Please assist with this Problem P7.5
Consolidating Foreign Currency Financial Statements P7.5 Translation and Ratio Analysis Suppose that on January 1, 2020, La-z-Boy Ine, establish subsidiary in Ireland, La-z-Boy Ireland, to design, manufacture and distribute specialized furnitur European market. Its condensed balance sheet at January 1, 2020, in euros, is below (in thousands Assets Cash Plant assets, net.... Total assets 300,000 400,000 Liabilities and equity Liabilities........................ Capital stock .. Total liabilities and equity..... 200,000 200,000 400,000 At December 31, 2020, La-Z-Boy Ireland reported the following condensed trial balance: Dr (Cr) Cash. Merchandise inventory.... Plant assets, net......... Liabilities. Capital stock ... Capital SOOR ........... Sales Cost of sales... Operating expenses...... 5,000 200,000 250,000 (220,000) (200,000) (500,000) 320,000 145,000 Total .......... No dividends were declared or paid. Relevant exchange rates are as follows: $/ January 1, 2020 ..... Average for 2020 .......... December 31, 2020 $1.30 1.10 0.90 Required a. Prepare a translated 2020 statement of comprehensive income and balance sheet for La-z-Boy Ire- land as of December 31.2020, assuming the subsidiary's functional currency is the euro Include a schedule calculating the 2020 translation adjustment. b. Assume that operating expenses include e50,000 of depreciation on the original plant assets, the merchandise inventory on hand at December 31 was acquired when the exchange rate was $0.95. and merchandise purchases and cash operating expenses were incurred evenly curred evenly during 2020. Repeat the requirements of part a, assuming the subsidiary s functional currency is the US dollar. Include a schedule calculating the 2020 remeasurement gain or loss for the year c. Compute the ratios of net income sales and net incomc/ayerage total l ow in thou in thousands) European market. Its condensed balance sheet at January 1, 2020, in euro Assets Cash Plant assets, net.... Total assets Liabilities and equity Liabilities. Capital stock ................ Total liabilities and equity........ 100,000 300,000 400.000 200.000 200.00 400.000 At December 31, 2020, La-Z-Boy Ireland reported the following condensed trial balance: Dr (Cr) Cash......... . Merchandise inventory. Plant assets, net. Liabilities.. Capital stock Sales... Cost of sales....... Operating expenses... 5,000 200,000 250.000 (220,000) (200,000) (500,000) 320,000 145,000 0 Total No dividends were declared or paid. Relevant exchange rates are as follows: SIE January 1, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... Average for 2020 .. December 31, 2020.. .. 1.10 0.90 Required a. Prepare a translated 2020 statement of comprehensive income and balance sheet for La-Z-Boy Ire- land as of December 31, 2020, assuming the subsidiary's functional currency is the euro. Include a schedule calculating the 2020 translation adjustment b. Assume that operating expenses include 50,000 of depreciation on the original plant assets, the merchandise inventory on hand at December 31 was acquired when the exchange rate was $0.95, and merchandise purchases and cash operating expenses were incurred evenly during 2020. Repeat the requirements of part a, assuming the subsidiary's functional currency is the U.S. dollar. Include a schedule calculating the 2020 remeasurement gain or loss for the year. c. Compute the ratios of net income/sales and net income/average total assets at December 31, 2020, using the euro financial statements and the translated and remeasured financial statements. Comment on the results. d. Suppose the euro continues to weaken ($/continues to decline) in subsequent years. What will hap- pen to the ratios computed in part c? Do the signals they provide indicate improving or deteriorating performance? Should La-Z-Boy's management use the ratios as justification for additional invest- ments in La-z-Boy Ireland
