P12–23 Translation

LO 12–4, 12–5

Palermo Inc. purchased 80 percent of the outstanding stock of

Salina Ranching Company, located in Australia, on January 1, 20X3.
The purchase price in Australian dollars (A$) was A$200,000, and
A$40,000 of the differential was allocated to plant and equipment,
which is amortized over a 10-year period. The remainder of the
differential was attributable to a patent. Palermo Inc. amortizes the
patent over 10 years. Salina Ranching’s trial balance on December
31, 20X3, in Australian dollars is as follows:
Additional Information

1. Salina Ranching uses average cost for cost of goods sold.

Inventory increased by A$20,000 during the year. Purchases
were made uniformly during 20X3. The ending inventory was
acquired at the average exchange rate for the year.
2. Plant and equipment were acquired as follows:

3. Plant and equipment are depreciated using the straight-line

method and a 10-year life with no residual value.
4. The payable to Palermo is in Australian dollars. Palermo’s books
show a receivable fromSalina Ranching of $6,480.
5. The 10-year bonds were issued on July 1, 20X3, for A$106,000.
The premiumis amortized on a straight-line basis. The interest is
paid on April 1 and October 1.
6. The dividends were declared and paid on April 1.
7. Exchange rates were as follows:
Required

A. Prepare a schedule translating the December 31, 20X3, trial

balance of Salina Ranching fromAustralian dollars to U.S. dollars.
B. Prepare a schedule providing a proof of the translation
adjustment.

P12–24 Parent Company Journal Entries and Translation

LO 12–4

Refer to the information given in P12-23 for Palermo and its

subsidiary, Salina Ranching. Assume that the Australian dollar (A$) is
the functional currency and that Palermo uses the fully adjusted
equity method for accounting for its investment in Salina Ranching.

Required

a. Prepare the entries that Palermo would record in 20X3 for its
investment in Salina Ranching. Your entries should include the
following:
(1) Record the initial investment on January 1, 20X3.
(2) Record the dividend received by the parent company.
(3) Recognize the parent company’s share of the equity income
of the subsidiary.
(4) Record the amortizations of the differential.
(5) Recognize the translation adjustment required by the
parent fromthe adjustment of the differential.
(6) Recognize the parent company’s share of the translation
adjustment resulting fromthe translation of the subsidiary’s
accounts.
b. Provide the necessary documentation and support for the
amounts recorded in the journal entries, including a schedule of
the translation adjustment related to the differential

P12–25 Consolidation Worksheet after Translation

LO 12–5

Refer to the information given in P12-23 and P12-24 for Palermo

and its subsidiary, Salina Ranching. Assume that the Australian
dollar (A$) is the functional currency and that Palermo uses the fully
adjusted equity method for accounting for its investment in Salina
Ranching. A December 31, 20X3, trial balance for Palermo Inc.
follows. Use this translated trial balance for completing this
problem.
Required

a. Prepare a set of elimination entries, in general journal form, for

the entries required to prepare a comprehensive consolidation
worksheet (including other comprehensive income) as of
December 31, 20X3.
b. Prepare a comprehensive consolidation worksheet as of
December 31, 20X3.