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STATEMENT OF INCOME AND RETAINED EARNINGS For the Year Ending December 31, Year 2 Sales PLN 12,500,000 Cost of goods sold (6,000,000) Depreciation expense-equipment (1,250,000) Depreciation expense-building (900,000) Research and development expense (600,000) Other expenses (including taxes) (500,000) Net income PLN 3,250,000 Plus: Retained earnings, 1/1/Y2 250,000 Less: Dividends, Year 2 (750,000) Retained earnings, 12/31/Y2 PLN 2,750,000Additional 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 xed assets were on the books when the subsidiary was acquired except for PLN 2,500,000 of equipment, which was acquired on Janualy 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 $0.11. Equipment is depreciated on a straightline basis over 10 years. Buildings are depreciated on a straight-line basis over 40 years. A full year's 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. Page 325 . Other exchange rates for Year 2 are: January 1 $0.200 Average for the year 0.1?5 December 31 0.150