ADVANCE ACCOUNTING

FINAL EXAM

FOR EXCELLENT CLASS

PROBLEM 1

PT. CLEO has 90% majority ownership in PT. PATRA on December 2014, obtained through the
following steps:

Date Transaction % Cost

Ownership (Selling Price)
Aug 31, 2013 Purchasing / acquisition 80 Rp 240 Juta
Jan1, 2014 Selling 20 30 Juta
July 1, 2014 Purchasing / acquisition 30 200 Juta

Information acquired from PT. PATRA for 2013- 2014:

Year Equity ( Jan 1) Profit for a year

2013 Rp 240 Juta Rp 180 Juta
2014 ??? Rp 280 Juta

Additional information :
- Assumed that profit is proportional for every month.
- On 31 Dec, 2013, PT. PATRA share the dividend Rp 100.000.000 to shareholders.
- If there is excess above the acquisition cost to the book value of equity, it will allocated to the
PT.PATRA Patent for 10 years amotization.

Required:
a. Prepare The Transaction Journal.
b. ProvideThe balance of investment in PT PATRA per December 31, 2013.
c. Gain (loss) on sale of ownership on January 1st 2014, and calculate the investment balance after
sales.
d. Provide The balance of investment in PT. PATRA per December 31, 201

PROBLEM 2

Alamo Inc. purchased 80% of the outstanding stock of Western Ranching Company, located in
Australia, on January 1,20X3. The purchase price in Australian dollars (AS) was A$200,000, and
A$40,000 of the differential was allocated to plant and equipment, which is amortized over a 10-year
period. The remainder of the differential was attributable to a patent. Alamo Inc. amortizes the patent
over 10 years. Western Ranching’s trial balance on December 31, 20X3, in Australian dollars is as
follows:
 Debits Credits
Cash A$ 44,100
Accounts Receivable (net) 72,000
Inventory 86,000
Plant and Equipment 240,000
Accumulated Depreciation A$ 60,000
Accounts Payable 53,800
Payable to Alamo Inc. 10,800
Interest Payable 3,000
12% Bonds Payable 100,000
Premium on Bonds 5,700
Common Stock 90,000
Retained Earnings 40,000
Sales 579,000
Cost of Good Sold 330,000
Depreciation Expense 24,000
Operating Expenses 131,500
Interest Expense 5,700
Dividends Paid 9,000
Total A$ 942,300 A$ 942,300

Assuming that the Australian Dollar (A$) is the functional currency and that Alamo uses the
basic equity method for accounting for its investment in Western Ranching. A December 31, 20X3,
Trial balance for Alamo Inc. follows. Use this translated trial balance for completing this problem.

Debits Credits
Cash $ 38,000
Accounts Receivable (net) 140,000
Receivable from Western Ranching 6,480
Inventory 128,000
Plant and Equipment 500,000
Investment in Western Ranching 152,064
Cost of Good Sold 600,000
Depreciation Expense 28,000
Operating Expense 204,000
Interest Esxpense 2,000
Dividends Declared 50,000
Translation Adjustment 22,528
Accumulated Depreciation $ 90,000
Acounts Payable 60,000
Interest Payable 2,000
Common Stock 500,000
Retained Earning, January 1, 20X3 179,656
Sales 1,000,000
Income from Subsidiary 39,416
Total $ 1,871,071 $ 1,871,071
Additional Information:

1. Western Ranching uses average cost for cost of good 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:

Date Cost
January 20X1 A$ 180,000
January 1, 20X3 60,000

3. Plant and equipment are depreciated using the straight-line method and a 10-year life, with no
residual value.
4. The payable to Alamo is in Australian dollars. Alamo’s books show receivable from Western
Ranching of $6,480.
5. The 10-year bonds were issued on July 1, 20X3, for A$ 106,000. The premium is 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:

January 20X1 A$1= $0.93

August 20X1 A$1= $0.88
January 1, 20X3
A$1= $0.70
April 1, 20X3 A$1= $0.67
July 1, 20X3 A$1= $0.64
December 31, 20X3 A$1= $0.60
20X3, average A$1= $0.65

Required:

a. Prepare the entries that Alamo would record in 20X3 for its investment in Western Ranching.
Your entries should include:
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 amortization of the differential.
5) Recognize the translation adjustment required by the parent from the adjustment of the
differential.
6) Recognize the parent company’s share of the translation adjustment resulting from the
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.
c. Prepare a schedule translating the December 31,20X3, trial balance of Western Ranching
from Australian dollars to U.S dollars.
d. Prepare a schedule providing a proof of the translation adjustment.
e. Prepare a set of eliminating entries, in general journal form, for the entries required to prepare
a comprehensive consolidation worksheet ( including other comprehensive income) as of
December 31, 20X3.
f. Prepare a comprehensive consolidation worksheet as of December 31, 20X3.