Question :
Lee Corporation is an American company that started operations on January 1, 2004. It has just completed its fourth full year of operations on 31st December, 2007. Ending Year Balances for the prior year that ended on December 2006 were as given:
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 percent for all years of operation including 2007
The subsequent information relates to 2007:
1. An error was discovered during 2007. Particularly, 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 technique of valuing inventory during 2007. The cumulative decrease in income from the change in inventory techniques was $35,000 before taxes.
3. Lee Corporation declared cash dividends of $100,000 in late 2007 to be paid out in 2008.
Lee gets a Canadian subsidiary whose sole asset is a piece of land. Lee gets the subsidiary on 12/31/04 for the exact value of the land, CA $100,000. Lee owns 100 percent of the subsidiary. Use the historic lookup feature to evaluate the exact exchange rates on 12/31/04, 12/31/05, and 12/31/06.
Requirements:
1. Purpose journal entries for items 1 to 3 above.
2. Determine and journalize the foreign exchange adjustments for 2005, 2006 and 2007 for the Canadian subsidiary.
3. Purpose a Retained Earnings Statement for the year ended December 31, 2007.
4. Purpose a Statement of Changes in Stockholders Equity for the year ended 31st December,2007.