8 . Gramado Company was created as a wholly owned subsidiary of Porto Alegre Corporation on January 1 , Year 1 . On that date , Porto Alegre invested $ 42, 000 in Gramado's capital stock . Given the exchange on that date of $0. 84 per cruzeiro , the initial investment of $ 42 , 000 was converted into 50 , 000 cruzeiros ( [ Z ) . Other than stockholders " the capital investment on January 1 , there were no transactions involving equity in Year 1 .\\ Gramado's cruzeiro- denominated financial statements for Year 2 are as follows : Income Statement Year 2 CZ 540 , 00 Sales 1310 , 0 Cost of goods sold 00 ) 230 , 00 Gross profit ( 108, 0 Operating expenses 00 ) 122, 00 Income before tax 140, 00 Income taxes O ) Net income 82, 000 Statement of Retained Earnings Year 2 LZ 154, 00 Retained earnings , 1/1 1 /2 O Net income* 32, 000 Dividends ( paid on 1 / 12 1 /2 ) ( 20 , 00 O ) 216 , 00 Retained earnings , 31 / 12 / 1 2 O Balance Sheet December 31 , Year 2 CZ Cash 50 , 000 100 , 00 Receivables Inventory 72, 000 300 , 00 Plant and equipment ( net ) 170, 00 Less : accumulated depreciation O ) Total assets 452, 00 2