Question: Lakey International is a foreign corporation that
Lakey International is a foreign corporation that maintains its books of record in foreign currency (FC), although its functional currency is the U.S. dollar. Lakey originally began operations on July 1, 2012, by issuing no par common stock in the amount of 200,000 FC. At the beginning of 2014, a U.S. corporation acquired an 80% interest in Lakey’s shareholders’ equity consisting of 200,000 FC of common stock and 50,000 FC of retained earnings. The U.S. corporation maintained its 80% interest in 2014, when additional stock in the amount of 140,000 FC was issued when the rate of exchange of 1 FC was equal to $1.68.
Condensed income statements for Lakey expressed in FC are as follows:
Lakey accounts for its inventory using the LFO method and goods available for sale consisted of the following for the years 2014 and 2015:
Lakey began operations with 300,000 FC of equipment and then added additional equipment as follows: 60,000 FC and 150,000 FC on September 30, 2014, and July 1, 2015, respectively. All equipment is depreciated using the straight-line method over a 15-year useful life. Although no dividends were paid in 2014, Lakey did pay a 20,000 FC dividend in the second quarter of 2015 when 1 FC equaled $1.72.
Determine the re measured value of shareholders’ equity, excluding the remeasurement gain or loss, for the years 2014 and 2015. Additional selected rates of exchange are as follows:
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2014 2015 Net sales (recognized uniformly throughout the year). Cost of sales... Depreciation expense . Other expenses (incurred uniformly throughout the year) $1,350,000 (900,000) (21,000) (210,000) $ 219,000 $ 2,240,000 (1,400,000) (29,000) (320,000) $ 491,000 Net income 2014 2015 $ 60,000 $ 370,000 Beginning inventory Purchases throughout first quarter . Purchases throughout second quarter Purchases throughout third quarter Purchases throughout fourth quarter 100,000 610,000 500,000 700,000 300,000 500,000 Total goods available for sale $1,270,000 $1,870,000 1 FC = 1 FC = July 1, 2012 January 1, 2014. Average first quarter 2014. Average second quarter 2014 Average third quarter 2014 Average fourth quarter 2014 Average 2014.. September 30, 2014 December 31, 2014. July 1, 2015 ... Average first quarter 2015 Average second quarter 2015 Average third quarter 2015 Average fourth quarter 2015 Average 2015.. December 31, 2015. $1.58 $1.67 1.61 1,74 1.60 1.64 1.62 1.73 1.64 1.75 1.66 1.68 1.63 1.70 1.65 1.69
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