1. Write down in front of each item in the table below the appropriate exchange rate required under both current rate method and temporal method using current rate, historical rate, and average rate. (2.5 marks)

  

Account title

Required   Exchange Rateunder current rate   method

Required   Exchange Rateunder temporalmethod

 

Cash

 

Accounts   receivable

 

Inventory

 

Notes   receivable

 

Plant assets

 

dividends

 

Cost of goods   sold

 

Depreciation   expense

 

Other expenses

 

Sales

 

Accumulated   depreciation

 

Accounts   payable

 

Notes payable

 

Common stocks

 

Retained   earnings

Answer: 

2. On December 31, 2020, Parent company (A) acquired 80% of Subsidiary (B) outstanding common stocks for SR 368,000, Subsidiary’s fair value of net asserts was SR 460,000. During 2021, subsidiary net income and dividends declared were 100,000 and 50,000 respectively. Begging balance forAccumulated depreciation of subsidiary‘s equipment amounted to SR 50,000. Parent uses non-pushdown accounting and equity method .Subsidiary‘s fair value of net assets were as follows (5 marks)

  

Book Value   Element

Amount   in SR

 

Common   Stock

150,000

 

RetainedEarning

120,000

 

Total

270,000

 

Under –Or   Over Valuation

 

Inventory

(10,000)

2   Months

 

Land

50,000

No Useful   Life

 

Equipment

100,000

4   Years

 

Total   Under –Or Over Valuation

140,000

 

Good Will

50,000

No Useful   Life

 

Total   Under –Or Over Valuation

490,000

Required:

• Pass journal entries to record basic elimination entries.
• Pass journal entries to record the excess value reclassification entry
• Pass journal entries to record the amortized excess value reclassification entry
• .Pass journal entries to record the depreciation elimination entry if accumulated depreciation account based on book value of assets is 25,000.

Answer:

3. Compare Arm’s Length Transactions vs Non-Arm’s Length Transactions and explain the necessity of eliminating intercompany transactions (2.5 marks)