Question
Assume that our company owns a subsidiary operating in Switzerland. The subsidiary has adopted the Swiss Franc (CHF) as its functional currency. Our company operates
Assume that our company owns a subsidiary operating in Switzerland. The subsidiary has adopted the Swiss Franc (CHF) as its functional currency. Our company operates this subsidiary like a division or branch office, making all of its operating decisions, including pricing its products. We conclude, therefore, that the functional currency of this subsidiary is the $US and that its financial statements must be remeasured prior to consolidation. Following are the subsidiary's financial statements (in CHF) for the most recent year:
Income statement:
Sales
3,000,000
Cost of goods sold
-2,321,500
Gross profit
678,500
Operating expenses
-252,000
Depreciation
-225,000
Remeasurement gain or loss
Net income
201,500
Statement of retained earnings:
BOY retained earnings
1,506,500
Net income
201,500
Dividends
-75,000
Ending retained earnings
1,633,000
Balance sheet:
Assets
Cash
850,000
Accounts receivable
1,273,300
Inventory
650,000
PPE, net
927,000
Total Assets
3,700,300
Liabilities and Stockholders' Equity
Current Liabilities
250,000
Long-term Liabilities
1,097,300
Common Stock
220,000
APIC
500,000
Retained Earnings
1,633,000
Total Liabilities & Equity
3,700,300
Continued
Our subsidiary also reports the following additional financial statement information (in CHF):
Beginning inventory
450,000
Purchases
2,521,500
Ending inventory
-650,000
Cost of Goods Sold
2,321,500
Land
52,000
Building
750,000
Accumulated DepreciationBuilding
-500,000
Equipment
1,250,000
Accumulated DepreciationEquipment
-625,000
PPE, net
927,000
Depreciation expenseBuilding
100,000
Depreciation expenseEquipment
125,000
Depreciation expense
225,000
The relevant exchange rates for the $US value of the Swiss Franc (CHF) are as follows:
BOY Rate
$0.60
EOY rate
$0.80
Avg. rate
$0.70
Dividend rate
$0.77
Historical rates:
Beginning inventory
$0.60
Land
$0.35
Building
$0.35
Equipment
$0.45
Historical rate (Common Stock and APIC)
$0.20
Required:Remeasure the subsidiary's income statement, statement of retained earnings, and balance sheet into $US for the current year (assume that the BOY Retained Earnings is $1,100,000).
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