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\mathrm{.}42$

EOY rate $$1\mathrm{.}49$

Avg. rate $$1\mathrm{.}45$

PPE purchase date rate $$1\mathrm{.}46$

LTD borrowing date rate $$1\mathrm{.}46$

Dividend rate $$1\mathrm{.}47$

Historical rate $($common stock and APIC$)$ $$1\mathrm{.}07$

HINT: For all parts of this problem, use a negative sign with your answers to indicate a reduction.

a$.$ Translate the subsidiary$$s income statement, statement of retained earnings, balance sheet, and statement of cash flows from British pounds $($GBP$)$ into $US $($assume that the BOY Retained Earnings for the subsidiary is $$3,901,380).$

Round answers in the $"$In US Dollars" column to the nearest whole number.

$($in GBP$)$ Translation

Rate In

US Dollars

Income Statement:

Sales $4,200,000$ Answer

$1\mathrm{.}45$

Answer

$6,090,000$

Cost of goods sold $(2,520,000)$ Answer

$1\mathrm{.}45$

Answer

$(3,654,000)$

Gross profit $1,680,000$ Answer

$2,436,000$

Operating expenses $(1,092,000)$ Answer

$1\mathrm{.}45$

Answer

$(1,583,400)$

Net income $588,000$ Answer

$852,600$

Statement of retained earnings:

BOY ret. earnings $2,545,000$ Answer

$3,901,380$

Net income $588,000$ Answer

$852,600$

Dividends $(58,800)$ Answer

$1\mathrm{.}47$

Answer

$(86,436)$

EOY ret. earnings $3,074,200$ Answer

$4,667,544$

Balance sheet:

Assets

Cash $1,195,320$ Answer

$1\mathrm{.}49$

Answer

$1,781,027$

Accounts receivable $974,400$ Answer

$1\mathrm{.}49$

Answer

$1,451,856$

Inventory $1,251,600$ Answer

$1\mathrm{.}49$

Answer

$1,864,884$

Property, plant, and equipment $($PPE$),$ net $2,315,040$ Answer

$1\mathrm{.}49$

Answer

$3,449,410$

Total assets $5,736,360$ Answer

$8,547,177$

Liabilities and stockholders' equity

Current liabilities $712,320$ Answer

$1\mathrm{.}49$

Answer

$1,061,357$

Long$-$term liabilities $1,659,840$ Answer

$1\mathrm{.}49$

Answer

$2,473,162$

Common stock $130,000$ Answer

$1\mathrm{.}07$

Answer

$139,100$

APIC $160,000$ Answer

$1\mathrm{.}07$

Answer

$171,200$

Ret. earnings $3,074,200$ Answer

$4,667,544$

Answer

Cumulative translation adjustment

Answer

$34,814$

Total liabilities and equity $5,736,360$ Answer

$8,547,177$

Statement of cash flows:

Net income $588,000$ Answer

$1\mathrm{.}45$

Answer

$852,600$

Change in accounts receivable $(162,400)$ Answer

$1\mathrm{.}45$

Answer

$(235,480)$

Change in inventories $(208,600)$ Answer

$1\mathrm{.}45$

Answer

$(302,470)$

Change in current liabilities $118,720$ Answer

$1\mathrm{.}45$

Answer

$172,144$

Net cash from operating activities $335,720$ Answer

$486,794$

Change in PPE, net $(215,040)$ Answer

$1\mathrm{.}46$

Answer

$(313,958)$

Net cash from investing activities $(215,040)$ Answer

$(313,958)$

Change in long$-$term debt $276,640$ Answer

$1\mathrm{.}46$

Answer

$403,894$

Dividends $(58,800)$ Answer

$1\mathrm{.}47$

Answer

$(86,436)$

Net cash from financing activities $217,840$ Answer

$317,458$

Net change in cash $338,520$ Answer

$490,294$

Effect of exchange rate on cash Answer

$74,077$

Beginning cash $856,800$ Answer

$1\mathrm{.}42$

Answer

$1,216,656$

Ending cash $1,195,320$ Answer

$1\mathrm{.}49$

Answer

$1,781,027$

b$.$ Compute the ending Cumulative Translation Adjustment directly, assuming a BOY balance of $$(185,980).$ 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:

Answer

BOY net assets x $($EOY $-$ BOY exchange rates$)$

Answer

$198,450$

Net income x $($EOY $-$ Average exchange rate$)$ Answer

$23,520$

Answer

Dividends x $($EOY $-$ Dividend exchange rate$)$

Answer

$(1,176)$

Answer

$220,794$

Answer

BOY cumulative translation adjustment

Answer

$(185,980)$

EOY cumulative translation adjustment Answer

$34,814$

General Journal

Description Debit Credit

Answer

Equity Investment

Answer

$220,794$

Answer

$0$

Answer

Cumulative Translation Adjustment

Answer

$0$

Answer

$220,794$

To record the translation adjustment for the year

c$.$ Following are selected financial statement accounts for the parent:

Income statement: Balance sheet:

Sales $$18,420,000$ Assets

Cost of goods sold $(12,894,000)$ Cash $$1,888,528$

Gross profit $5,526,000$ Accounts receivable $2,357,760$

Equity income $852,600$ Inventory $3,573,480$

Operating expenses $(3,499,800)$ Equity investment $5,608,658$

Net income $$2,878,800$ Property, plant, and equipment $($PPE$),$ net $19,031,544$

$$32,459,970$

Statement of retained earnings:

BOY retained earnings $$15,864,000$ Liabilities and stockholders$$ equity

Net income $2,878,800$ Current liabilities $$1,475,442$

Dividends $(634,560)$ Long$-$term liabilities $1,000,000$

Ending retained earnings $$18,108,240$ Common stock $2,091,380$

APIC $9,722,094$

Statement of accum. comp. income: Retained earnings $18,108,240$

BOY cumulative translation adjustment $$(185,980)$ Cumulative translation adjustment $62,814$

Current$-$year translation gain $($loss$)248,794$ $$32,459,970$

EOY cumulative translation adjustment $$62,814$

Assume the following information: The purchase price for