A. Translation of financial statements and consolidation of a foreign subsidiary (no amortization of AAP)Assume that your company owns a subsidiary operating in Great Britain. The subsidiary maintains its books in the British pound (GBP) as its functional currency. Following are the subsidiarys financial statements (in GBP) for the most recent year:

	(in GBP)			(in GBP)			(in GBP)
Income Statement:			Balance Sheet:			Statement of Cash Flows:
Sales	2,730,000		Assets			Net Income	382,200
Cost of Goods Sold	(1,638,000)		Cash	776,958		Change in accounts receivable	(105,560)
Gross profit	1,092,000		Accounts receivable	633,360		Change in inventories	(135,590)
Operating expenses	(709,800)		Inventory	813,540		Change in current liabilities	77,168
Net income	382,200		Property, plant, and			Net cash from operating activities	218,218
			equipment (PPE), net	1,504,776
			Total assets	3,728,634
Statement of retained earnings:						Change in PPE, net	(139,776)
BOY ret. earnings	1,433,250		Liabilities and stockholders equity			Net cash from investing activities	(139,776)
Net income	382,200		Curr. liabilities	463,008
Dividends	(38,220)		L-T liabilities	1,078,896		Change in long-term debt	179,816
EOY ret. earnings	1,777,230		Common stock	182,000		Dividends	(38,220)
			APIC	227,500		Net cash from financing activities	141,596
			Ret. earnings	1,777,230
			Total liabilities and equity	3,728,634		Net change in cash	220,038
						Beginning cash	556,920
						Ending cash	776,958

The relevant exchange rates for the $US value of the British pound (GBP) are as follows:

BOY rate	$1.50
EOY rate	$1.57
Avg. rate	$1.53
PPE purchase date rate	$1.54
LTD borrowing date rate	$1.54
Dividend rate	$1.55
Historical rate (common stock and APIC)	$0.60

HINT: For all parts of this problem, use a negative sign with your answers to indicate a reduction.

a. Translate the subsidiarys income statement, statement of retained earnings, balance sheet, and statement of cash flows from British pounds (GBP) into $US (assume that the BOY Retained Earnings for the subsidiary is $2,535,897).

Already finished part A:

The translation is done as below:

	(in GBP)	Translation Rate	In US Dollars
Income Statement:
Sales	2,730,000	1.53	4,176,900
Cost of goods sold	-1,638,000	1.53	-2,506,140
Gross profit	1,092,000		1,670,760
Operating expenses	-709,800	1.53	-1,085,994
Net income	382,200		584,766
Statement of retained earnings:
BOY ret. earnings	1,433,250	given	2,535,897
Net income	382,200	as above	584,766
Dividends	-38,220	1.55	-59,241
EOY ret. earnings	1,777,230		3,061,422
Balance sheet:
Assets
Cash	776,958	1.57	1,219,824
Accounts receivable	633,360	1.57	994,375
Inventory	813,540	1.57	1,277,258
Property, plant, and equipment (PPE), net	1,504,776	1.57	2,362,498
Total assets	3,728,634		5,853,955
Liabilities and stockholders' equity
Current liabilities	463,008	1.57	726,923
Long-term liabilities	1,078,896	1.57	1,693,867
Common stock	182,000	0.6	109,200
APIC	227,500	0.6	136,500
Ret. earnings	1,777,230		3,061,422
AnswerCumulative translation adjustmentEffect of exchange rate on cash			126,044
Total liabilities and equity	3,728,634		5,853,955
Statement of cash flows:
Net income	382,200	1.53	584,766
Change in accounts receivable	-105,560	1.53	-161,507
Change in inventories	-135,590	1.53	-207,453
Change in current liabilities	77,168	1.53	118,067
Net cash from operating activities	218,218		333,874
Change in PPE, net	-139,776	1.54	-215,255
Net cash from investing activities	-139,776		-215,255
Change in long-term debt	179,816	1.54	276,917
Dividends	-38,220	1.55	-59,241
Net cash from financing activities	141,596		217,676
Net change in cash	220,038		336,294
Effect of exchange rate on cash			48,150
Beginning cash	556,920	1.5	835,380
Ending cash	776,958	1.57	1,219,824

b. Compute the ending Cumulative Translation Adjustment directly, assuming a BOY balance of $(17,474). What journal entry did the parent company make as a result of this computation?

Round all answers to the nearest whole number.

Direct computation of translation adjustment:
Answer	$Answer
Net income x (EOY - Average exchange rate)	Answer
Answer	Answer
	Answer
Answer	Answer
EOY cumulative translation adjustment	$Answer

General Journal
Description	Debit	Credit
Answer	Answer	Answer
Answer	Answer	Answer
To record the translation adjustment for the year

c. Following are selected financial statement accounts for the parent:

Income statement:			Balance sheet:
Sales	$11,973,000		Assets
Cost of goods sold	(8,381,100)		Cash	$1,255,795
Gross profit	3,591,900		Accounts receivable	1,532,544
Equity income	584,766		Inventory	2,322,762
Operating expenses	(2,274,870)		Equity investment	3,747,165
Net income	$1,901,796		Property, plant, and equipment (PPE), net	12,370,504
				$21,228,770
Statement of retained earnings:
BOY retained earnings	$10,311,600		Liabilities and stockholders equity
Net income	1,901,796		Current liabilities	$959,037
Dividends	(412,464)		Long-term liabilities	650,000
Ending retained earnings	$11,800,932		Common stock	1,359,397
			APIC	6,319,361
Statement of accum. comp. income:			Retained earnings	11,800,932
BOY cumulative translation adjustment	$(17,474)		Cumulative translation adjustment	140,043
Current-year translation gain (loss)	157,517			$21,228,770
EOY cumulative translation adjustment	$140,043

c continued. Assume the following information: The purchase price for the subsidiary included an AAP asset relating to Land that the parent estimated was worth GBP200,000 more than its book value on the subsidiarys balance sheet. Confirm the balance of the Equity Investment account of $3,747,165 on the parents balance sheet.

Equity Investment
BOY Common stock	Answer	Answer
BOY APIC	Answer	Answer
BOY Retained earnings	Answer	Answer
BOY AAP	Answer	Answer
BOY Cumulative translation adjustment	Answer	Answer
Equity income	Answer	Answer	Dividends
Current translation adjustment	Answer	Answer
AAP Translation adjustment (AOCI)	Answer	Answer
Balance	Answer

d. Using your translated subsidiary financial statements from Part a and the parents financial data provided in Part c, prepare the consolidation spreadsheet for the year.

				Elimination Entries
	Parent	Sub		Dr	Cr		Consolidated
Income statement:
Sales	$11,973,000	$Answer					$Answer
Cost of goods sold	(8,381,100)	Answer					Answer
Gross profit	3,591,900	Answer					$Answer
Equity income	584,766		Answer	Answer			Answer
Operating expenses	(2,274,870)	Answer					Answer
Net income	$1,901,796	$Answer					$Answer
Statement of retained earnings:
BOY retained earnings	$10,311,600	$Answer	Answer	Answer			$Answer
Net income	1,901,796	Answer					Answer
Dividends	(412,464)	Answer			Answer	Answer	Answer
EOY retained earnings	$11,800,932	$Answer					$Answer
Statement of Accumulated Comprehensive Income:
BOY cumulative translation adjustment	$(17,474)	$Answer	Answer	Answer			$Answer
Current-year translation gain (loss)	157,517	Answer	Answer	Answer	Answer	Answer	Answer
EOY cumulative translation adjustment	$140,043	$Answer					$Answer
Balance sheet:
Assets
Cash	$1,255,795	$Answer					$Answer
Accounts receivable	1,532,544	Answer					$Answer
Inventory	2,322,762	Answer					Answer
Equity investment	3,747,165				Answer	Answer	Answer
					Answer	E
					Answer	A
Property, plant and equipment (PPE), net	12,370,504	Answer	Answer	Answer			Answer
			Answer	Answer
Total assets	$21,228,770	$Answer					$Answer
Liabilities and stockholders equity
Current liabilities	959,037	Answer					Answer
Long-term liabilities	650,000	Answer					Answer
Common stock	1,359,397	Answer	Answer	Answer			Answer
APIC	6,319,361	Answer	Answer	Answer			Answer
Retained earnings	11,800,932	Answer					Answer
Cumulative translation adjustment	140,043	Answer					Answer
Total liabilities and equity	$21,228,770	$Answer		$Answer	$Answer		$Answer