P 13-1	Translation-Local Currency Is the Functional Currency
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 January 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	Dec. 31
Cash and Receivables				500,000	880,000
Inventories				600,000	500,000
Land				400,000	400,000
Buildings (net)				650,000	605,000
Equipment (net)				465,000	470,000
Totals				2,615,000	2,855,000
				Jan. 1	Dec. 31
Short-Term Accounts and notes				295,000	210,000
Long-Term Notes (600,000 issued
September 1, 2000, 80,000 issued
July 1, 2008)				600,000	680,000
Common Stock				800,000	800,000
Additional Paid-n Captial				200,000	200,000
Retaned Earnings				720,000	965,000
Total				2,615,000	2,855,000
		Vemtama Grains
	Consolidated inome and Retained Earnings Statement
	for the year Ended December 31, 2008
Revenues					3,225,000
Cost of Goods Sold:
Beginning Inventory				600,000
Purchased				2,100,000
Goods Availabe for sale				2,700,000
Less: Ending Inventory				500,000
Cost of Goods Sold					2,200,000
Gross Profit on Sales					1,025,000
Depreciation Expense				140,000
Other Expenses				540,000	680,000
Net Income					345,000
Jan. 1 Retained Earnings					720,000
Total					1,065,000
Less: Dividends Paid					100,000
D Retained Earningsec 31					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					Exchange Rate
1-Jan-94					$0.80
1-Sep-04					0.5813
1-Jan-08					0.7924
1-Jul-08					0.7412
31-Dec-08					0.7298
Average for 2008					0.748
Average for the last four months of 2008					0.7476
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 mad 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				45,000
		Equipment- Purchased before 1/1/08				85,000
		Equipment-Purchased July 1, 2008				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 Decemer 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.