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: BOY rate $1.40 EOY rate $1.47 $1.43 $1.44 Avg. rate PPE purchase date rate LTD borrowing date rate Dividend rate Historical rate (common stock and APIC) $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). (In GBP) Translation Rate In US Dollars 6,750,000 $ $ (4,050,000) $ 2,700,000 (1,755,000) $ 945,000 $ 3,543,700 $2,767,988 945,000 (94,500) $ 4,394,200 $ Income statement: Sales Cost of goods sold Gross Profit Operating expenses Net income Statement of retained earnings: BOY retained earnings Net income Dividends Earned retained earnings 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 1,921,000 $ 1,566,000 $ 2,011,500 $ 3,720,600 $ 9,219,100 $ 1,144,800 $ 2,667,600 $ 450,000 $ 562,500 $ 4,394,200 9,219,100 $ Total Liabilities & Equity Statement of cash flows: Net income Change in Accounts Receivable 945,000 (261,000) $ 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 (335,200) $ 190,800 $ 539,600 (345,600) $ (345,600) 444,600 $ (94,500) $ 350,100 544,100 Beginning cash Ending cash 1,376,900 $ 1,921,000 $ $ b. Compute the ending Cumulative Translation Adjustment directly, assuming a BOY balance of $2,395,692. Direct computation of translation adjustment: Net income x EOY -Avg. Exchange rates T EOY Cumulative Translation Adjustment $ $ 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: BOY rate $1.40 EOY rate $1.47 $1.43 $1.44 Avg. rate PPE purchase date rate LTD borrowing date rate Dividend rate Historical rate (common stock and APIC) $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). (In GBP) Translation Rate In US Dollars 6,750,000 $ $ (4,050,000) $ 2,700,000 (1,755,000) $ 945,000 $ 3,543,700 $2,767,988 945,000 (94,500) $ 4,394,200 $ Income statement: Sales Cost of goods sold Gross Profit Operating expenses Net income Statement of retained earnings: BOY retained earnings Net income Dividends Earned retained earnings 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 1,921,000 $ 1,566,000 $ 2,011,500 $ 3,720,600 $ 9,219,100 $ 1,144,800 $ 2,667,600 $ 450,000 $ 562,500 $ 4,394,200 9,219,100 $ Total Liabilities & Equity Statement of cash flows: Net income Change in Accounts Receivable 945,000 (261,000) $ 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 (335,200) $ 190,800 $ 539,600 (345,600) $ (345,600) 444,600 $ (94,500) $ 350,100 544,100 Beginning cash Ending cash 1,376,900 $ 1,921,000 $ $ b. Compute the ending Cumulative Translation Adjustment directly, assuming a BOY balance of $2,395,692. Direct computation of translation adjustment: Net income x EOY -Avg. Exchange rates T EOY Cumulative Translation Adjustment $ $
