Diekmann Company, a U.S.-based company, acquired a 100 percent interest in Rakona A.S. in the Czech Republic on January 1, 2016, when the exchange rate for the Czech koruna (Ks) was $0.05. Rakonas financial statements as of December 31, 2017, two years later, follow:Diekmann Company, a U.S.-based company, acquired a 100 percent interest in Rakona A.S. in the Czech Republic on January 1, 2016, when the exchange rate for the Czech koruna (Ks) was $0.05. Rakonas financial statements as of December 31, 2017, two years later, follow:

Balance Sheet December 31, 2017
Assets
Cash	Ks	2,000,000
Accounts receivable (net)		3,300,000
Inventory		8,500,000
Equipment		25,000,000
Less: Accumulated depreciation		(8,500,000	)
Building		72,000,000
Less: Accumulated depreciation		(30,300,000	)
Land		6,000,000
Total assets	Ks	78,000,000
Liabilities and Stockholders Equity
Accounts payable		2,500,000
Long-term debt		50,000,000
Common stock		5,000,000
Additional paid-in capital		15,000,000
Retained earnings		5,500,000
Total liabilities and stockholders equity	Ks	78,000,000

Income Statement For Year Ending December 31, 2017

Sales

Ks

25,000,000

Cost of goods sold

(12,000,000

)

Depreciation expenseequipment

(2,500,000

)

Depreciation expensebuilding

(1,800,000

)

Research and development expense

(1,200,000

)

Other expenses (including taxes)

(1,000,000

)

Net income

Ks

6,500,000

Plus: Retained earnings, 1/1/17

500,000

Less: Dividends, 2017

(1,500,000

)

Retained earnings, 12/31/17

Ks

5,500,000

Additional Information

The January 1, 2017, beginning inventory of Ks 6,000,000 was acquired on December 18, 2016, when the exchange rate was $0.043. Purchases of inventory were acquired uniformly during 2017. The December 31, 2017, ending inventory of Ks 8,500,000 was acquired in the latter part of 2017 when the exchange rate was $0.032. All depreciable assets (equipment and buildings) were on the books when the subsidiary was acquired except for Ks 5,000,000 of equipment acquired on January 3, 2017, when the exchange rate was $0.036, and Ks 12,000,000 in buildings acquired on March 5, 2017, when the exchange rate was $0.034. Straight-line depreciation is 10 years for equipment and 40 years for buildings. A full years depreciation is taken in the year of acquisition.

Dividends were declared and paid on December 15, 2017, when the exchange rate was $0.031.

Other exchange rates for 1 Ks follow:

January 1, 2017	$	0.040
Average 2017		0.035
December 31, 2017		0.030
Translate the Czech koruna financial statements at December 31, 2017, in the following three situations: a. The Czech koruna is the functional currency. The December 31, 2016, U.S. dollartranslated balance sheet reported retained earnings of $22,500. The December 31, 2016, cumulative translation adjustment was negative $202,500 (debit balance). b. The U.S. dollar is the functional currency. The December 31, 2016, U.S. dollarremeasured balance sheet reported retained earnings (including a 2016 remeasurement gain) of $353,000. c. The U.S. dollar is the functional currency. Rakona has no long-term debt. Instead, it has common stock of Ks 20,000,000 and additional paid-in capital of Ks 50,000,000. The December 31, 2016, U.S. dollarremeasured balance sheet reported a negative balance in retained earnings of $147,000 (including a 2016 remeasurement loss).