Corporate Accounting Assignment Solution: Questions 3-6 Analysis

This document provides a comprehensive solution to a corporate accounting assignment, addressing key concepts and calculations. The solution includes detailed answers to questions 3 through 6, covering topics such as cash flow statements, deferred tax calculations and journal entries, foreign currency translation, and consolidation accounting. The assignment demonstrates the calculation of cash collected from customers and cash paid to suppliers, current and deferred tax calculations, and preparation of journal entries. It also includes a schedule for translating a trial balance from Swiss francs to dollars, and explains the reporting of translation adjustments in consolidated financial statements. Finally, the solution offers journal entries for eliminating intercompany transactions, including unrealized profits on inventory, intercompany loans, and dividends, as well as the reversal of depreciation expense and elimination of consultancy fees.

Corporate Accounting

Contents
MAIN BODY.............................................................................................................................................3
Question 3...............................................................................................................................................3
Question 4...............................................................................................................................................3
Question 5...............................................................................................................................................5
Question 6...............................................................................................................................................6

MAIN BODY
Question 3
(a) Cash collected from customers: Sales-accounts receivables
= $1920000-$208000
= $1712000
(b) Cash paid to suppliers: Cost of sales-accounts payables
= $1,344,000- 152000
= $1192000
(c) Cash paid to employees for wages and salary: Employees were paid by $260,000 in year
2020.
(d) Cash spent on plant and equipment: On plan and equipment $80000 (800000-720000) is paid.
(e) Proceeds from sale of equipment: $8000
(f) Cash paid for insurance: The case paid for insurance is of $32,000 in year 2020.
Question 4
(a) Calculate the current and deferred tax of Bright Star Ltd for each year, 2018 and 2019
Calculation of Current Tax
2019 2018
Profit before tax $4,500,000.00 $3,600,000.00
Add:
Provision for Warranty $ - $150,000.00
Depreciation expense - Machinery $60,000.00 $60,000.00
$4,560,000.00 $3,810,000.00

Less:
Warranty Paid $750,000.00 $ -
Tax Depreciation - Machinery $90,000.00 $90,000.00
Taxable Profit $3,720,000.00 $ 3,720,000.00
Current tax rate 30% 30%
Current Tax $1,116,000.00 $1,116,000.00
Calculation of Deferred Tax
Tax depreciation - Machinery $90,000.00 $90,000.00
Less: Depreciation expense - Machinery $60,000.00 $60,000.00
Net excess depreciation allowed $30,000.00 $30,000.00
Tax rate 30% 30%
Deferred Tax $9000 $9000
(b) Prepare the required tax journal entries for each year
Journal
Entries:
Date Particulars Dr. Cr.
2018 Tax Expense $1,125,000.0
0
Provision for tax $1116000.00

Deferred tax $9000
(Tax expense for the year 2018 has been recorded)
2019 Tax Expense $1,125,000.0
0
Provision for tax $1116000.00
Deferred tax $9000
(Tax expense for the year 2019 has been recorded)
Question 5
(a) Prepare a schedule translating the December 31, 20X1, trial balance from Swiss francs to
dollars:
Swiss
Franc Rate U.S
Dollars
Cash 7,000 0.80 5,600
Accounts Receivable 20,000 0.80 16,000
Receivable from Popular
Creek 5,000 0.80 4,000
Inventory 25,000 0.80 20,000
Plant and Equipment 100,000 0.80 80,000
Cost of Goods Sold 70,000 0.75 52,500
Depreciation Expense 10,000 0.75 7,500
Operating Expenses 30,000 0.75 22,500
Dividends paid 15,000 0.77 11,550
Total Debits 282,000 219,650
Accumulated Depreciation 10,000 0.80 8,000

Accounts Payable 12,000 0.80 9,600
Bonds Payable 50,000 0.80 40,000
Common Stock 60,000 0.73 43,800
Sales 150,000 0.75 112,500
Total 282,000 213,900
Acc. Other Comprehensive
Income-Translation
Adjustment 5,750
Total Credits 219,650
(b) Where is the translation adjustment reported on Popular Creek's consolidated financial
statements and its foreign subsidiary?
The translation adjustment reported on comprehensive income section and in the translated
balance sheet of Popular Creek’ statements. Though, this is not necessary to record such
translation on these statements because it needs to be recorded in accordance of nature of
transaction and its impact on company. As in the above prepared schedule translating statement,
this can be inferred that most of the transactions are related to income statements and balance
sheet which need to be recorded in consolidated income statement and balance sheet.
Question 6
(a) Journal entries:
S.
No.
Particulars Amount
(Dr.)
Amount (Cr.) Workings
(i) Cost of goods sold A/c $7200 ($240000-
$168000)*10%
Inventories A/c $7200
(To record elimination of unrealized
profit)
(ii) Payable (Loan) A/c $1500000
Receivable (Loans) A/c $1500000

(To record elimination of loan given
to subsidiary)
Interest income A/c $30000
Interest expense A/c $30000
(To record interest elimination)
(iii) Dividend payable A/c $162000 $180000*90%
Retained earnings service A/c $162000
(To record dividend payable
elimination)
(iv) Statement of P&L $210600
Depreciation expenses a/c $162000 ($810000/5)
Deferred tax liability $48600 $162000*30%
(To record reversal depreciation
charged by Zealandia)
(v) Consultancy income A/c $75000
Consultancy expenses A/c $75000
(To record consultancy fee
elimination)
Payable (Management fee) A/c $80000
Receivable (Management fee) A/c $80000
(To record management fee
elimination)
(b) When are profits realized in relation to inventory transfers within the group?
The profits are realized only when the 3rd party or any external party is involved. In the case
when an inventory is partly traded than the intragroup profit realized is that sold part only.