On January 2, 2008, P Company, a U.S.-based company, acquired for 2,000,000 francs an 80% interest in SFr Company. On January 2, 2008, SFr Company reported a retained earnings balance of 480,000 francs. SFr’s books are maintained in francs and are in conformity with U.S. generally accepted accounting principles. Trial balances of the two companies as of December 31, 2009, are presented below.

Other information related to the subsidiary follows:
1. Beginning inventory of 830,000 francs was acquired when the exchange rate was $.165.
2. Purchases made uniformly throughout 2009 were 2,520,000 francs.
3. The franc is identified as the subsidiary’s functional currency.
4. The subsidiary’s beginning (1/1/09) retained earnings and cumulative translation adjustment (credit) in dollars were $75,948 and $36,462, respectively.
5. All plant assets were acquired before the parent obtained a controlling interest in the subsidiary.
6. Sales are made and all expenses are incurred uniformly throughout the year.
7. The ending inventory was acquired during the last quarter.
8. The subsidiary declared and paid dividends of 375,000 francs on September 2.
9. The following direct exchange rate quotations were available:
Date of subsidiary acquisition$.15
Average for 2008........156
January 1, 2009........17
September 2, 2009......18
December 31, 2009.....19
Average for the fourth quarter, 2009..... .185
Average for 2009........176


Required:
A. Prepare a translated balance sheet and combined statement of income and retained earn ings for the subsidiary.
B. Prepare a schedule to verify the translation adjustment.
C. Compute the following ratios based on the franc and the U.S. dollar financial statements:
(1) Current ratio.
(2) Debt to equity.
(3) Gross profit percentage.
(4) Net income tosales.

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P Company (Dollars) SFr Company (Francs) Deits 962,500 660,000 1,037,500 Cash Accounts Receivable Inventories (FIFO cost) Investment in SFr Companv Land Buildings (net) Equipment (net) Dividends Declared Cost of Goods Sold Depreciation Expense Other Expense Income Tax Expense 500,200 516,400 627,800 297,806 450,000 610,000 290,000 200,000 2,720,000 210,000 914,000 100,000 7,436,206 500,000 550,000 405,000 375,000 2,312,500 125,000 818,750 102,500 7.848,750 Totals Credits Accounts Payable Short-Term Notes Payable Bonds Payable Common Stock Additional Paid-in Capital Retained Earnings, 1/1 Sales Equity Income 540,000 300,000 700,000 800,000 300,000 542,878 4,200,000 53,328 $7,436,206 800,000 650,750 850,000 960,000 300,000 513,000 3,775,000 Totals 7,848,750