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    Foreign currency translation; Statement of changes owners' equity

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    You must utilize the attached excel worksheet to complete the assignment
    * Do not significantly alter the formatting of the spreadsheet
    * Do not delete tabs or columns
    * Do not change column headers or descriptions
    * Do not alter formatting, shading or colors
    * Although I have provided enough lines for entries you may add rows
    * Use the tab called 'Work' for calculations (optional - not graded)

    Lee Corporation, a U.S. company, began operations on January 1, 2004.

    During its first 3 years of operations, Lee reported net income and declared dividends as follows:

    Year Net Income Dividends Declared

    2004 $40,000 $0
    2005 125,000 50,000
    2006 160,000 50,000

    The following information relates to 2007:

    * Income before income tax: $240,000
    * Prior period adjustment: understatement of 2005 depreciation expense (before taxes): $ 25,000
    * Cumulative decrease in income from change in inventory methods (before taxes): $35,000
    * Dividends declared: $100,000 ($75,000 paid in 2007, $25,000 to be paid in 2008)
    * Effective tax rate: 40%

    Additional information:

    Common stock issued (par) $16,250
    Additional paid-in capital $146,250
    Treasury stock $70,000
    Shares issued 32,500

    Lee acquired a Canadian subsidiary whose sole asset is a piece of land. Lee acquired the subsidiary on 12/31/04 for the exact value of the land, CA$100,000. Lee owns 100% of the subsidiary.

    In the attached Excel worksheet complete the following:

    1. Go to www.x-rates.com and use the historic lookup feature to determine exchange rates on 12/31/04, 12/31/05, 12/31/06 and 12/31/07.
    2. Enter the exchange rate factors in the 'Factor' column of the Foreign Currency Translation table
    3. Apply the factors using the appropriate formulate to convert investment from CAD to USD
    4. Calculate the annual and cumulative adjustments

    1. 2(a) Prepare the entries to:
    a. Correct the understatement of depreciation expense
    b. Record the cumulative effect of change in inventory methods
    c. Record the dividends declared
    2. 2(b) Complete the statement of changes in owners' equity

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    Solution Summary

    The foreign currency translations and the statement of changes owners equity is examined.