Question
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) | |||||
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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
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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
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Net income x (EOY - Average exchange rate) | Answer
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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
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Answer
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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
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EOY cumulative translation adjustment | $Answer
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General Journal | ||
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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
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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
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To record the translation adjustment for the year |
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