Question

1 Approved Answer

Posted on Sep 18, 2024

Translation of financial statements Assume that your company owns a subsidiary operating in Great Britain. The subsidiary maintains its books in the British pound (GBP)

image text in transcribed

Translation of financial statements 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 subsidiary's financial statements (in GBP) for the most recent year follow in part a. below: The relevant exchange rates for the $US value of the British pound (GBP) are as follows: $1.40 $1.47 $1,43 BOY rate EOY rate Avg. rate PPE purchase date rate LTD borrowing date rate Dividend rate Historical rate (common stock and APIC) $1.44 $1.44 $1,45 $1.20 Instructions for both parts a. and b. below: Use a negative sign with your answers to indicate a reduction (expenses, cash outflows, etc.). Round answers to the nearest whole number. 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 $2,767,988). Income statement: (In GBP) Translation Rate In US Dollars Sales 6,750,000 $ 1.43 9.652.500 Cost of goods sold (4,050,000) S 1.43 (5.791,500) Gross Profit 2.700.000 3,861,000 Operating expenses (1.755.000) S 1.43 (2.509,650) Net income 945,000 S 1,351,350 Statement of retained earnings: BOY retained earnings 3.543.700 $2.767.988 Net income 945.000 Dividends (94.500) S 1.45 1.370,250 x Earned retained earnings 4394.200 S 0 X Balance Sheet: OX 1.47 1.921,000 $ 1,566,000 S 2.011.500 5 3.720,600 $ 9.219,100 1.47 1.43 X 1.44 X 2.823,870 2.302.020 2.876,445 x 5.357.664 x $ 13.359.999 X 1,144.800 $ 2.667,600 $ 450.000 $ 1.47 1.44 X 1.2 1,682.856 3,841,344 x 540,000 1.2 562.500 5 4394 200 6.750.000 X 0 % 9.219.100 s Balance Sheet: Assets Cash Accounts receivable Inventory PPE.net Total Assets Liabilities and Stockholders' Equity Current Liabilities Long-term Liabilities Common Stock APIC Retained Earnings Cumulative translation adjustment Total Liabilities & Equity Statement of cash flows: Net Income Change in Accounts Receivable Change in Inventories Change in Current Liabilities Net cash flows from operating activities Change in PPE.net Net cash flows from investing activities Change in long-term debt Dividends Net cash flows from financing activities Net change in cash Effect of exchange rate on cash Beginning cash Ending cash 1.43 1.43 1.43 0 x (373.230) (479.336) 272.844 945,000 (261.000) 5 (335,200) S 190,800 S 539,600 (345,600) 5 (345,600) 444.600 S (94.500) S 350,100 544.100 1.44 (497,664) 1.44 1.45 0 % 640.224 137.025 x 0 x 1.4 1.376,900 S 1.921,000 $ 1.927,660 2,823,870 1.47 s b. Compute the ending Cumulative Translation Adjustment directly, assuming a BOY balance of $2,395,692. Direct computation of translation adjustment: Net income x average exchange rate 0 % Net income x EOY-Avg. Exchange rates Dividends x (EOY-Dividend exchange rate) 0 % BOY cumulative translation adjustment EOY Cumulative Translation Adjustment S 0 % Translation of financial statements 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 subsidiary's financial statements (in GBP) for the most recent year follow in part a. below: The relevant exchange rates for the $US value of the British pound (GBP) are as follows: $1.40 $1.47 $1,43 BOY rate EOY rate Avg. rate PPE purchase date rate LTD borrowing date rate Dividend rate Historical rate (common stock and APIC) $1.44 $1.44 $1,45 $1.20 Instructions for both parts a. and b. below: Use a negative sign with your answers to indicate a reduction (expenses, cash outflows, etc.). Round answers to the nearest whole number. 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 $2,767,988). Income statement: (In GBP) Translation Rate In US Dollars Sales 6,750,000 $ 1.43 9.652.500 Cost of goods sold (4,050,000) S 1.43 (5.791,500) Gross Profit 2.700.000 3,861,000 Operating expenses (1.755.000) S 1.43 (2.509,650) Net income 945,000 S 1,351,350 Statement of retained earnings: BOY retained earnings 3.543.700 $2.767.988 Net income 945.000 Dividends (94.500) S 1.45 1.370,250 x Earned retained earnings 4394.200 S 0 X Balance Sheet: OX 1.47 1.921,000 $ 1,566,000 S 2.011.500 5 3.720,600 $ 9.219,100 1.47 1.43 X 1.44 X 2.823,870 2.302.020 2.876,445 x 5.357.664 x $ 13.359.999 X 1,144.800 $ 2.667,600 $ 450.000 $ 1.47 1.44 X 1.2 1,682.856 3,841,344 x 540,000 1.2 562.500 5 4394 200 6.750.000 X 0 % 9.219.100 s Balance Sheet: Assets Cash Accounts receivable Inventory PPE.net Total Assets Liabilities and Stockholders' Equity Current Liabilities Long-term Liabilities Common Stock APIC Retained Earnings Cumulative translation adjustment Total Liabilities & Equity Statement of cash flows: Net Income Change in Accounts Receivable Change in Inventories Change in Current Liabilities Net cash flows from operating activities Change in PPE.net Net cash flows from investing activities Change in long-term debt Dividends Net cash flows from financing activities Net change in cash Effect of exchange rate on cash Beginning cash Ending cash 1.43 1.43 1.43 0 x (373.230) (479.336) 272.844 945,000 (261.000) 5 (335,200) S 190,800 S 539,600 (345,600) 5 (345,600) 444.600 S (94.500) S 350,100 544.100 1.44 (497,664) 1.44 1.45 0 % 640.224 137.025 x 0 x 1.4 1.376,900 S 1.921,000 $ 1.927,660 2,823,870 1.47 s b. Compute the ending Cumulative Translation Adjustment directly, assuming a BOY balance of $2,395,692. Direct computation of translation adjustment: Net income x average exchange rate 0 % Net income x EOY-Avg. Exchange rates Dividends x (EOY-Dividend exchange rate) 0 % BOY cumulative translation adjustment EOY Cumulative Translation Adjustment S 0 %