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Multico, a US company forms a wholly owned subsidiary in Italy (Italco) on 12/31/2009. On that day, Multico invests $1,350,000 in exchange for all of
Multico, a US company forms a wholly owned subsidiary in Italy (Italco) on 12/31/2009. On that day, Multico invests $1,350,000 in exchange for all of the subsidiary's capital stock. Italco purchased its inventory on 12/31/2009 and its beginning balance sheet on 01/01/2010 is as follows:
January 01, 2010 | |||
Assets | Euro | Liabilities and Equity | Euro |
Cash Inventory | 400,000 600,000 | Capital Stock | 1,000,000 |
BALANCE SHEET Dec. 31, 2010 | |||
Euro | Euro | ||
Cash | 750,000 | A/P | 330,000 |
A/R | 600,000 | Long-term liabilities | 2,000,000 |
Inventory | 800,000 | ||
PPE | 2,000,000 | Capital Stock | 1,200,000 |
Acc. Depr. | (200,000) | Retained Earnings | 500,000 |
Patent, net | 80,000 | ||
Total assets | 4,030,000 | Total resources | 4,030,000 |
INCOME STATEMENT 2010 | Euro |
Sales | 8,000,000 |
Cost of Goods Sold | 6,000,000 |
Selling and Administrative expenses | 500,000 |
Depreciation expense | 200,000 |
Amortization expense | 20,000 |
Interest expense | 180,000 |
Income tax expense | 275,000 |
Net income | 825,000 |
Relevant exchange rates for 2010 are as follows:
January 1, 2010 | 1.35 |
Rate when PPE are acquired and long-term debt was incurred, Jan. 15, 2010 | 1.32 |
Rate when patent was acquired and capital was increased Feb. 01, 2010 | 1.32 |
Average for 2010 | 1.30 |
Rate when dividends was declared Dec. 01, 2010 | 1.27 |
Average for the month of December | 1.26 |
Dec. 31, 2010 | 1.25 |
Translation the Italy subsidiary's financial statements into USD using temporal method and current rate method.(calculate 2 tables follow)
Statement of Retained Earnings, 2010 | |||
Euro | Translation Rate | USD | |
RE, 01/01/10 | 100,000 | ||
Net income | 825,000 | ||
Dividend, 12/01/10 | 425,000 | ||
RE, 12/31/10 | 500,000 |
Calculation for Capital Stock | |||
Euro | Translation rate | USD | |
Beginning | |||
Added | |||
Ending |
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