Translation of financial statements Assume that your company owns a subsidiary operating in France. The subsidiary conducts most of its business activities in the European Economic Union and maintains its books in the Euro as its functional currency. The subsidiary's financial statements (in ) for the most recent year follow in part a. below: The relevant exchange rates ($:1) are as follows: BOY rate $1.17 EOY rate $1.22 Avg. rate $1.19 PPE purchase date rate $1.20 LTD borrowing date rate $1.20 Dividend rate $1.21 Historical rate (common stock and APIC) $0.98 For both parts a. and b. below, use a negative sign with answers to indicate a reduction. In ooo A 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 $553,612). Translation Income Statement: In Euros Rate US Dollars Sales 1,350,000 0 $ Cost of goods sold (810,000) Gross profit 540,000 Operating expenses (351,000) Net income 189,000 Statement of Retained Earnings: BOY retained earnings 708,750 Net income 189,000 Dividends (18,900) EOY retained earnings 878,850 Balance Sheet: Assets Cash 384,210 Accounts receivable 313,200 Inventory 402,300 Property, plant, and equipment (PPE), net 744,120 Total assets 1,843,830 Liabilities and stockholders' equity Current liabilities 228,960 Long-term liabilities 533,520 $ 0 $ 0 Current liabilities Long-term liabilities Common stock APIC Retained earnings 228,960 533,520 90,000 112,500 878,850 1,843,830 0 $ Total liabilities and equity Statement of Cash Flows: Net income Change in accounts receivable Change in inventories Change in current liabilities Net cash from operating activities Change in PPE, net Net cash 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 189,000 (52,200) (67,050) 38,160 107,910 (69,120) (69,120) 88,920 (18,900) 70,020 108,810 Oooooooooooooo ooooooo 275,400 384,210 0 0 $ b. Compute the ending Cumulative Translation Adjustment directly, assuming a BOY balance of $314,100. Direct computation of translation adjustment: Net income x (EOY - Average exchange rate) EOY cumulative translation adjustment