2. Gramado company was created as a wholly owned subsidiary of Porto Alegre corporation on January 1, Year 1. On that date, Porto Alegre invested $49.000 in Gramada's capital stock. Given the exchange rate on that date of $0.70 per cruzeiro, the initial investment of $49,000 was converted into 70,000 cruzeiros (Cz). Other than the capital investment on January 1, there were no transactions involving stockholders' equity in Year 1. Gramada's cruzeiro-denominated financial statements for Year 2 are as follows: Sales Cost of goods sold Gross profit Operating expenses Income before tax Income taxes Net income Income Statement Year 2 Cz 500,000 (300,000) 200,000 (110,000) 90,000 (31,000) 59,000 Statement of Retained Earnings Year 2 Cz Retained earnings, 1/1/92 150,000 Net income 59,000 Dividends (paid on 12/1/2) (10,000) Retained Earnings, 12/31/42 199,000 Balance sheet December 31, Year 2 Cz Cash Receivables Inventory Plant and equipment (net) Less: Accumulated Depreciation Total assets 70,000 85,000 72,000 250,000 (60,000) 417,000 Liabilities Capital stock Retained earnings, 12/31/42 Total liabilities and stockholder's equity 178,000 40,000 199,000 417,000 The cruzeiro is the primary currency that Gramade uses in its day-to-day operations. The cruzeiro has steadily increased in value against dollar since Porto Alegre made the investment in Gramade on January 1, Year 1. Relevant exchange rates for the cruzeiro for Years 1 and 2 as follows: January 1, Year 1 Average for Year 1 December 31, Year 1 Average for Year 2 December 1, Year 2 December 31, Year 2 $0.70 0.71 0.72 0.75 0.80 0.84 Use current rate method to translate Gramado Company's Year 2 financial statements into dollars. Please fill in the following white blanks labelled with numbers, e.g. (1), (2), ......, (35). Exchange Rate (7) (8) (9) Sales Cost of goods sold Gross profit Operating expenses Income before tax Income taxes Net income 500,000 (1) -300,000 (2) 200,000 -110,000 (3) 90,000 -31,000 (4) 59,000 (10) (11) (12) (13) above Retained earnings, 1/1/42 Net income Dividends Retained earnings, 12/31/42 150,000 (5) 59,000 -10,000 (6) 199,000 (14) (15) (16) (17) Exchange Rate (25) Cash Receivables Inventory Plant and equipment Less: accumulated depreciation Total assets 70,000 (18) 85,000 (19) 72,000 (20) 250,000 (21) -60,000 (22) 417,000 (26) (27) (28) (29) (30) 178,000 (23) 40,000 (24) 199,000 (31) (32) (33) above Liabilities Capital stock Retained earnings, 12/31/42 Cumulative translation adjustment Total liabilities and stockholders' equity (34) 417,000 (35)
