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 () as its functional currency.

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 () into $US (assume that the BOY Retained Earnings for the subsidiary is $1,960,690).

The relevant exchange rates ($:1) are as follows:

BOY rate	$1.90
EOY rate	$2.00
Avg. rate	$1.95
PPE purchase date rate	$1.96
LTD borrowing date rate	$1.97
Dividend rate	$1.98
Historical rate (common stock and APIC)	$1.70

Please answer parts B, C, and D

(in ) Translation Rate In US Dollars Income Statement: $ 2,100,000 (1,260,000) 840,000 1.95 1.95 4,095,000 (2,457,000) 1,638,000 (1,064,700) 573,300 1.95 (546,000) 294,000 $ Sales Cost of goods sold Gross profit Operating expenses Net income Statement of retained earnings: BOY ret. earnings Net income Dividends EOY ret. earnings Balance sheet: Assets $ 1,102,500 294,000 1,960,690 573,300 (58,212) 2,475,778 1.98 (29,400) 1,367,100 $ Cash 2 $ 597,660 487,200 N N 625,800 1,157,520 2,868,180 1,195,320 974,400 1,251,600 2,315,040 5,736,360 N $ Accounts receivable Inventory Property, plant, and equipment (PPE), net Total assets Liabilities and stockholders' equity Current liabilities Long-term liabilities Common stock APIC 356,160 2 $ 829,920 140,000 175,000 1,367,100 1.7 1.7 712,320 1,659,840 238,000 297,500 2,475,778 (352,922) 5,736,360 - Ret. earnings Cumulative translation adjustment Total liabilities and equity Statement of cash flows: 2,868,180 $ 1.95 $ 1.95 1.95 1.95 573,300 (158,340) (203,385) 115,752 327,327 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 294,000 (81,200) (104,300) 59,360 167,860 (107,520) (107,520) 138,320 (29,400) 108,920 169,260 1.96 1.97 1.98 210,739 210,739 272,490 58,212 214,278 752,345 (370,985) 813,960 1,195,320 1.9 428,400 597,660 $ b. Compute the ending Cumulative Translation Adjustment directly, assuming a BOY balance of $197,060. What journal entry did the parent company make as a result of this computation? $ Direct computation of translation adjustment: BOY net assets x (EOY - BOY exchange rates) Net income x (EOY - Average exchange rate) Dividends x (EOY - Dividend exchange rate) 286,818 14,700 (588) 300,930 197,060 497,990 BOY cumulative translation adjustment EOY cumulative translation adjustment $ General Journal Description Debit Credit To record the translation adjustment for the year C. Selected financial statement accounts for the parent follow in d. below: Assume the following information: The purchase price for the subsidiary included an AAP asset relating to Land that the parent estimated was worth 200,000 more than its book value on the subsidiary's balance sheet. The exchange rate in effect when the subsidiary was acquired was $1.70:1. Compute the balance of the Equity Investment account of $3,764,200 on the parent's balance sheet. Equity Investment BOY Common stock BOY APIC BOY Retained earnings BOY AAP O Dividends BOY Cumulative translation adjustment Equity income Current translation adjustment AAP Translation adjustment (AOCI) Balance 0 3,764,200 d. Prepare the consolidation spreadsheet for the year. Elimination Entries Dr Cr Parent Sub Consolidated $ 4,095,000 (2,457,000) 1,638,000 13,305,000 (8,904,000) 4,401,000 $ $9,210,000 $ (6,447,000) 2,763,000 573,300 (1,749,900) $1,586,400 $ [C] (2,814,600) (1,064,700) 573,300 Income statement: Sales Cost of goods sold Gross profit Equity income Operating expenses Net income Statement of retained earnings: BOY retained earnings Net income Dividends EOY retained earnings Statement of Accumulated Comprehensive Income: BOY cumulative translation adjustment Current-year translation gain (loss) EOY cumulative translation adjustment Balance sheet: Assets 2,159,700 $7,932,000 $ 1,586,400 (317,280) $9,201,120 $ 1,960,690 [E] 573,300 (58,212) 2,475,778 0 [C] 0 $197,060 $ 175,862 372,922 $ 0 [E] 0 [C] 0 0 [D] 0 Cash $ $ Accounts receivable Inventory Equity investment $482,908 $ 1,178,880 1,786,740 3,764,200 1,195,320 974,400 1,251,600 1,678,228 2,153,280 3,038,340 0 O [C] Property, plant and equipment (PPE), net 9,515,772 2,315,040 [A] [D] $16,728,500 $ 5,736,360 1,450,041 2,159,840 Total assets Liabilities and stockholders' equity Current liabilities Long-term liabilities Common stock APIC Retained earnings Cumulative translation adjustment Total liabilities and equity 737,721 500,000 1,045,690 4,871,047 9,201,120 372,922 $16,728,500 $ 712,320 1,659,840 238,000 [E] 297,500 [E] 2,475,778 (352,922) 5,736,360 0 11,676,898 20,000 0 $ 0 $ $ Please answer all parts of the question. (in ) Translation Rate In US Dollars Income Statement: $ 2,100,000 (1,260,000) 840,000 1.95 1.95 4,095,000 (2,457,000) 1,638,000 (1,064,700) 573,300 1.95 (546,000) 294,000 $ Sales Cost of goods sold Gross profit Operating expenses Net income Statement of retained earnings: BOY ret. earnings Net income Dividends EOY ret. earnings Balance sheet: Assets $ 1,102,500 294,000 1,960,690 573,300 (58,212) 2,475,778 1.98 (29,400) 1,367,100 $ Cash 2 $ 597,660 487,200 N N 625,800 1,157,520 2,868,180 1,195,320 974,400 1,251,600 2,315,040 5,736,360 N $ Accounts receivable Inventory Property, plant, and equipment (PPE), net Total assets Liabilities and stockholders' equity Current liabilities Long-term liabilities Common stock APIC 356,160 2 $ 829,920 140,000 175,000 1,367,100 1.7 1.7 712,320 1,659,840 238,000 297,500 2,475,778 (352,922) 5,736,360 - Ret. earnings Cumulative translation adjustment Total liabilities and equity Statement of cash flows: 2,868,180 $ 1.95 $ 1.95 1.95 1.95 573,300 (158,340) (203,385) 115,752 327,327 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 294,000 (81,200) (104,300) 59,360 167,860 (107,520) (107,520) 138,320 (29,400) 108,920 169,260 1.96 1.97 1.98 210,739 210,739 272,490 58,212 214,278 752,345 (370,985) 813,960 1,195,320 1.9 428,400 597,660 $ b. Compute the ending Cumulative Translation Adjustment directly, assuming a BOY balance of $197,060. What journal entry did the parent company make as a result of this computation? $ Direct computation of translation adjustment: BOY net assets x (EOY - BOY exchange rates) Net income x (EOY - Average exchange rate) Dividends x (EOY - Dividend exchange rate) 286,818 14,700 (588) 300,930 197,060 497,990 BOY cumulative translation adjustment EOY cumulative translation adjustment $ General Journal Description Debit Credit To record the translation adjustment for the year C. Selected financial statement accounts for the parent follow in d. below: Assume the following information: The purchase price for the subsidiary included an AAP asset relating to Land that the parent estimated was worth 200,000 more than its book value on the subsidiary's balance sheet. The exchange rate in effect when the subsidiary was acquired was $1.70:1. Compute the balance of the Equity Investment account of $3,764,200 on the parent's balance sheet. Equity Investment BOY Common stock BOY APIC BOY Retained earnings BOY AAP O Dividends BOY Cumulative translation adjustment Equity income Current translation adjustment AAP Translation adjustment (AOCI) Balance 0 3,764,200 d. Prepare the consolidation spreadsheet for the year. Elimination Entries Dr Cr Parent Sub Consolidated $ 4,095,000 (2,457,000) 1,638,000 13,305,000 (8,904,000) 4,401,000 $ $9,210,000 $ (6,447,000) 2,763,000 573,300 (1,749,900) $1,586,400 $ [C] (2,814,600) (1,064,700) 573,300 Income statement: Sales Cost of goods sold Gross profit Equity income Operating expenses Net income Statement of retained earnings: BOY retained earnings Net income Dividends EOY retained earnings Statement of Accumulated Comprehensive Income: BOY cumulative translation adjustment Current-year translation gain (loss) EOY cumulative translation adjustment Balance sheet: Assets 2,159,700 $7,932,000 $ 1,586,400 (317,280) $9,201,120 $ 1,960,690 [E] 573,300 (58,212) 2,475,778 0 [C] 0 $197,060 $ 175,862 372,922 $ 0 [E] 0 [C] 0 0 [D] 0 Cash $ $ Accounts receivable Inventory Equity investment $482,908 $ 1,178,880 1,786,740 3,764,200 1,195,320 974,400 1,251,600 1,678,228 2,153,280 3,038,340 0 O [C] Property, plant and equipment (PPE), net 9,515,772 2,315,040 [A] [D] $16,728,500 $ 5,736,360 1,450,041 2,159,840 Total assets Liabilities and stockholders' equity Current liabilities Long-term liabilities Common stock APIC Retained earnings Cumulative translation adjustment Total liabilities and equity 737,721 500,000 1,045,690 4,871,047 9,201,120 372,922 $16,728,500 $ 712,320 1,659,840 238,000 [E] 297,500 [E] 2,475,778 (352,922) 5,736,360 0 11,676,898 20,000 0 $ 0 $ $ Please answer all parts of the