7. Translation of Foreign Subsidiary Financial Statements and Consolidating Entries (20 points) Assume that our company owns a subsidiary operating in Great Britain and accounts for its Investment in the subsidiary using the equity method. The subsidiary maintains is books in Pound Sterling () as its functional currency. Following are the subsidiary's financial statements (in ) for the most recent year 2019: Subsidiary (in ) Income statement: Sales 2,751,081 Cost of goods sold -758,100 Gross Profit 1,992,981 Operating expenses -1,250,000 Net income 742,981 Statement of retained earnings: BOY retained earnings Net income Dividends Ending retained eamings 542,000 742,981 -15,000 1,269,981 Balance sheet: Assets Cash Accounts receivable Inventory PPE, net Total Assets 430,300 970,600 297,500 1.749,581 3,447,981 Liabilities and Stockholders' Equity Current Liabilities Long-term Liabilities Common Stock APIC Retained Earnings Cumulative translation adjustment Total Liabilities & Equity 448,000 570,000 460,000 700,000 1,269,981 3,447 981 Statement of cash flows: Net income Change in Accounts Receivable Change in Inventories Change in Current Liabilities Net cash flows from operating activities 742,981 -40,000 78,000 -35,000 745.981 Change in PPE, net Net cash flows from investing activities -474,481 -474,481 Change in long-term debt Dividends Net cash flows from financing activities 72,000 -24,500 47,500 319,000 Net change in cash Effect of exchange rate on cash: Beginning cash Ending cash 111,300 430,300 The relevant exchange rates for the $US value of the British Pound () are as follows: BOY Rate 1/1/19 EOY rate 12/31/19 Avg. rate current year 2019 Avg. rate prior year 2018 PPE purchase date rate LTD borrowing date rate Dividend rate Historical rate (Common Stock and APIC) $1.10 $1.05 $1.07 $1.15 $1.09 $1.06 $1.08 $1.25 a. Translate the subsidiary's, income statement, statement of retained earnings, balance sheet, and statement of cash flows from Pounds Sterling () into $US (assume that the BOY Retained Earnings for the subsidiary is $687,000 b. Compute the end Cumulative Translation Adjustment directly, assuming a BOY balance of ($264,800)