On January 1, 2016, Rapid Corporation purchased 25% of a foreign firm when its stockholders' equity section totaled 240,000 FCs
Rapid Corporation paid 75,000 FCs, with the excess over book value being attributed to equipment with a 5-year useful life. The foreign firm reported net income of 80,000 FCs for 2016 . Relevant exchange rates were as follows: Date 1 FC equal to January 1, 2016 $0.30 December 31, 2016 $0.35 Average 2016 $0.33 Required: Prepare the journal entries necessary to record the events concerning Rapid's investment in the foreign firm.
Jan. 1
Investment in Foreign Firm (FC 75,000 x .30) 22,500
Cash
22,500
Dec. 31
Investment in Foreign Firm 9,010
Subsidiary Income
5,6101
Cumulative Translation Adjustment
3,4002
1 [25% ´ (80,000 ´ $0.33)] - [15,0003 ´ $0.33 ÷ 5]
2 25% ´ [(240,000 ´ ($0.35 - $0.30)) (80,000 ´ ($0.35 - $0.33))]
3 Excess over book value attributed to equipment: 75,000 - (25% x 240,000)
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