A U.S. firm purchased 100% of a foreign firm on January 1, 2016, when the foreign firm had the following equity accounts:

Common stock 150,000 FC
Paid-in excess of par value 50,000 FC
Retained earnings 200,000 FC

400,000 FC

The U.S. firm paid 420,000 FCs for the foreign firm. The payment in excess of book value is traceable to undervalued land owned by the foreign firm. The foreign firm had a net income of 25,000 FCs during 2016 . Assume that the following exchange rates are relevant:

Date 1 FC equal to
January 1, 2016 $2.00
December 31, 2016 $1.80
2016 average $1.95

Required:

Prepare all the journal entries to record and update the investment account of the U.S. firm and the necessary eliminating and adjusting entries for the 2016 consolidated statement. Assume that the U.S. firm used the simple equity method.

Jan. 1

Investment in Foreign Company (FC 420,000 x $2.00) 840,000

Cash
840,000

Dec. 31

Investment in Foreign Company (FC 25,000 x $1.95) 48,750

Subsidiary Income
48,750

Eliminating entries:

Dec. 31

Subsidiary Income 48,750

Investment in Foreign Company
48,750

Dec. 31

Beginning Retained Earnings (FC 200,000 x $2.00) 400,000

Common Stock (FC 150,000 x $2.00) 300,000

Paid-in Excess of Par Value (FC 50,000 x $2.00) 100,000

Excess of Cost over Book Value (FC 420,000 - 400,000 =
FC 20,000 x $2.00)
40,000

Investment in Foreign Company
840,000

Dec. 31

Land (20,000 ´ 1.80) 36,000

Cumulative Translation Adjustment 4,000

Excess of Cost Over Book Value
40,000