Translation of financial statements and consolidation of a foreign subsidiary (amortization of AAP) Assume that your company owns a subsidiary operating in Brazil. The subsidiary maintains its books in the Brazilian real (BRL) as its functional currency. The relevant exchange rates for the $US value of the Brazilian real (BRL) are as follows: BOY rate $0.19 EOY rate $0.26 Avg. rate $0.22 PPE purchase date rate $0.23 LTD borrowing date rate $0.23 Dividend rate $0.24 Historical rate (common stock and APIC) $0.07 Round answers to the nearest dollar. Use rounded answers for subsequent calculations. Use negative signs with answers that are reductions (COGS, expenses, dividends, cash outflows, losses, etc.). a. Translate the subsidiary's income statement, statement of retained earnings, balance sheet, and statement of cash flows into $US (assume that the BOY Retained Earnings is $617,400). Use a negative sign with your answers in the "Subsidiary (in $)" column if corresponding figure in the "Subsidiary (in R$)" is shown in parenthesis. (Examples: Cost of goods sold, Operating expenses, Dividends and Changes in accounts in the Statement of Cash Flows) Subsidiary Translation Subsidiary (in R$) Rate (in $) Income statement Sales 7,350,000 $ 0.22 $ 1617000 Cost of goods sold (4,410,000) $ 0.22 -970200 Gross profit 2,940,000 646800 Operating expenses (1,911,000) $ 0.22 -420420 2.940,000 (1.911,000) $ 1,029,000 0.22 646800 -420420 226380 Gross profit Operating expenses Net income Statement of retained earnings BOY retained earnings Net income Dividends Ending retained earnings Balance sheet Assets Cash Accounts receivable Inventory Property, plant, and equipment, net 3,858,750 1,029,200 (102,900) $ 4,784,850 0.24 $617,400 226380 -24696 819084 $ 2,091,810 $ 1,705,200 $ 2,190,300 $ 4,051,320 $ 10,038,630 0.26 $ 0.26 0.26 0.26 543871 443352 569478 1053343 2610044 Liabilities and stockholders' equity Current liabilities Long-term liabilities Common stock APIC Retained earnings Cumulative translation adjustment 1,246,560 $ 2.904.720 $ 490,000 $ 612.500 $ 4,784,850 0.26 $ 0.26 0.07 0.07 324106 755227 34300 42875 617400 836136 2610044 10,038,630 $ Statement of cash flows Net income Change in accounts receivable 1,029,000 $ (284200) $ 0.22 $ 0.22 226380 -62524 Net income 1,029,000 $ 0.22 $ 226380 Change in accounts receivable (284,200) $ -62524 0.22 Change in inventories (365,050) 0.22 -80311 Change in current liabilities 0.22 45707 207,760 $ Net cash from operating activities 587,510 129252 Change in PPE, net (376,320) $ 0.23 $ -86554 Net cash from investing activities $ (376,320) -86554 Change in long-term debt 484,120 $ 0.23 $ 111348 Dividends -24696 (102,900) $ 0.24 Net cash from financing activities 86652 381,220 Net change in cash $ 592,410 130330 128655 Effect of exchange rate on cash Beginning cash 1,499,400 $ 0.19 284886 2,091,810 $ 543871 Ending cash 0.26 $ b. Compute the ending Cumulative Translation Adjustment directly, assuming a BOY balance of $248,062. What journal entry did the parent company make as a result of this computation? (in R$) Change in rate (in $) 0 $ 0 $ BOY Net assets Net income -1029000 $ 0 0 Dividends -102900 $ 0 Translation adjustment for the year $ 0 BOY Cumulative Translation Adjustment 248062 EOY Cumulative Translation Adjustment 0 (in R$) change in rate (in $) 0 $ BOY Net assets 0 $ 0 Net income -1029000$ 0 0 Dividends -102900$ Translation adjustment for the year 0 BOY Cumulative Translation Adjustment 248062 EOY Cumulative Translation Adjustment 0 General Journal Description Debit Credit Equity investment 0 0 Other comprehensive income 0 0 To record translation adjustment for the year. c. Following are selected balance sheet accounts for the parent: Balance sheet Income statement Sales $30,310,000 Assets Cost of goods sold $7,297,685 (21,217,000) Cash Gross profit 9,093,000 Accounts receivable 3,879,680 219,780 Inventory 5,880,140 Equity income (5,758,900) Equity investment Operating expenses 1,593,111 $3,553,880 Property, plant, and equipment, net 31,316,292 Net income $49,966,908 c. Following are selected balance sheet accounts for the parent: Balance sheet Income statement Sales $30,310,000 Assets Cost of goods sold $7,297,685 (21,217,000) Cash 3,879,680 Gross profit 9,093,000 Accounts receivable 219,780 Inventory Equity income 5,880,140 Operating expenses 1,593,1 (5,758,900) Equity investment $3,553,880 Property, plant, and equipment, net 31,316,292 Net income $49,966,908 Liabilities and stockholders' equity Statement of retained earnings BOY retained earnings $23,940,718 Current liabilities $2,427,831 3,553,880 Long-term liabilities Net income 8,750,000 Dividends (957,628) Common stock 2,053,580 Ending retained earnings $26,536,970 APIC 9,546,376 Retained earnings 26,536,970 Cumulative translation adjustment Statement of accum. comp. income: 652,152 BOY cumulative translation adjustment $49,966.908 $248,062 Current-year translation gain (loss) 404,090 EOY cumulative translation adjustment $652,152 Assume the following information: The purchase price for the subsidiary included an AAP asset relating to a Patent that the parent estimated was worth BRL300,000 more than its book value on the subsidiary's balance sheet. The Patent is being amortized at the rate of BRL30,000 per year and the BOY book value of the Patent is BRL270,000. 1. Compute the balance of the Equity Investment account of $1,593,111 on the parent's balance sheet. Use a negative sign with answers that reduce the equity investment balance. Assume the following information: The purchase price for the subsidiary included an AAP asset relating to a Patent that the parent estimated was worth BRL300,000 more than its book value on the subsidiary's balance sheet. The Patent is being amortized at the rate of BRL30,000 per year and the BOY book value of the Patent is BRL270,000. 1. Compute the balance of the Equity Investment account of $1,593,111 on the parent's balance sheet. Use a negative sign with answers that reduce the equity investment balance. BOY Common stock BOY APIC BOY Retained earnings BOY Unamortized AAP BOY Cumulative translation adjustment Equity income Dividends Translation adjustment Other comprehensive income Equity investment balance $1,593,111 2. Compute the equity income of $219,780 reported by the parent in its income statement. Use a negative sign with your answer, if it reduces the income. Net income AAP amortization Equity income $219,780 Translation of financial statements and consolidation of a foreign subsidiary (amortization of AAP) Assume that your company owns a subsidiary operating in Brazil. The subsidiary maintains its books in the Brazilian real (BRL) as its functional currency. The relevant exchange rates for the $US value of the Brazilian real (BRL) are as follows: BOY rate $0.19 EOY rate $0.26 Avg. rate $0.22 PPE purchase date rate $0.23 LTD borrowing date rate $0.23 Dividend rate $0.24 Historical rate (common stock and APIC) $0.07 Round answers to the nearest dollar. Use rounded answers for subsequent calculations. Use negative signs with answers that are reductions (COGS, expenses, dividends, cash outflows, losses, etc.). a. Translate the subsidiary's income statement, statement of retained earnings, balance sheet, and statement of cash flows into $US (assume that the BOY Retained Earnings is $617,400). Use a negative sign with your answers in the "Subsidiary (in $)" column if corresponding figure in the "Subsidiary (in R$)" is shown in parenthesis. (Examples: Cost of goods sold, Operating expenses, Dividends and Changes in accounts in the Statement of Cash Flows) Subsidiary Translation Subsidiary (in R$) Rate (in $) Income statement Sales 7,350,000 $ 0.22 $ 1617000 Cost of goods sold (4,410,000) $ 0.22 -970200 Gross profit 2,940,000 646800 Operating expenses (1,911,000) $ 0.22 -420420 2.940,000 (1.911,000) $ 1,029,000 0.22 646800 -420420 226380 Gross profit Operating expenses Net income Statement of retained earnings BOY retained earnings Net income Dividends Ending retained earnings Balance sheet Assets Cash Accounts receivable Inventory Property, plant, and equipment, net 3,858,750 1,029,200 (102,900) $ 4,784,850 0.24 $617,400 226380 -24696 819084 $ 2,091,810 $ 1,705,200 $ 2,190,300 $ 4,051,320 $ 10,038,630 0.26 $ 0.26 0.26 0.26 543871 443352 569478 1053343 2610044 Liabilities and stockholders' equity Current liabilities Long-term liabilities Common stock APIC Retained earnings Cumulative translation adjustment 1,246,560 $ 2.904.720 $ 490,000 $ 612.500 $ 4,784,850 0.26 $ 0.26 0.07 0.07 324106 755227 34300 42875 617400 836136 2610044 10,038,630 $ Statement of cash flows Net income Change in accounts receivable 1,029,000 $ (284200) $ 0.22 $ 0.22 226380 -62524 Net income 1,029,000 $ 0.22 $ 226380 Change in accounts receivable (284,200) $ -62524 0.22 Change in inventories (365,050) 0.22 -80311 Change in current liabilities 0.22 45707 207,760 $ Net cash from operating activities 587,510 129252 Change in PPE, net (376,320) $ 0.23 $ -86554 Net cash from investing activities $ (376,320) -86554 Change in long-term debt 484,120 $ 0.23 $ 111348 Dividends -24696 (102,900) $ 0.24 Net cash from financing activities 86652 381,220 Net change in cash $ 592,410 130330 128655 Effect of exchange rate on cash Beginning cash 1,499,400 $ 0.19 284886 2,091,810 $ 543871 Ending cash 0.26 $ b. Compute the ending Cumulative Translation Adjustment directly, assuming a BOY balance of $248,062. What journal entry did the parent company make as a result of this computation? (in R$) Change in rate (in $) 0 $ 0 $ BOY Net assets Net income -1029000 $ 0 0 Dividends -102900 $ 0 Translation adjustment for the year $ 0 BOY Cumulative Translation Adjustment 248062 EOY Cumulative Translation Adjustment 0 (in R$) change in rate (in $) 0 $ BOY Net assets 0 $ 0 Net income -1029000$ 0 0 Dividends -102900$ Translation adjustment for the year 0 BOY Cumulative Translation Adjustment 248062 EOY Cumulative Translation Adjustment 0 General Journal Description Debit Credit Equity investment 0 0 Other comprehensive income 0 0 To record translation adjustment for the year. c. Following are selected balance sheet accounts for the parent: Balance sheet Income statement Sales $30,310,000 Assets Cost of goods sold $7,297,685 (21,217,000) Cash Gross profit 9,093,000 Accounts receivable 3,879,680 219,780 Inventory 5,880,140 Equity income (5,758,900) Equity investment Operating expenses 1,593,111 $3,553,880 Property, plant, and equipment, net 31,316,292 Net income $49,966,908 c. Following are selected balance sheet accounts for the parent: Balance sheet Income statement Sales $30,310,000 Assets Cost of goods sold $7,297,685 (21,217,000) Cash 3,879,680 Gross profit 9,093,000 Accounts receivable 219,780 Inventory Equity income 5,880,140 Operating expenses 1,593,1 (5,758,900) Equity investment $3,553,880 Property, plant, and equipment, net 31,316,292 Net income $49,966,908 Liabilities and stockholders' equity Statement of retained earnings BOY retained earnings $23,940,718 Current liabilities $2,427,831 3,553,880 Long-term liabilities Net income 8,750,000 Dividends (957,628) Common stock 2,053,580 Ending retained earnings $26,536,970 APIC 9,546,376 Retained earnings 26,536,970 Cumulative translation adjustment Statement of accum. comp. income: 652,152 BOY cumulative translation adjustment $49,966.908 $248,062 Current-year translation gain (loss) 404,090 EOY cumulative translation adjustment $652,152 Assume the following information: The purchase price for the subsidiary included an AAP asset relating to a Patent that the parent estimated was worth BRL300,000 more than its book value on the subsidiary's balance sheet. The Patent is being amortized at the rate of BRL30,000 per year and the BOY book value of the Patent is BRL270,000. 1. Compute the balance of the Equity Investment account of $1,593,111 on the parent's balance sheet. Use a negative sign with answers that reduce the equity investment balance. Assume the following information: The purchase price for the subsidiary included an AAP asset relating to a Patent that the parent estimated was worth BRL300,000 more than its book value on the subsidiary's balance sheet. The Patent is being amortized at the rate of BRL30,000 per year and the BOY book value of the Patent is BRL270,000. 1. Compute the balance of the Equity Investment account of $1,593,111 on the parent's balance sheet. Use a negative sign with answers that reduce the equity investment balance. BOY Common stock BOY APIC BOY Retained earnings BOY Unamortized AAP BOY Cumulative translation adjustment Equity income Dividends Translation adjustment Other comprehensive income Equity investment balance $1,593,111 2. Compute the equity income of $219,780 reported by the parent in its income statement. Use a negative sign with your answer, if it reduces the income. Net income AAP amortization Equity income $219,780