Question
Translation of financial statements Assume that your company owns a subsidiary operating in Brazil. The subsidiary maintains its books in the Brazilian real (BRL) as
Translation of financial statements 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 subsidiarys financial statements (in BRL) for the most recent year:
(in BRL) | (in BRL) | (in BRL) | |||||
---|---|---|---|---|---|---|---|
Income Statement: | Balance Sheet: | Statement of Cash Flows: | |||||
Sales | 3,750,000 | Assets | Net Income | 525,000 | |||
Cost of Goods Sold | (2,250,000) | Cash | 1,067,250 | Change in accounts receivable | (145,000) | ||
Gross profit | 1,500,000 | Accounts receivable | 870,000 | Change in inventories | (186,250) | ||
Operating expenses | (975,000) | Inventory | 1,117,500 | Change in current liabilities | 106,000 | ||
Net income | 525,000 | Property, plant, and | Net cash from operating activities | 299,750 | |||
equipment (PPE), net | 2,067,000 | ||||||
Total assets | 5,121,750 | ||||||
Statement of retained earnings: | Change in PPE, net | (192,000) | |||||
BOY ret. earnings | 1,968,750 | Liabilities and stockholders equity | Net cash from investing activities | (192,000) | |||
Net income | 525,000 | Curr. liabilities | 636,000 | ||||
Dividends | (52,500) | L-T liabilities | 1,482,000 | Change in long-term debt | 247,000 | ||
EOY ret. earnings | 2,441,250 | Common stock | 250,000 | Dividends | (52,500) | ||
APIC | 312,500 | Net cash from financing activities | 194,500 | ||||
Ret. earnings | 2,441,250 | ||||||
Total liabilities and equity | 5,121,750 | Net change in cash | 302,250 | ||||
Beginning cash | 765,000 | ||||||
Ending cash | 1,067,250 |
The relevant exchange rates for the $US value of the Brazilian real (R$) are as follows:
BOY rate | $0.22 |
EOY rate | $0.29 |
Avg. rate | $0.25 |
PPE purchase date rate | $0.26 |
LTD borrowing date rate | $0.26 |
Dividend rate | $0.27 |
Historical rate (common stock and APIC) | $0.10 |
For both parts a. and b. below, use a negative sign with answers to indicate a reduction.
b. Compute the ending Cumulative Translation Adjustment directly, assuming a BOY balance of $(1,037,185).
Round answers to the nearest dollar.
Direct computation of translation adjustment: | |
AnswerBOY cumulative translation adjustmentBOY net assets x (EOY - BOY exchange rates)BOY net assets x BOY exchange rateNet income x (EOY - Average exchange rate)Net income x average exchange rateDividends x (EOY - Dividend exchange rate)Dividends x dividend exchange rateEOY net assets x EOY exchange rateEOY cumulative translation adjustmentTranslation adjustment for the year
| $Answer
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Net income x (EOY - Average exchange rate) | Answer
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AnswerBOY cumulative translation adjustmentBOY net assets x (EOY - BOY exchange rates)BOY net assets x BOY exchange rateNet income x (EOY - Average exchange rate)Net income x average exchange rateDividends x (EOY - Dividend exchange rate)Dividends x dividend exchange rateEOY net assets x EOY exchange rateEOY cumulative translation adjustmentTranslation adjustment for the year
| Answer
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Answer
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AnswerBOY cumulative translation adjustmentBOY net assets x (EOY - BOY exchange rates)BOY net assets x BOY exchange rateNet income x (EOY - Average exchange rate)Net income x average exchange rateDividends x (EOY - Dividend exchange rate)Dividends x dividend exchange rateEOY net assets x EOY exchange rateEOY cumulative translation adjustmentTranslation adjustment for the year
| Answer
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EOY cumulative translation adjustment | $Answer
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