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Mercan Corporation acquired 100% of Furrin Corp. on Jan.1, 2006. Determine the amount in Mercan's Investment in Furrin Account immediately after the acquisition, the book value (net assets) of Furrin (in US dollars) immediately after the acquisition and more...

** (See attached file for full problem description) **

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Mercan Corporation acquired 100% of Furrin Corp. on Jan.1, 2006. Furrin Corp. operates primarily in the country in which it is domiciled (Australia) and therefore its financial statements are to be translated using the CURRENT RATE Method. Mercan paid 540,000 Australian dollars for its 100% share of Furrin at a time when the Australian dollar exchanged for $0.75 US.

PRIOR to the acquisition date the two firms had the following balance sheets:

Mercan Furrin
(in US (in Aust.
dollars) dollars)
Cash 450,000 100,000
Other Current Assets 500,000 200,000
Fixed Assets (net) 900,000 400,000
Total Assets 1,850,000 700,000
Current Liabilities 350,000 150,000
Long Term Debt 400,000 100,000
Contributed Capital 920,000 400,000
Retained Earnings 180,000 50,000
Total Liabilities and Equity 1,850,000 700,000

Required: Determine the following:

[1] The amount in Mercan's Investment in Furrin Account immediately after the acquisition:
[2] The book value (net assets) of Furrin (in US dollars) immediately after the acquisition

[3] Assuming that fair values = book values for Furrin, the amount of GOODWILL recognized in consolidation at the acquisition date:

[4] Total consolidated assets, date of acquisition:
[5] Total consolidated liabilities, date of acquisition:
[6] Total consolidated contributed capital, date of acquisition:

Part 2.

Refer to Part 1. The two companies, Mercan and Furrin, had the following operating results during
2006 (pay attention to the currencies indicated):

Mercan Furrin
(in US (in Aust.
dollars) dollars)
Sales Revenue 600,000 250,000
Cost of Goods Sold 350,000 150,000
Operating Expenses 80,000 35,000
Other Expenses 30,000 14,000
Dividends Paid 45,000 18,000

Note: Mercan's sales revenue includes NO income recognized from its ownership of Furrin.
Note: the average exchange rate for 2006 was 1 Australian Dollar = $0.76 US
Required: compute the following
Consolidated Net Income, 2006
Consolidated Retained Earnings, 1/1/06
Consolidated Dividends, 2006
Consolidated Retained Earnings, 12/31/06

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