Problem 1: Mercan Corporation acquired 100% of Furrin Corp. on Jan.1, 2006. Furrin Corp. operates prunarily in the country in which it is domiciled (Australia) and therefore its financial statements are to be translated using the CURRENT RATE Method. Mercan paid 540,000 Australian dollars for its 100% share of Furrin at a time when the Australian dollar exchanged for $0.75 US.
PRIOR to the acquisition date the two firms had the following balance sheets:
|
|
|
|
Mercan |
|
Furrin |
|
|
|
|
(in US |
|
(in Aust. |
|
|
|
|
dollars) |
|
dollars) |
| Cash |
|
|
|
450,000 |
|
100,000 |
| Other Current Assets |
|
500,000 |
|
200,000 |
| Fixed Assets (net) |
|
|
900,000 |
|
400,000 |
| Total Assets |
|
|
1,850,000 |
|
700,000 |
|
|
|
|
|
|
|
| Current Liabilities |
|
|
350,000 |
|
150,000 |
| Long Term Debt |
|
|
400,000 |
|
100,000 |
| Contributed Capital |
|
|
920,000 |
|
400,000 |
| Retained Earnings |
|
|
180,000 |
|
50,000 |
| Total Liabilities and Equity |
|
1,850,000 |
|
700,000 |
Required: Determine the following:
[1] The amount in Mercan's Investment in Furrin Account immediately after the acquisition:
[2] The book value (net assets) of Furrin (in US dollars) immediately after the acquisition
[3] Assuming that fair values = book values for Furrin, the amount of GOODWILL recognized in consolidation at the acquisition date:
[4] Total consolidated assets, date of acquisition:
[5] Total consolidated liabilities, date of acquisition:
[6] Total consolidated contributed capital, date of acquisition:
Problem 2:
Refer to Part 1. The two companies, Mercan and Furrin, had the following operating results during 2006 (pay attention to the currencies indicated):
|
|
|
Mercan |
|
Furrin |
|
|
|
(in US |
|
(in Aust. |
|
|
|
dollars) |
|
dollars) |
| Sales Revenue |
|
600,000 |
|
250,000 |
| Cost of Goods Sold |
|
350,000 |
|
150,000 |
| Operating Expenses |
80,000 |
|
35,000 |
| Other Expenses |
|
30,000 |
|
14,000 |
| Dividends Paid |
|
45,000 |
|
18,000 |
Note: Mercan's sales revenue includes NO income recognized from its ownership of Furrin.
Note: the average exchange rate for 2006 was 1 Australian Dollar = $0.76 US
Required: compute the following
Consolidated Net Income, 2006
Consolidated Retained Earnings, 1/1/06
Consolidated Dividends, 2006
Consolidated Retained Earnings, 12/31/06: