Assignment 2

Course ID : ACCT6083
Course Name : Advanced Accounting
Class : LB55
Submission Deadline : Monday, 17 January 2022

Question 1: Statement of Affairs

Prost Company has filed a bankruptcy petition. Its account balances at December 31, 2012,
are presented here:

The following additional information is available:

1. All notes receivable with the exception of one for $2,500 are expected to be collected.
The notes receivables are pledged as security on the bank notes payable.
2. Of the total accounts receivable, $55,000 is expected to be collected. The accounts
receivables are also pledged as security on the bank notes payable.
3. Finished goods can be sold at 30% above cost. Selling expenses will be approximately
15% of selling price. Work in process is to be completed at an additional cost of
$30,000, of which $19,000 represents the cost of raw materials. The expected selling
price of the work in process (after completion) is 10% above cost, with selling
expenses of 15% of selling price. Unused raw materials can be sold for $18,000.
 4. Prepaid expenses are fully recoverable.
5. The investment in stock consists of 100 shares of MBI Company with a current market
value of $19,000.
6. Land is appraised at $200,000, and plant and equipment is appraised at $205,000. The
land and plant and equipment serve as collateral on the mortgage payable. Accrued
but unrecorded interest on the mortgage payable amounts to $3,000.

Required:
a. Prepare a statement of affairs, including a deficiency account.
b. Compute the estimated dividend to be paid as general unsecured creditors.

Question 2: Translation
On January 2, 2019, P Company, a U.S.-based company, acquired for 2,000,000 francs an 80%
interest in SFr Company, a Swiss company. On January 2, 2019, SFr Company reported a
retained earnings balance of 480,000 francs. SFr’s books are maintained in Swiss francs and
are in conformity with U.S. generally accepted accounting principles. Trial balances of the two
companies as of December 31, 2020, are presented here:
Other information related to the subsidiary follows:
- Beginning inventory of 830,000 Swiss francs was acquired when the exchange rate
was $1.078.
- Purchases made uniformly throughout 2020 were 2,520,000 francs.
- The Swiss franc is identified as the subsidiary’s functional currency.
- The subsidiary’s beginning (1/1/20) retained earnings and cumulative translation
adjustment (credit) in dollars were $175,948 and $390,691 respectively.
- All plant assets were acquired before the parent obtained a controlling interest in the
subsidiary.
- Sales are made and all expenses are incurred uniformly throughout the year.
- The ending inventory was acquired during the last quarter.
- The subsidiary declared and paid dividends of 375,000 francs on September 2.

The following direct exchange rate quotations were available:

Required:
1. Prepare a translated balance sheet and combined statement of income and retained
earnings for the subsidiary.
2. Prepare a schedule to verify the translation adjustment.
3. Compute the following ratios based on the franc and the U.S. dollar financial
statements.
a. Current ratio.
b. Debt to equity.
c. Gross profit percentage.
d. Net income to sales.