EXCEL AND ANALYSIS CASE—PARKER, INC., AND SUFFOLK PLC

On January 1, 2016, Parker, Inc., a U.S.-based firm, acquired 100 percent of Suffolk PLC located in Great Britain for consideration paid of 52,000,000 British pounds (£), which was equal to fair value. The excess of fair value over book value is attributable to land (part of property, plant, and equipment) and is not subject to depreciation. Parker accounts for its investment in Suffolk at cost. On January 1, 2016, Suffolk reported the following balance sheet:

Cash $ 2,000,000 Accounts payable $  1,000,000
Accounts receivable 3,000,000 Long-term debt 8,000,000
Inventory 14,000,000 Common stock 44,000,000
Property, plant, and equipment (net)  40,000,000 Retained earnings   6,000,000
$59,000,000 $59,000,000
    1. Suffolk’s 2016 income was recorded at £2,000,000. It declared and paid no dividends in 2016.

On December 31, 2017, two years after the date of acquisition, Suffolk submitted the following trial balance to Parker for consolidation:

Cash $ 1,500,000
Accounts Receivable 5,200,000
Inventory 18,000,000
Property, Plant, and Equipment (net) 36,000,000
Accounts Payable (1,450,000)
Long-Term Debt (5,000,000)
Common Stock (44,000,000)
Retained Earnings, 1/1/17 (8,000,000)
Sales (28,000,000)
Cost of Goods Sold 16,000,000
Depreciation 2,000,000
Other Expenses 6,000,000
Dividends (1/30/17)   1,750,000
       –0–
    1. Page 530Other than paying dividends, no intra-entity transactions occurred between the two companies. Relevant exchange rates for the British pound follow:
January 1 January 30 Average December 31
2016 $1.60 $1.61 $1.62 $1.64
2017 1.64 1.65 1.66 1.68
    1. The December 31, 2017, financial statements (before consolidation with Suffolk) follow. Dividend income is the U.S. dollar amount of dividends received from Suffolk translated at the $1.65/$ exchange rate at January 30, 2017. The amounts listed for dividend income and all affected accounts (i.e., net income, December 31 retained earnings, and cash) reflect the $1.65/$ exchange rate at January 30, 2017. Credit balances are in parentheses.
Parker
Sales $ (70,000,000)
Cost of goods sold  34,000,000
Depreciation 20,000,000
Other expenses 6,000,000
Dividend income        (2,887,500)
 Net income $ (12,887,500)
Retained earnings, 1/1/17 $ (48,000,000)
Net income, 2017 (12,887,500)
Dividends, 1/30/17    4,500,000
 Retained earnings, 12/31/17 $ (56,387,500)
Cash $  3,687,500
Accounts receivable 10,000,000
Inventory 30,000,000
Investment in Suffolk 83,200,000
Plant and equipment (net) 105,000,000
Accounts payable (25,500,000)
Long-term debt (50,000,000)
Common stock (100,000,000)
 Retained earnings, 12/31/17    (56,387,500)
        –0–
    1. Parker’s chief financial officer (CFO) wishes to determine the effect that a change in the value of the British pound would have on consolidated net income and consolidated stockholders’ equity. To help assess the foreign currency exposure associated with the investment in Suffolk, the CFO requests assistance in comparing consolidated results under actual exchange rate fluctuations with results that would have occurred had the dollar value of the pound remained constant or declined during the first two years of Parker’s ownership.

Required

Use an electronic spreadsheet to complete the following four parts:

Part I. Given the relevant exchange rates presented,

  1. Translate Suffolk’s December 31, 2017, trial balance from British pounds to U.S. dollars. The British pound is Suffolk’s functional currency.
  2. Prepare a schedule that details the change in Suffolk’s cumulative translation adjustment (beginning net assets, income, dividends, etc.) for 2016 and 2017.
  3. Prepare the December 31, 2017, consolidation worksheet for Parker and Suffolk.
  4. Prepare the 2017 consolidated income statement and the December 31, 2017, consolidated balance sheet.

Note: Worksheets should possess the following qualities:

 

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