ACC133_MQ3

Problem 1. In January, 20X3, Dudwil Corporation acquired a foreign subsidiary, Holman Company, by paying cash for all
of the outstanding common stock of Holman. On the purchase date, Holman Company's accounts were stated fairly in
local currency units (FC). Subsequent sales of Holman's common stock have been purchased by Dudwil to maintain its
100% ownership. Holman's trial balance, in functional currency units (same as the local currency units), on December 31,
20X7, follows:
Debit Credit
Cash....................................... 58,400
Marketable securities...................... 32,500
Accounts receivable (net).................. 51,370
Inventories................................ 108,000
Surrender value of life insurance.......... 7,200
Intangible assets.......................... 123,900
Property, plant, and equipment............. 636,000
Accumulated depreciation................... 93,850
Accounts payable........................... 74,000
Accrued interest payable................... 7,120
Notes payable.............................. 52,000
Bonds payable.............................. 80,000
Capital stock.............................. 83,000
Paid-in capital in excess of par........... 190,300
Retained earnings.......................... 390,400
Sales...................................... 936,300
Cost of goods sold......................... 762,000
Interest expense........................... 7,120
Depreciation expense....................... 39,350
Amortization expense--intangibles.......... 3,100
Other expenses............................. 84,230
Gain on sale of equipment.................. 2,400
Interest income............................ 3,800
Total...................................... 1,913,170 1,913,170
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The following additional information is available:
a. Holman uses the FIFO inventory method to account for its inventory. Purchases took place uniformly throughout 20X7.
There were no intercompany sales during 20X7.
b. During 20X7, Holman declared and paid a dividend of 7,000 FCs at the end of each calendar quarter.
c. The balances in the contributed capital accounts result from the following transactions:
Capital Paid-in Capital
Date Stock in Excess of Par
January 1, 20X3, issuance...... 40,000 FC 80,000 FC
June 30, 20X5, issuance........ 40,000 104,300
January 1, 20X6, issuance...... 10,000 20,000
August 1, 20X6, retirement..... (7,000) (14,000)
83,000 FC 190,300 FC
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The August 1, 20X6, retirement of stock involves stock originally issued on January 1, 20X3.

d. The December 31, 20X6, retained earnings balance of 418,400 FC, translated into pesos, is Php179,460.
e. Selected translation rates are as follows:
Date Rate
January 1, 20X3......................... 1 FC = Php0.30
20X3 average............................ 1 FC = 0.32
20X4 average............................ 1 FC = 0.38
February 1, 20X5........................ 1 FC = 0.42
June 30, 20X5........................... 1 FC = 0.45
20X5 average............................ 1 FC = 0.45
January 1, 20X6......................... 1 FC = 0.50
February 1, 20X6........................ 1 FC = 0.52
August 1, 20X6.......................... 1 FC = 0.60
December 31, 20X6....................... 1 FC = 0.61
20X6 average............................ 1 FC = 0.56
March 31, 20X7.......................... 1 FC = 0.63
June 30, 20X7........................... 1 FC = 0.66
September 30, 20X7...................... 1 FC = 0.70
December 31, 20X7....................... 1 FC = 0.75
20X7 average............................ 1 FC = 0.70

Required: Prepare a schedule to translate the December 31, 20X7, trial balance of Holman Company from local currency
units to Philippine Peso. The schedule should show the trial balance in FCs, the exchange rates, and the trial balance.
Show supporting computations if needed.
Problem 2. ABC Co., a Philippine Company, has a foreign branch that is operating in a hyperinflationary economy. The financial statements of the branch, prior to
restatement and translation are shown below:

Statement of Financial Position Statement of Profit or Loss

Sales 120,000
Cash 46,000
Cost of Sales:
Accounts Receivable 74,000 Inventory - Jan. 1 60,000
Inventory 40,000 Purchases 30,000
Building 100,000 Total Goods available for sale 90,000
Accumulated Depreciation (20,000) Inventory - Dec. 31 (40,000) (50,000)
Gross Profit 70,000
Total Assets 240,000
Depreciation Expense (10,000)
Loans Payable 30,000 Other operating expenses (40,000)
Share Capital 100,000 Profit for the year 20,000
Retained Earnings 110,000
Total Equity 210,000
Total Liabilities and Equity 240,000

Additional information:
The building was acquired on January 1, 2016
The share capital was issued on January 1, 2016
Revenues were earned and expenses were incurred evenly during the year
Selected values of general price indices (CPI) are as follows:
o January 1, 2016 100
o Average for 2016 110
o January 1, 2017 120
o Average for 2017 125
o December 31, 2017 140
The beginning inventory is a mixture of the 2016s purchases and not the ending of the year.
There was no capital stock transaction nor any dividend declaration.
The exchange rates are as follows:
o January 1, 2016 AOA1.00 : P0.45
o Average for 2017 AOA1.00 : P0.47
o December 31, 2017 AOA1.00 : P0.50

Required: Translate the financial statements of ABC Co.

Problem 3. The following balances are taken from the records of Systems Inc. a 100% owned foreign subsidiary of Aspire Inc. The former operates in non-
hyperinflationary economy. Amounts are in foreign currency denomination. The acquisition of stock was made on January 1, 2012 at fair value.
Sales 2,600,000 Land (1/1/12) 1,200,000
Purchases 1,400,000 Accumulated Depreciation - Equipment 200,000
Depreciation Expense 90,000 Accumulated Depreciation - Machinery 200,000
Other Expenses 350,000 Accounts Payable 300,000
Cash 1,430,000 Notes Payable 250,000
Prepayments (7/1/14) 58,000 Bonds Payable 1,500,000
Accounts Receivable 2,550,000 Ordinary Share, par FC10 2,150,000
Merchandise Inventory, 1/1/14 950,000 Share Premium 1,612,500
Equipment 500,000 Dividends 322,500
Machinery 400,000 Retained Earnings 438,000

Additional information:
a. Ending inventory was FC500,000 and was purchased evenly during the latter part of the quarter.
b. Machinery and equipment both have 10 years life with no salvage value. Machinery was purchased on January 1, 2009 while equipment was purchased on
January 1, 2010.
c. All purchases was made evenly throughout the year. Other expenses were incurred evenly through the year.
d. Retained earnings balance was appropriately translated into pesos at P 5,657,100.
e. Half of the dividends were declared on July 1, 2014 and the other half on December 1, 2014.
f. The following are the relevant exchange rates:
Php Php
1/1/2009 4.32 12/1/2014 6.30
1/1/2010 4.98 12/31/2014 6.75
1/1/2012 5.60 Average for 2014 6.45
1/1/2014 6.15 Average for 4th quarter of 2014 6.55
7/1/2014 6.45

Required: Using the temporal method, re-measure the following balances in Philippine pesos:
a. Accounts Receivable d. Retained earnings, 12/31/14
b. Depreciation Expense e. Net income of the subsidiary
c. Cost of Sales