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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.

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 $1.42
EOY rate $1.49
Avg. rate $1.45
PPE purchase date rate $1.46
LTD borrowing date rate $1.46
Dividend rate $1.47
Historical rate (common stock and APIC) $1.07

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?

BOY Net assets x EOY -BOY Exchange rates
Net income x EOY -Avg. Exchange rates
Dividends x EOY -Div. Exchange rates
current year translation adjustment
BOY Cumulative Translation Adjustment
EOY Cumulative Translation Adjustment

. 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 the subsidiary included an AAP asset relating to Land that the parent estimated was worth GBP400,000 more than its book value on the subsidiarys balance sheet. Confirm the balance of the Equity Investment account of $5,608,658 on the parents balance sheet.

Equity Investment
BOY Common stock Answer

Answer

BOY APIC Answer

Answer

BOY Retained earnings Answer

Answer

BOY AAP Answer

Answer

Answer

Answer

BOY CTA
Equity income Answer

Answer

Dividends
Current translation adjustment Answer

Answer

AAP Translation adjustment (AOCI) Answer

Answer

Balance Answer

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