A U.S. firm purchased 100% of a foreign firm on January 1, 20X1, when the foreign firm had the following equity accounts:
$\begin{array}{lrl}
\text { Common stock } & 150,000 & \mathrm{FC} \
\text { Paid-in excess of par value } & 50,000& \mathrm{FC} \
\text { Retained earnings } & 200,000 & \mathrm{FC} \
& \underline{400,000} & \mathrm{FC}
\end{array}$ The U.S. firm paid 420,000 FCs for the foreign firm. The payment in excess of book value is traceable to undervalued land owned by the foreign firm. The foreign firm had a net income of 25,000 FCs during 20X1. Assume that the following exchange rates are relevant:
Required:
Prepare all the journal entries to record and update the investment account of the U.S. firm and the necessary eliminating and adjusting entries for the 20X1 consolidated statement. Assume that the U.S. firm used the simple equity method.

Question

A U.S. firm purchased 100% of a foreign firm on January 1, 20X1, when the foreign firm had the following equity accounts:
 $\begin{array}{lrl}
\text { Common stock } & 150,000 & \mathrm{FC} \
\text { Paid-in excess of par value } & 50,000& \mathrm{FC} \
\text { Retained earnings } & 200,000 & \mathrm{FC} \
& \underline{400,000} & \mathrm{FC}
\end{array}$ The U.S. firm paid 420,000 FCs for the foreign firm. The payment in excess of book value is traceable to undervalued land owned by the foreign firm. The foreign firm had a net income of 25,000 FCs during 20X1. Assume that the following exchange rates are relevant:
  Required:
Prepare all the journal entries to record and update the investment account of the U.S. firm and the necessary eliminating and adjusting entries for the 20X1 consolidated statement. Assume that the U.S. firm used the simple equity method.

Quizplus · Accepted Answer

The Answer of A U.S. firm purchased 100% of a foreign firm on January 1, 20X1, when the foreign firm had the following equity accounts:
 $\begin{array}{lrl}
\text { Common stock } & 150,000 & \mathrm{FC} \
\text { Paid-in excess of par value } & 50,000& \mathrm{FC} \
\text { Retained earnings } & 200,000 & \mathrm{FC} \
& \underline{400,000} & \mathrm{FC}
\end{array}$ The U.S. firm paid 420,000 FCs for the foreign firm. The payment in excess of book value is traceable to undervalued land owned by the foreign firm. The foreign firm had a net income of 25,000 FCs during 20X1. Assume that the following exchange rates are relevant:
  Required:
Prepare all the journal entries to record and update the investment account of the U.S. firm and the necessary eliminating and adjusting entries for the 20X1 consolidated statement. Assume that the U.S. firm used the simple equity method.

A US Firm Purchased 100% of a Foreign Firm on January