Remeasurement of financial statements Assume that your company owns a subsidiary operating in Great Britain. The subsidiary has adopted the British pound (GBP) as its functional currency. Your parent company operates this subsidiary like a division or a branch office, making all of its operating decisions, including pricing of its products. You conclude, therefore, that the functional currency of this subsidiary is the $US and that its financial statements must be remeasured prior to consolidation. The subsidiary's financial statements (in GBP) for the most recent year follow in part a. below: The relevant exchange rates for the $US value of the British pound (GBP) are as follows: BOY rate $1.41 EOY rate $1.48 Avg. rate $1.44 Dividend rate $1.45 Historical rates: Beginning inventory $1.41 Land $1.45 Building $1.45 Equipment $1.45 Historical rate (common stock and APIC) $1.15 For parts a. and b. below, use a negative sign with answers to indicate a reduction. a. Remeasure the subsidiary's income statement, statement of retained earnings, and balance sheet into $US for the current year (assume that the BOY Retained Earnings is $3,011,868). Round all answers in the "In US Dollars" column to the nearest dollar. Remeasure Rate In US Dollars A Beginning inventory Purchases Ending inventory Cost of goods sold Land Building Accum.deprec.-building Equipment Accum.deprec.-equipment Property, plant, and equipment (PPE), net Depreciation expense-building Depreciation expense-equipment Depreciation expense Income statement: Sales Cost of goods sold Gross profit Operating expenses Depreciation (in GBP) 931,250 2,436,250 (1,117,500) 2,250,000 817,000 1,500,000 (750,000) 1,000,000 (500,000) 2,067,000 75,000 100,000 175,000 $ 3,750,000 (2,250,000) 1,500,000 (800,000) (175,000) Depreciation (175,000) 525,000 1,968,750 525,000 (52,500) 2,441,250 Net income Statement of retained earnings: BOY retained earnings Net income Dividends Ending retained earnings Balance sheet: Assets Cash Accounts receivable Inventory Property, plant, and equipment (PPE), net Total assets Liabilities and stockholders' equity Current liabilities Long-term liabilities Common stock APIC Retained earnings Total liabilities and equity 1,067,250 870,000 1,117,500 2,067,000 5,121,750 636,000 1,482,000 250,000 312,500 2,441,250 5,121,750 b. Compute the remeasurement gain or loss directly assuming BOY net monetary assets of GBP (642,000), a net monetary liability. Round all answers to the nearest dollar. Change in net monetary assets: Chg net monetary assets x (EOY - Avg exchange rate)
