Translation of financial statements (2 years)

Assume that your company owns a subsidiary operating in Germany. The subsidiary conducts most of its business activities in the European Economic Union and maintains it books in the Euro as its functional currency. Following are the subsidiary's financial statements (in ) for the prior and most recent years:

The relevant exchange rates for the $US value of the Euro () are as follows:

	Prior Year	Current Year
BOY rate	$1.29	$1.21
EOY rate	$1.21	$1.15
Avg. rate	$1.25	$1.18
PPE purchase date rate		$1.17
LTD borrowing date rate		$1.17
Dividend rate	$1.22	$1.16
Historical rate (common stock and APIC)	$1.41	$1.41

a. Translate the subsidiary's income statement, statement of retained earnings, and balance sheet into $US for both years (assume that the BOY Retained Earnings for the prior year is $1,170,000).

Instructions:

• Round translated answers to the nearest whole number.
• Use negative signs with answers that are reductions (COGS, expenses, dividends, cash outflows, losses, etc.).

Prior Year

Income Statement:	(In )	Translation Rate	(In $)
Sales	4,875,000	Answer	Answer
Cost of goods sold	(2,925,000)	Answer	Answer
Gross Profit	1,950,000		Answer
Operating expenses	(1,267,500)	Answer	Answer
Net income	682,500		Answer
Statement of retained earnings:
BOY retained earnings	2,457,000		$ 1,170,000
Net income	682,500		Answer
Dividends	(68,400)	Answer	Answer
Ending retained earnings	3,071,100		Answer
Balance sheet:
Assets
Cash	620,800	Answer	Answer
Accounts receivable	1,131,000	Answer	Answer
Inventory	1,452,700	Answer	Answer
PPE, net	3,497,500	Answer	Answer
Total assets	6,702,000		Answer
Liabilities and stockholders' equity
Current liabilities	826,800	Answer	Answer
Long-Term liabilities	1,926,600	Answer	Answer
Common Stock	390,000	Answer	Answer
APIC	487,500	Answer	Answer
Retained earnings	3,071,100		Answer
Cumulative translation adjustment			Answer
Total liabilities & equity	6,702,000		Answer

Current Year

Income Statement:	(In )	Translation Rate	(In $)
Sales	5,850,000	Answer	Answer
Cost of goods sold	(3,510,000)	Answer	Answer
Gross profit	2,340,000		Answer
Operating expenses	(1,521,000)	Answer	Answer
Net income	819,000		Answer
Statement of retained earnings:
BOY retained earnings	3,071,100		Answer
Net income	819,000		Answer
Dividends	(81,900)	Answer	Answer
Ending retained earnings	3,808,200		Answer
Balance sheet
Assets
Cash	1,664,700	Answer	Answer
Accounts receivable	1,357,200	Answer	Answer
Inventory	1,743,300	Answer	Answer
PPE, net	3,224,500	Answer	Answer
Total assets	7,989,700		Answer
Liabilities and stockholders' equity
Current liabilities	992,100	Answer	Answer
Long-term liabilities	2,311,900	Answer	Answer
Common stock	390,000	Answer	Answer
APIC	487,500	Answer	Answer
Retained earnings	3,808,200		Answer
Cumulative translation adjustment			Answer
Total liabilities & equity	7,989,700		Answer
Statement of cash flows:
Net income	819,000		Answer
Change in accounts receivable	(226,200)	Answer	Answer
Change in inventories	(290,600)	Answer	Answer
Change in current liabilities	165,300	Answer	Answer
Net cash flows from operating activities	467,500		Answer
Change in PPE, net	273,000	Answer	Answer
Net cash flows from investing activities	273,000		Answer
Change in long-term debt	385,300	Answer	Answer
Dividends	(81,900)	Answer	Answer
Net cash flows from financing activities	303,400		Answer
Net change in cash	1,043,900		Answer
Effect of exchange rate on cash			Answer
Beginning cash	620,800	Answer	Answer
Ending cash	1,664,700	Answer	Answer

b. Compute the ending Cumulative Translation Adjustment directly for the current year.

Note:Use negative signs with answers, when appropriate.

Direct computation of translation adjustment:
BOY Net assets x EOY -BOY Exchange rates	Answer
Net income x EOY -Avg. Exchange rates	Answer
Dividends x EOY -Dividend Exchange rates	Answer
	Answer
BOY Cumulative Translation Adjustment	Answer
EOY Cumulative Translation Adjustment	Answer