ACCOUNTING

Lee Corporation Equity



PART 01

 

 

Lee Corporation

 

Statement of Changes in Stockholders' Equity

 

For the year ended December 31, 2007

 

 

 

 

Common Stock

Additional Paid-in Capital

Treasury Stock

Retained Earnings

Accumulated Other Comprehensive Income

Total Stockholders' Equity

Balance, January 1, 2007

$500,000.00 $ 1,000,000.00 $ (200,000.00)

$ 225,000.00 $ 1,525,000.00

Prior period adjustments:

 

Correction for depreciation error (net)

$ (15,000.00)

$ (15,000.00)

Cumulative decrease in income from change in inventory methods (net)

$ (21,000.00)

$ (21,000.00)

Foreign currency translation adjustment

$ 2,724.30 $ 2,724.30

Net income

$ 144,000.00 $ 144,000.00

Cash Dividends

$(100,000.00)

$ (100,000.00)

Foreign currency translation adjustment

$ 15,381.80 $ 15,381.80 $500,000.00 $ 1,000,000.00 $ (200,000.00)

$ 233,000.00 $ 18,106.10 $ 1,551,106.10

 

 

Notes

 

1. 2005 Depreciation Expense was understated by $25,000 and tax savings related to this is $10,000.

 

2. Inventory methods were changed resulting in a decrease in prior period income by $35,000 which has a tax savings of $14,000.

 

3. The foreign currency translation adjustment is a result of the purchase of a subsidiary for CAD$ 100,000 on December 31, 2004.

 

 

 

Date

Exchange Rate

Foreign Currency Adjustment

 

 

 

$/CAD$

 

 

12/31/2004

0.830979

 

 

12/31/2005

0.857927

2,694.80

 

 

12/31/2006

0.858222

29.50

 

 

12/31/2007

1.01204

15,381.80

 

 

 

Journal General Entries

12/312005

Cumulative Translation Adjustment 2,694.80

Investment in Subsidiary 2,694.80

12/31/2006

Cumulative Translation Adjustment 29.30

Investment in Subsidiary 29.30

12/31/2007

Cumulative Translation Adjustment 15,381.80

Investment in Subsidiary 15,381.80

PART 2

Effects of derivative hedging on “Other Comprehensive Income” (SFAS No. 133)

Other comprehensive incomes are maintained while company involve into a foreign currency and cash flow hedge of its net investment. There are some effects that derivative hedging has on other comprehensive income:

Cash flow hedge of an existing liability

An interest rate swap (pays a fixed rate on a stated notional and receives a variable rate) to successfully convert variable-rate debt to a fixed rate would include the change in fair value of the swap in other comprehensive income. The unrealized loss or gain will be detached from other comprehensive income and incorporated in earning while interest will be documented on the debt. The other comprehensive income loss or gain will fine-tune (adjust) interest expenses to an amount equivalent to the fixed interest rate.

Cash flow hedge of a forecasted transaction

A futures contract to fix the sales price of an item or the future purchase will contain the change in fair value of the future contracts in other comprehensive incomes. The unrealized loss or gain will be detached from other comprehensive incomes and incorporated in earnings when the hedged item have an effect on earnings.

Foreign currency hedge of a net investment in a foreign operation

A forward contract entered into to sell the foreign currency of the foreign operation would hedge the net investment. That is, the net investment would decrease if the exchange rate decreases. Though, the forward contract will swell in value for the reason that the currency can be bought at a lesser amount than the locked-in selling price. Unrealized losses and gains on the forward contract will be incorporated in other comprehensive income. When the investment is liquidated, the changes in future contracts will be incorporated into other comprehensive incomes

Effects of Foreign Exchange Translation

The aim of IAS 21 is to set down how to incorporate foreign operations ...