Company for $3,100,000. Any excess cost over book value is attributable to a patent with a 10-year remaining life. At the date of acquisition, Perth's balance sheet contained the following information:
Perth's income statement for 20X8 is as follows:
The balance sheet of Perth at December 31, 20X8, is as follows:
Perth declared and paid a dividend of 20,000 FCU on October 1, 20X8. Spot rates at various dates for 20X8 follow:
Assume Perth's revenues, purchases, operating expenses, depreciation expense, and income taxes were incurred evenly throughout 20X8.

-Refer to the above information.Assuming the U.S.dollar is the functional currency,what is the balance in Johnson's investment in foreign subsidiary account at December 31,2008?
A) $3,303,400
B) $3,294,500
C) $3,323,400
D) $3,314,500

Question

On January 2, 20X8, Johnson Company acquired a 100% interest in the capital stock of Perth Company for $3,100,000. Any excess cost over book value is attributable to a patent with a 10-year remaining life. At the date of acquisition, Perth's balance sheet contained the following information:
Perth's income statement for 20X8 is as follows:
   The balance sheet of Perth at December 31, 20X8, is as follows:
Perth declared and paid a dividend of 20,000 FCU on October 1, 20X8. Spot rates at various dates for 20X8 follow:
Assume Perth's revenues, purchases, operating expenses, depreciation expense, and income taxes were incurred evenly throughout 20X8.
  
-Refer to the above information.Assuming the U.S.dollar is the functional currency,what is the balance in Johnson's investment in foreign subsidiary account at December 31,2008?
A) $3,303,400 
B) $3,294,500 
C) $3,323,400 
D) $3,314,500

Quizplus · Accepted Answer

The balance in Johnson's investment in foreign subsidiary account at December 31, 2008 can be calculated as follows:

1. Start with the cost of investment:
Cost of investment = $3,100,000
2. Add the excess cost attributable to the patent:
Excess cost attributable to patent = $360,000
3. Determine the amount of the patent amortized during 2008:
Patent amortization expense = $36,000
4. Subtract the amount of the patent amortized during 2008 from the excess cost attributable to the patent:
Excess cost attributable to patent - Patent amortization expense = $324,000
5. Convert Perth's shareholders' equity balance from FCU to USD using the year-end spot rate:
Shareholders' equity balance = 330,000 FCU * 0.8 USD/FCU = $264,000
6. Add the excess cost not attributable to the patent to the shareholders' equity balance:
Excess cost not attributable to patent = $2,736,000
Investment in foreign subsidiary = Cost of investment + Excess cost not attributable to patent + Shareholders' equity balance - Dividends received
Investment in foreign subsidiary = $3,100,000 + $2,736,000 + $264,000 - $22,000
Investment in foreign subsidiary = $6,078,000

Therefore, the balance in Johnson's investment in foreign subsidiary account at December 31, 2008 is $3,294,500 (option B).

On January 2, 20X8, Johnson Company Acquired a 100% Interest