Columbia Corporation

Columbia Corporation, a U.S.-based company, acquired a 100 percent interest in Swoboda Company in Lodz, Poland, on January 1, Year 1, when the exchange rate for the Polish zloty (PLN) was $0.25. The financial statements of Swoboda as of December 31, Year 2, two years later, are as follows:

Additional information:

The January 1, Year 2, beginning inventory of PLN 3,000,000 was acquired on December 15, Year 1, when the exchange rate was $0.215. Purchases of inventory during Year 2 were acquired uniformly throughout the year. The December 31, Year 2, ending inventory of PLN 4,250,000 was acquired evenly throughout the fourth quarter of Year 2 when the exchange rate was $0.16.

All fixed assets were on the books when the subsidiary was acquired except for PLN 2,500,000 of equipment, which was acquired on January 3, Year 2, when the exchange rate was $0.18, and PLN 6,000,000 in buildings, which were acquired on August 5, Year 2, when the exchange rate was $0.17. Equipment is depreciated on a straight-line basis over 10 years. Buildings are depreciated on a straight-line basis over 40 years. A full years depreciation is taken in the year of acquisition.

Dividends were declared and paid on December 15, Year 2, when the exchange rate was $0.155.

Other exchange rates for Year 2 are:

Answer the following questions:

• Convert the financial statements to U.S. dollars.
• Explain the translation adjustments.

\begin{tabular}{|l|r|} \hline \multicolumn{2}{|c|}{BalanceSheetDecember31,Year2} \\ \hline Assets & PLN 1,000,000 \\ \hline Cash & 1,650,000 \\ \hline Accounts receivable (net) & 4,250,000 \\ \hline Inventory & 12,500,000 \\ \hline Equipment & (4,250,000) \\ \hline Less: Accumulated depreciation & 36,000,000 \\ \hline Building & (15,150,000) \\ \hline Less: Accumulated depreciation & 3,000,000 \\ \hline Land & PLN 39,000,000 \\ \hline Total assets & PLN 39,000,000 \\ \hline Liabilities and Stockholders' Equity & 1,250,000 \\ \hline Accounts payable & 25,000,000 \\ \hline Long-term debt & 2,500,000 \\ \hline Common stock & 7,500,000 \\ \hline Additional paid-in capital & 2,750,000 \\ \hline Retained earnings & PLN \\ \hline Total liabilities and stockholders' equity & PL \\ \hline \end{tabular} \begin{tabular}{|l|r|} \hline \multicolumn{2}{|c|}{StatementofIncomeandRetainedEarningsFortheYearEndingDecember31,Year2} \\ \hline Sales & PLN 12,500,000 \\ \hline Cost of goods sold & (6,000,000) \\ \hline Depreciation expense-equipment & (1,250,000) \\ \hline Depreciation expense-building & (900,000) \\ \hline Research and development expense & (600,000) \\ \hline Other expenses (including taxes) & PLN 3,250,000 \\ \hline Net income & 2500,000) \\ \hline Plus: Retained earnings, 1/1/Y2 & 250,000 \\ \hline Less: Dividends, Year 2 & (750,000) \\ \hline Retained earnings, 12/31/Y2 & PLN 2,750,000 \\ \hline \end{tabular} \begin{tabular}{|l|r|} \hline January 1 & $0.200 \\ \hline Average for the year & 0.175 \\ \hline December 31 & 0.150 \\ \hline \end{tabular}