Question
Assume that your company owns a subsidiary operating in Germany. The subsidiary conducts most of its business in the European Economic Union and maintains its
Assume that your company owns a subsidiary operating in Germany. The subsidiary conducts most of its business in the European Economic Union and maintains its books using the Euro as its functional currency. Following are the subsidiarys financial statements (in ) for the most recent year:
Subsidiary (in )
Income statement:
Cost of goods sold (657,000)
Gross profit 438,000
Operating expenses (284,700)
Net income 153,300
Statement of retained earnings:
Beginning of year retained earnings.. 574,875
Net income. 153,330
Dividends. (15,330)
Ending retained earnings. 712,845
Balance Sheet
Cash. 311,637
Accounts receivable. 254,040
Inventory.. 326,310
PPE, net 603,564
Total assets... 1,495,551
Liabilities and Stockholders equity
Current liabilities. 185,712
Long-term liabilities 432,744
Common stock. 73,000
APIC 91,250
Retained earnings. 712,845
Cumulated translation adjustment....
Total liabilities & equity... 1,495,551
Statement of cash flows:
Net income 153,330
Change in accounts receivable.. (42,340)
Change in inventories (54,385)
Change in current liabilities 30,952
Net cash flows from operating activities 87,527
Purchase of PPE... (56,064)
Net cash flows from investing activities. (56,064)
Proceeds from long-term debt. 72,174
Payment of Dividends. (15,330)
Net cash flows from financing activities. 56,794
Net Change in cash.. 88,257
Effect of exchange rate on cash
Beginning cash. 223,380
Ending cash.. 311,637
The relevant exchange rate are as follows:
Beginning of year rate.. $0.95
Ending of year rate $1.04
Average rate.. $1.01
PPE purchase date rate.. $0.99
LTD borrowing date rate... $1.03
Dividend declaration date rate $1.02
Historical rate (common stock and APIC). $0.63
Translate the subsidiarys income statement, statement of retained earnings, balance sheet and statement of cash flow into the $US statements using the current rate method (assume that the beginning of year Retained Earnings is $437,543).
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started