Read (and reread) these instructions carefully.

The spreadsheet included in Connect with this assignment has three worksheet tabs:

Tab 1 Your Information: In the space provided, enter your student ID number and your name. Read the statement in the yellow text box and make sure you abide by that.

Tab 2 Part 1: This is a currency related exercise. Information you need is provided below.

Tab 3 Part 2: This is a consolidation exercise. Additional information you need is provided below. Note that Parts 1 and 2 are independent of each other. Do not try to make connections between the two, there are none.

Information for Part 1

A statement of financial position and a statement of income are provided for Euro Subsidiary. The amounts shown are presented in Euros (). You learn the following about Euro Subsidiary:

The companys functional currency is the Euro.

The parent companys reporting currency is the US dollar.

Euro Subsidiary began business January 2015.

Exchange rates are as follows (assume these are correct, dont look them up!). The chart shows the number of US dollars one Euro is worth, January each year 2015-2020, and June and December 31 (assumed) for 2020. So, on January 1, 2015, 1 Euro is worth $1.20. Do not look for more information on exchange rates, use only the ones provided in the table.

Assume all of the common stock was issued/sold at the start of business in 2015. Assume all property, plant, and equipment, and the patents were purchased at the start of business 2015, too. You can reasonably assume that revenues and expenses occurred evenly throughout the year 2020.

You can also assume that retained earnings from earlier years was earned evenly over the years 2015-2019.

Jan-15 1.20 Jan-16 1.08 Jan-17 1.05 Jan-18 1.21 Jan-19 1.15 Jan-20 1.12 Jun-20 1.14 Dec-20 1.22

Required for Part 1

A. Determine appropriate exchange rates to translate/remeasure (which is it?) from Euros to dollars. You will need to make some assumptions in doing this and I expect there will be different answers.

B. Translate/remeasure (which is it?) Euro Subsidiarys statement of financial position and statement of income to U.S. dollars. I dont include a statement of comprehensive income, if you need to reflect something in that statement, just make a note of it. (Theres another hint!)

C. The end result should be a US dollar statement of financial position and statement of income, just those two (no cash flow, no statement of stockholders equity).

D. You must show me the rates you used, and if a calculation was involved, I must be able to review that calculation (calculating an average rate, for example, yet another hint). Using a formula in Excel is sufficient, as I can review the formula. I would prefer that you use formulas, by the way. And just to emphasize, this part is completely separate from Part 2. And to be honest, these instructions make the problem sound much more complex than it is! Exhibit 10.1 in the textbook is a great reference.

Keep reading for Part 2

Information for Part 2

In this part, you are consolidating BigUSA and Small Sub. And again, this part is not connected in any way to Part 1.

Information for Part 2

BigUSA owns 100% of the outstanding common stock of Small Sub.

Small Sub was acquired by BigUSA a few years ago (hint: this is not an acquisition accounting exercise). Inventory Transactions

During the year the two companies sold inventory to each other as follows: BigUSA sold products to Small Sub in the amount of $125,000,000. BigUSAs gross profit on those sales was $38,000,000. Well refer to this as Big to Small inventory. Small Sub sold products to BigUSA in the amount of $39,000,000. Small Subs gross profit on those sales was $12,000,000. Well refer to this as Small to Big inventory. As of December 31, 2020, all of the Big to Small inventory had been sold to outside customers. At that date, $17,000,000 of Small to Big inventory was still in BigUSAs inventory. Asset Transactions

At the beginning of 2020, Small Sub sold a machine to BigUSA. The selling price (which was paid) was $5,500,000 (which approximated market value at the time). Small Sub book value of the machine was $12,000,000 cost and $8,000,000 accumulated depreciation. Small Sub recognized a gain on the difference, including it in Other Income. Small Sub was depreciating the machine over 6 years, using straight-line depreciation with no salvage value. BigUSA is depreciating the machine over 3 years (straight-line, no salvage value). Other Transactions.

BigUSA charges Small Sub a management fee (for various services) in the amount of $1,500,000 for the year 2020. BigUSA includes the fee income in Other Income. Small Sub includes the expense in Administrative expenses.

Required for Part 2

A. Prepare a consolidated statement of financial position and a consolidated statement of income for BigUSA and Small Sub. Use the spreadsheet format, you do not need to create financial statements other than in a worksheet format.

B. I suggest you use the format in the spreadsheet, but if you wish to do something different, you may. But the end result must be consolidated financial statements.

C. Your consolidation must factor in the information provided above. Hint/Tip: Dont try to use all of the tools youve developed this semester. This is not an acquisition accounting problem. Part 2 is not a currency problem (thats in Part 1). I say this because Ive seen students make that mistake dont!

-0.000.000 Euro Subsidiary Functional Currency is the Euro Data presented is as of 12/31/20 and for the year then ended. Amounts are in Euros Statement of Financial Position Balance, 12/31/2020 Cash 27,000,000 Accounts receivable 82,000,000 Inventory 10 118.000.000 00000 22.000.000 Other current assets 249.000.000 Land Building 190,000,000 Machinery 375.000.000 Accumulated depreciation (165.000.000) 428.000.000 Patents, net of amortization 85,000,000 Total Assets 762.000.000 Accounts payable Accrued expenses Income taxes payable 15.000.000 42.000.000 55,000,000 112.000.000 Long-term debt 180,000,000 Common stock Additional paid-in capital Accumulated Currency Adjust. Retained carnings 15,000,000 170,000,000 (79,000,000) 364.000.000 470.000.000 Total Liabilities and Equity 762.000.000 Amounts are in Euros Statement of Income Year ended 12/31/2020 Sales 1,050,000,000 Cost of Goods Sold 580.000.000 Gross Profit 470.000.000 Expenses: Administrative Selling and Marketing Technical and Research Amortization Other (income) expense Income before tax 130,000,000 175.000.000 85.000.000 7.000.000 (7.200,000) 80.200.000 Tax provision 22.100,000 Net Income 58.100,000 BigUSA Company Consolidation Worksheet Data presented is as of 12/31/20 and for the year then ended. Cash Accounts receivable Inventory Other current assets Amounts are in US Dollars Statement of Financial Position BigUSA 12/31/2020 $ 301.000.000 $ 785.000.000 1.216.900.000 260.000.000 200 000 - 2.562.900.000 Swan 301.000.000 2,100,000,000 4,205.000.000 (1,782.000.000) 4,824.000.000 475,000,000 513,100,000 $ 8,375,000,000 $ Small Sub 12/31/2020 38.500.000 96.000.000 165.400,000 31.200.000 331,100,000 26,000,000 www.my 271,500,000 529.300,000 (287.400,000) 539.400,000 68,700,000 Land Building Machinery Accumulated depreciation Patents, net of amortization Investment in Small Sub Total Assets 939.200.000 $ $ Accounts payable Accrued expenses Income taxes payable 162.000.000 458,000,000 349,000,000 969,000,000 23.700.000 58,300,000 44.100.000 126,100,000 Long-term debt 2,384.000.000 300,000,000 162.000.000 1.836.000.000 Common stock Additional paid-in capital Accumulated Currency Adjust. Retained earnings 20.200,000 220.700.000 (63.200,000) 335.400.000 513.100.000 3,024.000.000 5,022.000.000 Total Liabilities and Equity $ 8,375.000.000 $ 939.200,000 Year ended 12/31/2020 Year ended 12/31/2020 Sales $ 13,125,000,000 $ 1,651,125,000 Cost of Goods Sold 7,250,000,000 912.050,000 Gross Profit 5,875.000.000 739,075,000 Expenses: Administrative Selling and Marketing Technical and Research 1,625.000.000 2.187.500.000 1.062.500.000 87.500.000 (8.475.000) (83.075.000) 1,004,050.000 201.600.000 275.900.000 134.100.000 12.000.000 (2.500,000) Amortization Other Income Equity Method Income Income before tax 117.975,000 Tax provision 273.600.000 34.900,000 Net Income $ 730.450.000 $ $ 83.075,000 -0.000.000 Euro Subsidiary Functional Currency is the Euro Data presented is as of 12/31/20 and for the year then ended. Amounts are in Euros Statement of Financial Position Balance, 12/31/2020 Cash 27,000,000 Accounts receivable 82,000,000 Inventory 10 118.000.000 00000 22.000.000 Other current assets 249.000.000 Land Building 190,000,000 Machinery 375.000.000 Accumulated depreciation (165.000.000) 428.000.000 Patents, net of amortization 85,000,000 Total Assets 762.000.000 Accounts payable Accrued expenses Income taxes payable 15.000.000 42.000.000 55,000,000 112.000.000 Long-term debt 180,000,000 Common stock Additional paid-in capital Accumulated Currency Adjust. Retained carnings 15,000,000 170,000,000 (79,000,000) 364.000.000 470.000.000 Total Liabilities and Equity 762.000.000 Amounts are in Euros Statement of Income Year ended 12/31/2020 Sales 1,050,000,000 Cost of Goods Sold 580.000.000 Gross Profit 470.000.000 Expenses: Administrative Selling and Marketing Technical and Research Amortization Other (income) expense Income before tax 130,000,000 175.000.000 85.000.000 7.000.000 (7.200,000) 80.200.000 Tax provision 22.100,000 Net Income 58.100,000 BigUSA Company Consolidation Worksheet Data presented is as of 12/31/20 and for the year then ended. Cash Accounts receivable Inventory Other current assets Amounts are in US Dollars Statement of Financial Position BigUSA 12/31/2020 $ 301.000.000 $ 785.000.000 1.216.900.000 260.000.000 200 000 - 2.562.900.000 Swan 301.000.000 2,100,000,000 4,205.000.000 (1,782.000.000) 4,824.000.000 475,000,000 513,100,000 $ 8,375,000,000 $ Small Sub 12/31/2020 38.500.000 96.000.000 165.400,000 31.200.000 331,100,000 26,000,000 www.my 271,500,000 529.300,000 (287.400,000) 539.400,000 68,700,000 Land Building Machinery Accumulated depreciation Patents, net of amortization Investment in Small Sub Total Assets 939.200.000 $ $ Accounts payable Accrued expenses Income taxes payable 162.000.000 458,000,000 349,000,000 969,000,000 23.700.000 58,300,000 44.100.000 126,100,000 Long-term debt 2,384.000.000 300,000,000 162.000.000 1.836.000.000 Common stock Additional paid-in capital Accumulated Currency Adjust. Retained earnings 20.200,000 220.700.000 (63.200,000) 335.400.000 513.100.000 3,024.000.000 5,022.000.000 Total Liabilities and Equity $ 8,375.000.000 $ 939.200,000 Year ended 12/31/2020 Year ended 12/31/2020 Sales $ 13,125,000,000 $ 1,651,125,000 Cost of Goods Sold 7,250,000,000 912.050,000 Gross Profit 5,875.000.000 739,075,000 Expenses: Administrative Selling and Marketing Technical and Research 1,625.000.000 2.187.500.000 1.062.500.000 87.500.000 (8.475.000) (83.075.000) 1,004,050.000 201.600.000 275.900.000 134.100.000 12.000.000 (2.500,000) Amortization Other Income Equity Method Income Income before tax 117.975,000 Tax provision 273.600.000 34.900,000 Net Income $ 730.450.000 $ $ 83.075,000