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    Lee Corporation: Foreign Acquisition Conversion and Change in Owners Equity

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    Prepare adjusted income/retained earnings amounts for the beginning of the period, 2007, and show changes to get to the end of period.

    Prepare the statement of changes in owner's equity. Include required note disclosures for the owner's equity section.

    ·         Review the following information:

    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:

    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 (of this amount, $25,000 will be paid on January 15, 2008): $100,000
    ·         Effective tax rate: 40%

    Lee Corporation
    Retained Earnings Statement
    For the Year Ended December 31, 2007
    Balance, January 1, as reported $225,000*
    Correction for depreciation error (net of $10,000 tax) -15,000
    Cumulative decrease in income from change in inventory methods -21,000
    (net of $14,000 tax)
    Balance, January 1, as adjusted 189,000
    Add: Net income 144,000**
    333,000
    Less: Dividends declared 100,000
    Balance, December 31 $233,000

    *($40,000 + $125,000 + $160,000) - ($50,000 + $50,000)
    **[$240,000 - (40% X $240,000)]

    Common stock $500
    Treasury stock (-$200)
    Additional paid-in principle $1,000
    Shares outstanding 375,940
    Shares authorized 500,000
    Shares in treasury 30,000

    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. Go to www.x-rates.com and use the historic lookup feature to determine exchange rates on 12/31/04, 12/31/05, and 12/31/06 and 12/31/07.

    (Note. Record the necessary journal entries before attempting to calculate other comprehensive income.)
    Prepare adjusted income/retained earnings amounts for the beginning of the period, 2007, and show changes to get to the end of period.
    Prepare the statement of changes in owner's equity. Include required note disclosures for the owner's equity section.
    Show a schedule of adjusted amounts using the exchange rates below.
    12/31/04=.830979
    12/31/05=.857927
    12/31/06=.858222
    12/31/07=1.01204

    © BrainMass Inc. brainmass.com June 3, 2020, 11:46 pm ad1c9bdddf
    https://brainmass.com/business/mergers-and-acquisitions/foreign-acquisition-conversion-change-in-owners-equity-297341

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