Background

On January 1, 2012, Altman, Inc., a U.S.-based manufacturing firm, acquired 80% of Bradford Ltd. (a
private entity) in Great Britain. The functional and reporting currency of Altman is the USD and the
functional currency of Bradford is the GBP. Altman assumes 80% of the seats on the board of directors of
Bradford. All decisions significant to Altman require a majority vote of the board of directors. Altman
paid £24,000,000. Bradford’s balance sheet on January 1, 2012, was as follows:

Cash . . . . . . . .. . . . . . . . . . £ 925,000 Accounts payable .. . £ 675,000

Accounts receivable . . . . . 1,400,000 Long-term debt . . . . .4,000,000

Inventory . . . . . . . . . . . . . 6,050,000 Common stock. . . . . 20,000,000

Plant & equipment (net) 19,000,000 Retained earnings . . 2,700,000

Total . . . . . . . . . . . . . . . . £27,375,000 Total . . . . . . . . . . . . £27,375,000

During the valuation

 An intangible asset was identified for £25,000 related to trademark. The Company determined it
had a five year life.
 Land (part of property & plant ) was undervalued by £2,300,000
 The long-term debt is denominated in EUR and is due € 2.4 M on 12/31/2013 and € 2.4 M on
12/31/2015
 All other assets were determined to be carried at fair value.
On December 31, 2013, two years after the acquisition date, Bradford submitted the following trial
balance for consolidation (credit balances are in parentheses):

Cash £ 600,000
Accounts Receivable £ 2,700,000
Inventory £ 9,000,000
Plant and Equipment (net) £ 17,200,000
Accounts Payable £ (500,000)
Accounts Payable € (180,000)
Debt € (2,400,000)
Common Stock £ (20,000,000)
Retained Earnings, 1/1/13 £ (3,800,000)
Sales £ (13,900,000)
Cost of Goods Sold £ 8,100,000
Depreciation Expense £900,000
Other Expenses £950,000
Dividends Declared, 6/30/13 £750,000
 Other than the payment of dividends in 2013, no intra-entity transactions occurred between the two
affiliates. No dividends were declared in 2012.

Altman’s financial results on 12/31/2013 were as follows:

Cash and cash equivalents $176,000

Investment in Bradford $38,543,000

Marketable Securities $5,002,000

Accounts Receivable $9,008,000
Inventory $650,000
Fixed Assets $7,093,000
Accounts Payable $(3,626,000)
Deferred revenue $(7,289,000)
Deferred tax liability-short term $(425,000)
Deferred tax liability-long term $(1,259,000)
Common Stock (no par) $(32,000,000)
AOCI $ (921,000)
Retained Earnings/Deficit $2,579,000
Revenue $(72,586,000)
Revenue £(956,000)
COGS & Operating Expenses $56,935,000

Depreciation Expense $903,000

Interest Expense $54,000
Equity in Bradford’s earnings $(1,355,000)

Relevant exchange rates for one British pound to the USD were:

January 1 June 30 December 31 Average

2012 $1.51 NM $1.56 $1.54

2013 1.56 $1.58 $1.53 1.55

Relevant exchange rates for the one British pound to the EUR were:

January 1 December 31

2012 $1.20 $1.22

2013 1.22 $1.29

Assume, unless noted, that all activity occurred evenly throughout the year. Footing differences are due
to rounding and should be posted to an “other asset/liability” or “other income/expense” account.
Required
Prepare Altman’s 12/31/2013 consolidated balance sheet and statement of operations. Round all
numbers to the nearest thousand. Prepare a memo outlining any decisions you made during the process
and any authoritative literature you considered.