FASB Codification Project-Since 2005, Roberts has owned 100% of Simmons

FASB Codification Project Due Tuesday November 29, 2016
Value: 5 points to the weighted average semester grade
Instructions: Read the case below. Research in the FASB codification the sections
that deal with this situation and answer the two questions below. Do not rewrite the
case. All answers must be typewritten. Any handwritten changes to your typed
responses will not be considered.
Facts of the case.
Since 2005, Roberts has owned 100% of Simmons, a British manufacturer of toys
and has a carrying value for the investment of $5,000,000. Roberts has chosen to
use the pound sterling as the functional currency for Simmons operations. There is a
$1,000,000 cumulative translation adjustment credit balance reported in
Stockholders Equity of Roberts related to this investment.
On October 31, 2016, due to a change in Simmons strategies, Roberts has decided to
sell 70% of its investment and receives $4,000,000 in cash. Roberts will no longer
consolidate Simmons. Roberts initially records the following entry on that date:
Dr, Cash 4,000,000
Cr, Investment
Cr. Gain on Sale 3,500,000 (70% x 5,000,000)
500,000 Answer a. and b. below:
a. research the FASB codification section that deals with the question of what
happens to the cumulative translation adjustment when a sale takes place and
consolidation is no longer applicable. Write down the full codification citation , e.g.
###-##-##-## that is applicable. “Cut and paste” the applicable section(s) into your
answer. ( 3 points )
b. Indicate what happens with the $1,000,000 cumulative translations adjustment
credit that is on the books of Roberts once the sale has been completed. If you
believe a journal entry is necessary, indicate what the journal entry is showing
account titles and amounts for the debits and credits. ( 2 points )