Translation of financial statements and consolidation of a foreign subsidiary (no amortization of AAP) Assume that your company owns a subsidiary operating in Great Britain. The subsidiary maintains its books in the British pound (GBP) as its functional currency. The relevant exchange rates for the $US value of the British pound (GBP) are as follows: BOY rate $1.45 EOY rate $1.52 Avg. rate $1.48 PPE purchase date rate $1.49 LTD borrowing date rate $1.49 Dividend rate $1.50 Historical rate (common stock and APIC) $0.55 HINT: For all parts of this problem, use a negative sign with your answers to indicate a reduction. a. Translate the subsidiary's income statement, statement of retained earnings, balance sheet, and statement of cash flows from British pounds (GBP) into $US (assume that the BOY Retained Earnings for the subsidiary is $2,926,035). Round answers in the "In US Dollars" column to the nearest whole number. Translation In (in GBP) Rate US Dollars Income Statement: Sales 3,150,000 1.48 $ 4662000 Cost of goods sold (1,890,000) 1.48 -2797200 Gross profit 1,260,000 1864800 Operating expenses (819,000) 1.48 -1212120 Net income 441,000 $ 652680 Statement of retained earnings: BOY ret. earnings 1,653,750 $ 2926035 Net income 441,000 652680 Dividends (44,100) 1.5 -66150 EOY ret. earnings 2,050,650 $ 3512565 Balance sheet: Assets Cash 896,490 1.52 $ 1362665 Accounts receivable 730,800 1.52 1110816 Inventory 938,700 1.52 1426824 Property, plant, and equipment (PPE), net 1,736,280 1.52 2639146 Total assets 4,302.270 $ 6539451 Liabilities and stockholders' equity Current liabilities 534,240 1.52 $ 812045 Long-term liabilities 1,244,880 1.52 1892218 Common stock 210,000 0.55 115500 APIC 262,500 0.55 144375 Ret. earnings 2,050,650 3512565 Cumulative translation adjustment 62748 Total liabilities and equity 4,302,270 $ 6539451 Statement of cash flows: Net income 441,000 1.48$ 652680 Change in accounts receivable (121,800) 1.48 -180264 Change in inventories (156.450) 1.48 -231546 G 652680 441,000 (44,100) 2,050,650 1.5 -66150 $ 3512565 1.52 $ 1362665 1.52 1110816 896,490 730,800 938,700 1,736,280 4,302,270 1.52 1426824 1.52 2639146 $ 6539451 1.52 812045 1892218 1.52 534,240 1,244,880 210,000 262,500 2,050,650 0.55 115500 0.55 144375 Net income Dividends EOY ret. 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 Ret. earnings Cumulative translation adjustment Total liabilities and equity Statement of cash flows: Net income Change in accounts receivable Change in inventories Change in current liabilities Net cash from operating activities Change in PPE, net Net cash from investing activities Change in long-term debt Dividends Net cash from financing activities Net change in cash Effect of exchange rate on cash Beginning cash Ending cash 3512565 62748 4,302,270 $ 6539451 1.48$ 652680 1.48 -180264 1.48 -231546 1.48 131779 372649 441,000 (121,800) (156,450) 89,040 251,790 (161,280) (161,280) 207,480 (44,100) 163,380 253,890 1.49 -240307 -240307 1.49 309145 1.5 -66150 242995 375757 X 428207 X 1.45 931770 642,600 896,490 1.52 $ 1362665 b. Compute the ending Cumulative Translation Adjustment directly, assuming a BOY balance of $(102,848). What journal entry did the parent company make as a result of this computation? Round all answers to the nearest whole number. Direct computation of translation adjustment: BOY net assets x (EOY-BOY exchange rates) - $ -7199 X Net income x (EOY - Average exchange rate) 17640 Dividends x (EOY - Dividend exchange rate) -882 BOY cumulative translation adjustment -102848 EOY cumulative translation adjustment $ OX General Journal Description Debit Credit Equity Investment 0 x 0 Cumulative Translation Adjustment 0 0 X To record the translation adjustment for the year c. Following are selected financial statement accounts for the parent: Income statement: Balance sheet: Sales $13,815,000 Assets Cost of goods sold (9,670,500) Cash Gross profit 4,144,500 Accounts receivable Equity income 652,680 Inventory Operating expenses (2,624,850) Equity investment Net income $2,172,330 Property, plant, and equipment (PPE), net $1,526,569 1,768,320 2,680,110 4,139,188 14,273,658 $24,387,845 Statement of retained earnings: BOY retained earnings Net income Dividends Ending retained earnings $11,898,000 Liabilities and stockholders' equity 2,172,330 Current liabilities (475,920) Long-term liabilities $13,594,410 Common stock APIC $1,106,582 750,000 1,568,535 7,291,571 13,594,410 76,748 $24,387,845 Statement of accum. comp. income: BOY cumulative translation adjustment Current-year translation gain (loss) EOY cumulative translation adjustment Retained earnings $(102,848) Cumulative translation adjustment 179,596 $76,748 Assume the following information: The purchase price for the subsidiary included an AAP asset relating to Land that the parent estimated was worth GBP200,000 more than its book value on the subsidiary's balance sheet. Confirm the balance of the Equity Investment account of $4,139,188 on the parent's balance sheet. Equity Investment BOY Common stock 1568535 x 0 BOY APIC 7291571 x 0 BOY Retained earnings 11898000 x 0 BOY AAP 0 X 0 BOY Cumulative translation adjustment -102848 0 Equity income * Dividends Current translation adjustment OX 0 AAP Translation adjustment (AOCI) OX 0 X Translation of financial statements and consolidation of a foreign subsidiary (no amortization of AAP) Assume that your company owns a subsidiary operating in Great Britain. The subsidiary maintains its books in the British pound (GBP) as its functional currency. The relevant exchange rates for the $US value of the British pound (GBP) are as follows: BOY rate $1.45 EOY rate $1.52 Avg. rate $1.48 PPE purchase date rate $1.49 LTD borrowing date rate $1.49 Dividend rate $1.50 Historical rate (common stock and APIC) $0.55 HINT: For all parts of this problem, use a negative sign with your answers to indicate a reduction. a. Translate the subsidiary's income statement, statement of retained earnings, balance sheet, and statement of cash flows from British pounds (GBP) into $US (assume that the BOY Retained Earnings for the subsidiary is $2,926,035). Round answers in the "In US Dollars" column to the nearest whole number. Translation In (in GBP) Rate US Dollars Income Statement: Sales 3,150,000 1.48 $ 4662000 Cost of goods sold (1,890,000) 1.48 -2797200 Gross profit 1,260,000 1864800 Operating expenses (819,000) 1.48 -1212120 Net income 441,000 $ 652680 Statement of retained earnings: BOY ret. earnings 1,653,750 $ 2926035 Net income 441,000 652680 Dividends (44,100) 1.5 -66150 EOY ret. earnings 2,050,650 $ 3512565 Balance sheet: Assets Cash 896,490 1.52 $ 1362665 Accounts receivable 730,800 1.52 1110816 Inventory 938,700 1.52 1426824 Property, plant, and equipment (PPE), net 1,736,280 1.52 2639146 Total assets 4,302.270 $ 6539451 Liabilities and stockholders' equity Current liabilities 534,240 1.52 $ 812045 Long-term liabilities 1,244,880 1.52 1892218 Common stock 210,000 0.55 115500 APIC 262,500 0.55 144375 Ret. earnings 2,050,650 3512565 Cumulative translation adjustment 62748 Total liabilities and equity 4,302,270 $ 6539451 Statement of cash flows: Net income 441,000 1.48$ 652680 Change in accounts receivable (121,800) 1.48 -180264 Change in inventories (156.450) 1.48 -231546 G 652680 441,000 (44,100) 2,050,650 1.5 -66150 $ 3512565 1.52 $ 1362665 1.52 1110816 896,490 730,800 938,700 1,736,280 4,302,270 1.52 1426824 1.52 2639146 $ 6539451 1.52 812045 1892218 1.52 534,240 1,244,880 210,000 262,500 2,050,650 0.55 115500 0.55 144375 Net income Dividends EOY ret. 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 Ret. earnings Cumulative translation adjustment Total liabilities and equity Statement of cash flows: Net income Change in accounts receivable Change in inventories Change in current liabilities Net cash from operating activities Change in PPE, net Net cash from investing activities Change in long-term debt Dividends Net cash from financing activities Net change in cash Effect of exchange rate on cash Beginning cash Ending cash 3512565 62748 4,302,270 $ 6539451 1.48$ 652680 1.48 -180264 1.48 -231546 1.48 131779 372649 441,000 (121,800) (156,450) 89,040 251,790 (161,280) (161,280) 207,480 (44,100) 163,380 253,890 1.49 -240307 -240307 1.49 309145 1.5 -66150 242995 375757 X 428207 X 1.45 931770 642,600 896,490 1.52 $ 1362665 b. Compute the ending Cumulative Translation Adjustment directly, assuming a BOY balance of $(102,848). What journal entry did the parent company make as a result of this computation? Round all answers to the nearest whole number. Direct computation of translation adjustment: BOY net assets x (EOY-BOY exchange rates) - $ -7199 X Net income x (EOY - Average exchange rate) 17640 Dividends x (EOY - Dividend exchange rate) -882 BOY cumulative translation adjustment -102848 EOY cumulative translation adjustment $ OX General Journal Description Debit Credit Equity Investment 0 x 0 Cumulative Translation Adjustment 0 0 X To record the translation adjustment for the year c. Following are selected financial statement accounts for the parent: Income statement: Balance sheet: Sales $13,815,000 Assets Cost of goods sold (9,670,500) Cash Gross profit 4,144,500 Accounts receivable Equity income 652,680 Inventory Operating expenses (2,624,850) Equity investment Net income $2,172,330 Property, plant, and equipment (PPE), net $1,526,569 1,768,320 2,680,110 4,139,188 14,273,658 $24,387,845 Statement of retained earnings: BOY retained earnings Net income Dividends Ending retained earnings $11,898,000 Liabilities and stockholders' equity 2,172,330 Current liabilities (475,920) Long-term liabilities $13,594,410 Common stock APIC $1,106,582 750,000 1,568,535 7,291,571 13,594,410 76,748 $24,387,845 Statement of accum. comp. income: BOY cumulative translation adjustment Current-year translation gain (loss) EOY cumulative translation adjustment Retained earnings $(102,848) Cumulative translation adjustment 179,596 $76,748 Assume the following information: The purchase price for the subsidiary included an AAP asset relating to Land that the parent estimated was worth GBP200,000 more than its book value on the subsidiary's balance sheet. Confirm the balance of the Equity Investment account of $4,139,188 on the parent's balance sheet. Equity Investment BOY Common stock 1568535 x 0 BOY APIC 7291571 x 0 BOY Retained earnings 11898000 x 0 BOY AAP 0 X 0 BOY Cumulative translation adjustment -102848 0 Equity income * Dividends Current translation adjustment OX 0 AAP Translation adjustment (AOCI) OX 0 X