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 Cost of goods sold Gross Profit Operating expenses Net income 2,751,081 -758, 100 1,992,981 -1,250,000 742,981 Statement of retained earnings: BOY retained earnings Net income Dividends Ending retained earnings 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 448,000 Long-term Liabilities 570,000 Common Stock 460,000 APIC 700,000 Retained Earnings 1,269,981 Cumulative translation adjustment Total Liabilities & Equity 3,447,981 Statement of cash flows: Net income 742,981 Change in Accounts Receivable -40,000 Change in Inventories 78,000 Change in Current Liabilities -35,000 Net cash flows from operating activities 745,981 Change in PPE, net -474,481 Net cash flows from investing activities |-474,481 Change in long-term debt 72,000 Dividends -24,500 Net cash flows from financing activities (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 $1.10 EOY rate 12/31/19 $1.05 Avg. rate current year 2019 $1.07 Avg. rate prior year 2018 $1.15 PPE purchase date rate $1.09 LTD borrowing date rate $1.06 Dividend rate $1.08 Historical rate (Common Stock and APIC) $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 ($285,443)