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

Avg. rate

$1.43

PPE purchase date rate

$1.44

LTD borrowing date rate

$1.44

Dividend rate

$1.45

Historical rate (common stock and APIC)

$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 $2,214,450).

Income statement:	(In GBP)	Translation Rate	In US Dollars
Sales	5,400,000	Answer	Answer
Cost of goods sold	(3,240,000)	Answer	Answer
Gross Profit	2,160,000		Answer
Operating expenses	(1,404,000)	Answer	Answer
Net income	756,000		Answer
Statement of retained earnings:
BOY retained earnings	2,835,000		$2,214,450
Net income	756,000		Answer
Dividends	(75,600)	Answer	Answer
Earned retained earnings	3,515,400		Answer
Balance Sheet:
Assets
Cash	1,536,800	Answer	Answer
Accounts receivable	1,252,800	Answer	Answer
Inventory	1,609,200	Answer	Answer
PPE, net	2,976,400	Answer	Answer
Total Assets	7,375,200		Answer
Liabilities and Stockholders' Equity
Current Liabilities	915,800	Answer	Answer
Long-term Liabilities	2,134,000	Answer	Answer
Common Stock	360,000	Answer	Answer
APIC	450,000	Answer	Answer
Retained Earnings	3,515,400		Answer
AnswerCumulative translation adjustmentEffect of exchange rate on cash			Answer
Total Liabilities & Equity	7,375,200		Answer
Statement of cash flows:
Net income	756,000		Answer
Change in Accounts Receivable	(208,800)	Answer	Answer
Change in Inventories	(268,200)	Answer	Answer
Change in Current Liabilities	152,600	Answer	Answer
Net cash flows from operating activities	431,600		Answer
Change in PPE, net	(276,400)	Answer	Answer
Net cash flows from investing activities	(276,400)		Answer
Change in long-term debt	355,600	Answer	Answer
Dividends	(75,600)	Answer	Answer
Net cash flows from financing activities	280,000		Answer
Net change in cash	435,200		Answer
AnswerCumulative translation adjustmentEffect of exchange rate on cash			Answer
Beginning cash	1,101,600	Answer	Answer
Ending cash	1,536,800	Answer	Answer

b. Compute the ending Cumulative Translation Adjustment directly, assuming a BOY balance of $1,916,550.

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
Net income x EOY -Avg. Exchange rates	Answer
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
	Answer
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 raetEOY cumulative translation adjustmentTranslation adjustment for the year	Answer
EOY Cumulative Translation Adjustment	Answer