Question
Tada Corporation was created as a wholly owned subsidiary of Emu Corporation (a U.S.-based company) on January 1, Year 1. On that date, Emu Corporation
Tada Corporation was created as a wholly owned subsidiary of Emu Corporation (a U.S.-based company) on January 1, Year 1. On that date, Emu Corporation invested $42,000 in Tampa Tada Corporations capital stock. Given the exchange rate on that date of $0.84 per cruzeiro, the initial investment of $42,000 was converted into 50,000 cruzeiros (Cz). Other than the capital investment on January 1, there were no transactions involving stockholders equity in Year 1. Tada Corporations cruzeiro-denominated financial statements for Year 2 are as follows:
Income Statement Year 2
CZ
Sales 540,000
COGS (310,000)
Gross Profit $230,000
Operating Expenses (108,000)
Income before tax 122,000
Income Taxes (40,000)
Net Income 82,000
Statement of Retained Earnings
Retained Earnings 1/1/Y2 154,000
Net Income 82,000
Dividencs (Paid 12/1/Y2) (20,000)
Retained Earnings 12/31/Y2 216,000
BALANCE SHEET December 31, Year 2
Cash 50,000
Receivables 100,000
Inventory 72,000
Plant and Equipment-net 300,000
Less Acc. Depreciation (70,000)
Total Assets 452,000
Liabilities 186,000
Capital Stock 50,000
Retained Earnings, 12/31/Y2 216,000
Total Liabilities and
Stockholders Eq. 452,000
The cruziero is the primary currency that Tada Corp uses in its day-to-day operations. The cruziero has steadily fallen in value against the dollar since Emu made the investment in the Tada Corp, on January 1, Year 1. Relevant U.S. dollar exchange rates for the cruzeiro for Years 1 and 2 are as follows:
Jan 1 Year 1 .84
Average for Year 1 .80
Dec 31, Year 1 .75
Average for Year 2 .72
Dec 1, Year 2 .71
Dec 31, Year 2 .70
Compute the translation adjustment for Year 1 and Year 2 and reconcile these amounts to the cumulative translation adjustment reported on the translated balance sheet at Dec 31m year 2.
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