On January 1, 2008, a U.S. company purchased 100% of the outstanding stock of Ventana Grains, a company located in Latz City, New Zealand. Ventana Grains was organized on Jan- uary 1, 1994. All the property, plant, and equipment held on January 1, 2008, was acquired when the company was organized. The business combination was accounted for as a purchase transaction. The 2008 financial statements for Ventana Grains, prepared in its local currency, the New Zealand dollar, are given here. VENTANA GRAINS Comparative Balance Sheets January 1 and December 31, 2008 Jan. 1 500,000 600,000 400,000 Cash and Receivables Inventories Land Buildings (net) Equipment (net) Totals 650,000 465,000 2,615,000 Dec. 31 880,000 500,000 400,000 605,000 470,000 2,855,000 Short-Term Accounts and Notes Long-Term Notes (600,000 issued September 1, 2000, 80,000 issued July 1, 2008) Common Stock Additional Paid-in Capital Retained Earnings Total Revenues Cost of Goods Sold: Beginning Inventory Purchases Goods Available for Sale Less: Ending Inventory Cost of Goods Sold Gross Profit on Sales Depreciation Expense Other Expenses Net Income Jan. 1 Retained Earnings Total Jan. 1 295,000 VENTANA GRAINS Consolidated Income and Retained Earnings Statement for the Year Ended December 31, 2008 Less: Dividends Paid Dec. 31 Retained Earnings 600,000 800,000 200,000 720,000 2,615,000 600,000 2,100,000 2,700,000 500,000 Dec. 31 210,000 140,000 540,000 680,000 800,000 200,000 965,000 2,855,000 3,225,000 2,200,000 1,025,000 680,000 345,000 720,000 1,065,000 100,000 965,000 The account balances are computed in conformity with U.S. generally accepted accounting standards. Other information is as follows: 1. Direct exchange rates for the New Zealand dollar on various dates were: Date January 1, 1994 September 1, 2004 January 1, 2008 July 1, 2008 December 31, 2008 Average for 2008 Average for the last four months of 2008 Exchange Rate $.8011 .5813 .7924 .7412 .7298 .7480 .7476 2. Ventana Grains purchased additional equipment for 100,000 New Zealand dollars on July 1, 2008, by issuing a note for 80,000 New Zealand dollars and paying the balance in cash. 3. Sales were made and purchases and "Other Expenses" were incurred evenly throughout the year. 4. Depreciation for the period in New Zealand dollars was computed as follows: Building Equipment Purchased before 1/1/2008 Equipment Purchased July 1, 2008 45,000 85,000 10,000 5. The inventory is valued on a FIFO basis. The beginning inventory was acquired when the exchange rate was $.7480. The ending inventory was acquired during the last four months of 2008. 6. Dividends of 50,000 New Zealand dollars were paid on July 1 and December 31. Required: A. Translate the financial statements into dollars assuming that the local currency of the foreign subsidiary was identified as its functional currency. B. Prepare a schedule to verify the translation adjustment determined in requirement A. Describe how the translation adjustment would be reported in the financial statements.