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 $1.45 EOY rate $1.52 Avg. rate $1.48 PPE purchase date rate $1.49 LTD borrowing date rate $1.49 Dividend rate $1.50 Historical rate (common stock and APIC) $0.55 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 (GBP) into $US (assume that the BOY Retained Earnings for the subsidiary is $2,926,035). Round answers in the "In US Dollars" column to the nearest whole number. Translation Rate In US Dollars (in GBP) Income Statement: Sales 0 $ 0 0 0 3,150,000 (1,890,000) 1,260,000 (819,000) 441,000 0 0 0 $ 0 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 $ 0 0 1,653,750 441,000 (44,100) 2,050,650 0 0 $ 0 0 $ 0 Cash Accounts receivable 0 0 896,490 730,800 938,700 1,736,280 4,302,270 0 0 0 Inventory Property, plant, and equipment (PPE), net Total assets Liabilities and stockholders' equity 0 $ 0 534,240 0 $ 0 0 0 Current liabilities Long-term liabilities Common stock APIC Ret. earnings 0 0 1,244,880 210,000 262,500 2,050,650 0 0 0 0 4,302,270 0 0 $ 0 0 0 441,000 (121,800) (156,450) 89,040 0 0 0 0 0 0 0 Total liabilities and equity 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 0 251,790 (161,280) (161,280) 207,480 (44,100) 163,380 253,890 0 0 0 0 0 0 0 0 642,600 896,490 0 0 $ 0 b. Compute the ending Cumulative Translation Adjustment directly, assuming a BOY balance of $(102,848). 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: 0 Net income x (EOY - Average exchange rate) 0 0 0 0 EOY cumulative translation adjustment $ 0 General Journal Description Debit Credit 0 0 0 0 To record the translation adjustment for the year C. Following are selected financial statement accounts for the parent: Income statement: Balance sheet: Sales $13,815,000 Assets Cost of goods sold (9,670,500) Cash Gross profit 4,144,500 Accounts receivable Equity income 652,680 Inventory Operating expenses (2,624,850) Equity investment Net income $2,172,330 Property, plant, and equipment (PPE), net $1,526,569 1,768,320 2,680,110 4,139,188 14,273,658 $24,387,845 Statement of retained earnings: BOY retained earnings Net income Dividends Ending retained earnings $11,898,000 Liabilities and stockholders' equity 2,172,330 Current liabilities (475,920) Long-term liabilities $13,594,410 Common stock APIC Retained earnings $(102,848) Cumulative translation adjustment 179,596 $76,748 $1,106,582 750,000 1,568,535 7,291,571 13,594,410 76,748 $24,387,845 Statement of accum. comp. income: BOY cumulative translation adjustment Current-year translation gain (loss) EOY cumulative translation adjustment 0 0 0 Assume the following information: The purchase price for the subsidiary included an AAP asset relating to Land that the parent estimated was worth GBP200,000 more than its book value on the subsidiary's balance sheet. Confirm the balance of the Equity Investment account of $4,139,188 on the parent's balance sheet. Equity Investment BOY Common stock 0 BOY APIC 0 BOY Retained earnings BOY AAP BOY Cumulative translation adjustment 0 0 Equity income 0 Dividends Current translation adjustment AAP Translation adjustment (AOCI) Balance 0 0 0 0 0 0 0 0 d. Using your translated subsidiary financial statements from Part a and the parent's financial data provided in Part c, prepare the consolidation spreadsheet for the year. Elimination Entries Dr Cr Parent Sub Consolidated 0 $ 0 0 0 0 $ 0 $13,815,000 $ (9,670,500) 4,144,500 652,680 (2.624,850) $2,172,330 $ [C] 0 0 0 O $ 0 $ 0 0 $ 0 0 [E] 0 $11,898,000 $ 2,172,330 (475,920) $13,594,410 $ 0 0 0 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 Cash Accounts receivable Inventory Equity investment 0 [C] 0 $ 0 0 0 $(102,848) $ 179,596 $76,748 $ O [E] $ O [D] 0 [C] 0 0 0 $ 0 0 $ 0 0 $ 0 $1,526,569 $ 1,768,320 2,680,110 4,139,188 0 0 0 OC O [E] O [A] Property, plant and equipment (PPE), net 14,273,658 0 0 O [A] [D] 0 0 $24,387,845 $ $ 0 0 0 0 0 Total assets Liabilities and stockholders' equity Current liabilities Long-term liabilities Common stock APIC Retained earnings Cumulative translation adjustment Total liabilities and equity 0 0 1,106,581 750,000 1,568,535 7,291,571 13,594,410 76,748 $24,387,845 $ 0 [E] 0 [E] 0 0 0 0 0 0 0 0 $ 0 $ 0 $ 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 $1.45 EOY rate $1.52 Avg. rate $1.48 PPE purchase date rate $1.49 LTD borrowing date rate $1.49 Dividend rate $1.50 Historical rate (common stock and APIC) $0.55 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 (GBP) into $US (assume that the BOY Retained Earnings for the subsidiary is $2,926,035). Round answers in the "In US Dollars" column to the nearest whole number. Translation Rate In US Dollars (in GBP) Income Statement: Sales 0 $ 0 0 0 3,150,000 (1,890,000) 1,260,000 (819,000) 441,000 0 0 0 $ 0 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 $ 0 0 1,653,750 441,000 (44,100) 2,050,650 0 0 $ 0 0 $ 0 Cash Accounts receivable 0 0 896,490 730,800 938,700 1,736,280 4,302,270 0 0 0 Inventory Property, plant, and equipment (PPE), net Total assets Liabilities and stockholders' equity 0 $ 0 534,240 0 $ 0 0 0 Current liabilities Long-term liabilities Common stock APIC Ret. earnings 0 0 1,244,880 210,000 262,500 2,050,650 0 0 0 0 4,302,270 0 0 $ 0 0 0 441,000 (121,800) (156,450) 89,040 0 0 0 0 0 0 0 Total liabilities and equity 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 0 251,790 (161,280) (161,280) 207,480 (44,100) 163,380 253,890 0 0 0 0 0 0 0 0 642,600 896,490 0 0 $ 0 b. Compute the ending Cumulative Translation Adjustment directly, assuming a BOY balance of $(102,848). 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: 0 Net income x (EOY - Average exchange rate) 0 0 0 0 EOY cumulative translation adjustment $ 0 General Journal Description Debit Credit 0 0 0 0 To record the translation adjustment for the year C. Following are selected financial statement accounts for the parent: Income statement: Balance sheet: Sales $13,815,000 Assets Cost of goods sold (9,670,500) Cash Gross profit 4,144,500 Accounts receivable Equity income 652,680 Inventory Operating expenses (2,624,850) Equity investment Net income $2,172,330 Property, plant, and equipment (PPE), net $1,526,569 1,768,320 2,680,110 4,139,188 14,273,658 $24,387,845 Statement of retained earnings: BOY retained earnings Net income Dividends Ending retained earnings $11,898,000 Liabilities and stockholders' equity 2,172,330 Current liabilities (475,920) Long-term liabilities $13,594,410 Common stock APIC Retained earnings $(102,848) Cumulative translation adjustment 179,596 $76,748 $1,106,582 750,000 1,568,535 7,291,571 13,594,410 76,748 $24,387,845 Statement of accum. comp. income: BOY cumulative translation adjustment Current-year translation gain (loss) EOY cumulative translation adjustment 0 0 0 Assume the following information: The purchase price for the subsidiary included an AAP asset relating to Land that the parent estimated was worth GBP200,000 more than its book value on the subsidiary's balance sheet. Confirm the balance of the Equity Investment account of $4,139,188 on the parent's balance sheet. Equity Investment BOY Common stock 0 BOY APIC 0 BOY Retained earnings BOY AAP BOY Cumulative translation adjustment 0 0 Equity income 0 Dividends Current translation adjustment AAP Translation adjustment (AOCI) Balance 0 0 0 0 0 0 0 0 d. Using your translated subsidiary financial statements from Part a and the parent's financial data provided in Part c, prepare the consolidation spreadsheet for the year. Elimination Entries Dr Cr Parent Sub Consolidated 0 $ 0 0 0 0 $ 0 $13,815,000 $ (9,670,500) 4,144,500 652,680 (2.624,850) $2,172,330 $ [C] 0 0 0 O $ 0 $ 0 0 $ 0 0 [E] 0 $11,898,000 $ 2,172,330 (475,920) $13,594,410 $ 0 0 0 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 Cash Accounts receivable Inventory Equity investment 0 [C] 0 $ 0 0 0 $(102,848) $ 179,596 $76,748 $ O [E] $ O [D] 0 [C] 0 0 0 $ 0 0 $ 0 0 $ 0 $1,526,569 $ 1,768,320 2,680,110 4,139,188 0 0 0 OC O [E] O [A] Property, plant and equipment (PPE), net 14,273,658 0 0 O [A] [D] 0 0 $24,387,845 $ $ 0 0 0 0 0 Total assets Liabilities and stockholders' equity Current liabilities Long-term liabilities Common stock APIC Retained earnings Cumulative translation adjustment Total liabilities and equity 0 0 1,106,581 750,000 1,568,535 7,291,571 13,594,410 76,748 $24,387,845 $ 0 [E] 0 [E] 0 0 0 0 0 0 0 0 $ 0 $ 0 $