Brookhurst Company (a U.S.-based company) established a subsidiary in South Africa on January 1, Year 1, by
Question:
During Year 1, the foreign subsidiary generated sales of ZAR 1,000,000 and net income of ZAR 110,000. Dividends in the amount of ZAR 20,000 were paid to the parent on June 1 and December 1. Inventory was acquired evenly throughout the year, with ending inventory acquired on November 15, Year 1. The subsidiary's ZAR financial statements for the year ended December 31, Year 1, are as follows:
Income Statement Year 1
ZAR
Sales1,000,000
Cost of goods sold (600,000)
Gross profit400,000
Depreciation expense(50,000)
Other operating expenses(150,000)
Income before tax200,000
Income taxes(90,000)
Net income€¦€¦€¦€¦€¦€¦€¦. 110,000
Statement of Retained Earnings Year 1
ZAR
Retained earnings, 1/1/Y10
Net income110,000
Dividends (40,000)
Retained earnings, 12/31/Y1 70,000
Balance Sheet December 31, Year 1
ZAR
Cash80,000
Receivables150,000
Inventory 270,000
Plant and equipment (net)450,000
Total assets950,000
Accounts payable80,000
Long-term debt500,000
Common stock300,000
Retained earnings, 12/31/Y1 70,000
Total liabilities and stockholders' equity€¦.. 950,000
Relevant exchange rates for Year 1 are as follows (US$ perZAR):
January 1, Year 1 $0,090
June 1, Year 10.095
Average for Year 10.096
November 15, Year 10.100
December 1, Year 1 0.105
December 31, Year 1 0.110
Required:
a. Translate the South African subsidiary's financial statements into U.S. dollars, assuming that the South African rand is the functional currency. Compute the translation adjustment by considering the impact of exchange rate changes on the subsidiary's net assets.
b. Translate (remeasure) the South African subsidiary's financial statements into U.S. dollars, assuming that the U.S. dollar is the functional currency. Compute the translation adjustment (remeasurement gain or loss) by considering the impact of exchange rate changes on the subsidiary's net monetary asset or liability position.
The ending inventory is the amount of inventory that a business is required to present on its balance sheet. It can be calculated using the ending inventory formula Ending Inventory Formula =... Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...
Step by Step Answer: