Question
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)
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
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Cost of goods sold | (3,240,000) | Answer
| Answer
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Gross Profit | 2,160,000 | Answer
| |
Operating expenses | (1,404,000) | Answer
| Answer
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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
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Accounts receivable | 1,252,800 | Answer
| Answer
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Inventory | 1,609,200 | Answer
| Answer
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PPE, net | 2,976,400 | Answer
| Answer
|
Total Assets | 7,375,200 | Answer
| |
Liabilities and Stockholders' Equity | |||
Current Liabilities | 915,800 | Answer
| Answer
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Long-term Liabilities | 2,134,000 | Answer
| Answer
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Common Stock | 360,000 | Answer
| Answer
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APIC | 450,000 | Answer
| Answer
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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
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Change in Inventories | (268,200) | Answer
| Answer
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Change in Current Liabilities | 152,600 | Answer
| Answer
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Net cash flows from operating activities | 431,600 | Answer
| |
Change in PPE, net | (276,400) | Answer
| Answer
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Net cash flows from investing activities | (276,400) | Answer
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Change in long-term debt | 355,600 | Answer
| Answer
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Dividends | (75,600) | Answer
| Answer
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Net cash flows from financing activities | 280,000 | Answer
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Net change in cash | 435,200 | Answer
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AnswerCumulative translation adjustmentEffect of exchange rate on cash
| Answer
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Beginning cash | 1,101,600 | Answer
| Answer
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Ending cash | 1,536,800
| Answer
| Answer
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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
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Net income x EOY -Avg. Exchange rates | 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 raetEOY cumulative translation adjustmentTranslation adjustment for the year
| Answer
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EOY Cumulative Translation Adjustment | Answer
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