Question

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. Following are the subsidiary’s financial statements (in €) for the most recent year:

Income Statement:			Balance Sheet:			Statement of Cash Flows:
Sales	€1,200,000		Assets			Net Income	€168,000
Cost of Goods Sold	(720,000)		Cash	€341,520		Change in accounts receivable	(46,400)
Gross profit	480,000		Accounts receivable	278,400		Change in inventories	(59,600)
Operating expenses	(312,000)		Inventory	357,600		Change in current liabilities	33,920
Net income	€168,000		Property, plant, and			Net cash from operating activities	95,920
			equipment (PPE), net	661,440
			Total assets	€1,638,960
Statement of retained earnings:						Change in PPE, net	(61,440)
BOY ret. earnings	€630,000		Liabilities and stockholders’ equity			Net cash from investing activities	(61,440)
Net income	168,000		Curr. liabilities	€203,520
Dividends	(16,800)		L-T liabilities	474,240		Change in long-term debt	79,040
EOY ret. earnings	€781,200		Common stock	80,000		Dividends	(16,800)
			APIC	100,000		Net cash from financing activities	62,240
			Ret. earnings	781,200
			Total liabilities and equity	€1,638,960		Net change in cash	96,720
						Beginning cash	244,800
						Ending cash	€341,520

The relevant exchange rates ($:€1) are as follows:

BOY rate	$1.09
EOY rate	$1.14
Avg. rate	$1.11
PPE purchase date rate	$1.12
LTD borrowing date rate	$1.12
Dividend rate	$1.13
Historical rate (common stock and APIC)	$0.90

For both parts a. and b. below, use a negative sign with answers to indicate a reduction.

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 $492,099).

Income Statement:	In Euros	Translation Rate	In US Dollars
Sales	€1,200,000	Answer	$Answer
Cost of goods sold	(720,000)	Answer	Answer
Gross profit	480,000		Answer
Operating expenses	(312,000)	Answer	Answer
Net income	€168,000		$Answer
Statement of Retained Earnings:
BOY retained earnings	€630,000		$Answer
Net income	168,000		Answer
Dividends	(16,800)	Answer	Answer
EOY retained earnings	€781,200		$Answer
Balance Sheet:
Assets
Cash	€341,520	Answer	$Answer
Accounts receivable	278,400	Answer	Answer
Inventory	357,600	Answer	Answer
Property, plant, and equipment (PPE), net	661,440	Answer	Answer
Total assets	€1,638,960		$Answer
Liabilities and stockholders' equity
Current liabilities	€203,520	Answer	$Answer
Long-term liabilities	474,240	Answer	Answer
Common stock	80,000	Answer	Answer
APIC	100,000	Answer	Answer
Retained earnings	781,200		Answer
AnswerCumulative translation adjustmentEffect of exchange rate on cash			Answer
Total liabilities and equity	€1,638,960		$Answer
Statement of Cash Flows:
Net income	€168,000	Answer	$Answer
Change in accounts receivable	(46,400)	Answer	Answer
Change in inventories	(59,600)	Answer	Answer
Change in current liabilities	33,920	Answer	Answer
Net cash from operating activities	€95,920		Answer
Change in PPE, net	(61,440)	Answer	Answer
Net cash from investing activities	(61,440)		Answer
Change in long-term debt	79,040	Answer	Answer
Dividends	(16,800)	Answer	Answer
Net cash flows from financing activities	62,240		Answer
Net change in cash	96,720		Answer
Effect of exchange rate on cash			Answer
Beginning cash	244,800	Answer	Answer
Ending cash	€341,520	Answer	$Answer

b. Compute the ending Cumulative Translation Adjustment directly, assuming a BOY balance of $228,801.

Answer 1