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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

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. Following are the subsidiarys financial statements (in GBP) for the most recent year:

(in GBP) (in GBP) (in GBP)
Income Statement: Balance Sheet: Statement of Cash Flows:
Sales 2,730,000 Assets Net Income 382,200
Cost of Goods Sold (1,638,000) Cash 776,958 Change in accounts receivable (105,560)
Gross profit 1,092,000 Accounts receivable 633,360 Change in inventories (135,590)
Operating expenses (709,800) Inventory 813,540 Change in current liabilities 77,168
Net income 382,200 Property, plant, and Net cash from operating activities 218,218
equipment (PPE), net 1,504,776
Total assets 3,728,634
Statement of retained earnings: Change in PPE, net (139,776)
BOY ret. earnings 1,433,250 Liabilities and stockholders equity Net cash from investing activities (139,776)
Net income 382,200 Curr. liabilities 463,008
Dividends (38,220) L-T liabilities 1,078,896 Change in long-term debt 179,816
EOY ret. earnings 1,777,230 Common stock 182,000 Dividends (38,220)
APIC 227,500 Net cash from financing activities 141,596
Ret. earnings 1,777,230
Total liabilities and equity 3,728,634 Net change in cash 220,038
Beginning cash 556,920
Ending cash 776,958

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

BOY rate $1.50
EOY rate $1.57
Avg. rate $1.53
PPE purchase date rate $1.54
LTD borrowing date rate $1.54
Dividend rate $1.55
Historical rate (common stock and APIC)

$0.60

b. Compute the ending Cumulative Translation Adjustment directly, assuming a BOY balance of $(17,474). 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:
AnswerEquity InvestmentCumulative Translation AdjustmentBOY cumulative translation adjustmentBOY net assets x (EOY - BOY exchange rates)BOY net assets x BOY exchange rateNet income x (EOY - Average exchange rate)Net income x average exchange rateDividends x (EOY - Dividend exchange rate)Dividends x dividend exchange rateEOY net assets x EOY exchange rateEOY cumulative translation adjustmentTranslation adjustment for the year

$Answer

Net income x (EOY - Average exchange rate) Answer

AnswerEquity InvestmentCumulative Translation AdjustmentBOY cumulative translation adjustmentBOY net assets x (EOY - BOY exchange rates)BOY net assets x BOY exchange rateNet income x (EOY - Average exchange rate)Net income x average exchange rateDividends x (EOY - Dividend exchange rate)Dividends x dividend exchange rateEOY net assets x EOY exchange rateEOY cumulative translation adjustmentTranslation adjustment for the year

Answer

Answer

AnswerEquity InvestmentCumulative Translation AdjustmentBOY cumulative translation adjustmentBOY net assets x (EOY - BOY exchange rates)BOY net assets x BOY exchange rateNet income x (EOY - Average exchange rate)Net income x average exchange rateDividends x (EOY - Dividend exchange rate)Dividends x dividend exchange rateEOY net assets x EOY exchange rateEOY cumulative translation adjustmentTranslation adjustment for the year

Answer

EOY cumulative translation adjustment $Answer

General Journal
Description Debit Credit
AnswerEquity InvestmentCumulative Translation AdjustmentBOY cumulative translation adjustmentBOY net assets x (EOY - BOY exchange rates)BOY net assets x BOY exchange rateNet income x (EOY - Average exchange rate)Net income x average exchange rateDividends x (EOY - Dividend exchange rate)Dividends x dividend exchange rateEOY net assets x EOY exchange rateEOY cumulative translation adjustmentTranslation adjustment for the year

Answer

Answer

AnswerEquity InvestmentCumulative Translation AdjustmentBOY cumulative translation adjustmentBOY net assets x (EOY - BOY exchange rates)BOY net assets x BOY exchange rateNet income x (EOY - Average exchange rate)Net income x average exchange rateDividends x (EOY - Dividend exchange rate)Dividends x dividend exchange rateEOY net assets x EOY exchange rateEOY cumulative translation adjustmentTranslation adjustment for the year

Answer

Answer

To record the translation adjustment for the year

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