Retained Earnings: $ 225,000
Common Stock at par: $ 500,000
Additional Paid-in Capital: $1,000,000
Treasury Stock: $ 200,000
Income before taxes for 2007 totaled $240,000
Effective Tax Rate was 40% for all years of operation including 2007
The following information relates to 2007:
1. An error was discovered during 2007. Specifically, depreciation expense was understated in 2005 resulting in the need for a Prior Period Adjustment of $25,000 before taxes.
2. Lee Corporation changed its method of valuing inventory during 2007. The cumulative decrease in income from the change in inventory methods was $35,000 before taxes.
3. Lee Corporation declared cash dividends of $100,000 in late 2007 to be paid out in 2008.
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 the exact exchange rates on 12/31/04, 12/31/05, and 12/31/06.
1. Prepare journal entries for items 1 to 3 above.
2. Calculate and journalize the foreign exchange adjustments for 2005, 2006 and 2007 for the Canadian subsidiary.
3. Prepare a Retained Earnings Statement for the year ended December 31, 2007.
4. Prepare a Statement of Changes in Stockholders Equity for the year ended December 31,