Question

In: Accounting

Translation of financial statements Assume that your company owns a subsidiary operating in Canada. The subsidiary...

Translation of financial statements Assume that your company owns a subsidiary operating in Canada. The subsidiary maintains its books in the Canadian Dollar (CAD) as its functional currency. Following are the subsidiary’s financial statements (in CAD) for the most recent year:

(in CAD) (in CAD) (in CAD)
Income Statement: Balance Sheet: Statement of Cash Flows:
Sales 1,350,000 Assets Net Income 189,000
Cost of Goods Sold (810,000) Cash 384,210 Change in accounts receivable (52,500)
Gross profit 540,000 Accounts receivable 313,200 Change in inventories (67,050)
Operating expenses (351,000) Inventory 402,300 Change in current liabilities 38,160
Net income 189,000 Property, plant, and Net cash from operating activities 107,910
equipment (PPE), net 744,120
Total assets €1,843,830
Statement of retained earnings: Change in PPE, net (69,120)
BOY ret. earnings 708,750 Liabilities and stockholders’ equity Net cash from investing activities (69,120)
Net income 189,000 Curr. liabilities 228,960
Dividends (18,900) L-T liabilities 533,520 Change in long-term debt 88,920
EOY ret. earnings 878,850 Common stock 90,000 Dividends (18,900)
APIC 112,500 Net cash from financing activities 70,020
Ret. earnings 878,850
Total liabilities and equity 1,843,830 Net change in cash 108,810
Beginning cash 275,400
Ending cash 384,210


The relevant exchange rates ($:CAD) are as follows:

BOY rate $0.70
EOY rate $0.76
Avg. rate $0.73
PPE purchase date rate $0.74
LTD borrowing date rate $0.74
Dividend rate $0.75
Historical rate (common stock and APIC) $0.60

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 $553,612).

Round all answers in the "in US Dollars" column to the nearest dollar.


Income Statement:

In CADs
Translation
Rate
In
US Dollars
Sales 1,350,000 $Answer $Answer
Cost of goods sold (810,000) $Answer Answer
Gross profit 540,000 Answer
Operating expenses (351,000) $Answer Answer
Net income 189,000 $Answer
Statement of Retained Earnings:
BOY ret. earnings 708,750 $Answer
Net income 189,000 Answer
Dividends (18,900) $Answer Answer
EOY ret. earnings 878,850 $Answer
Balance Sheet:
Assets
Cash $384,210 $Answer $Answer
Accounts receivable 313,200 $Answer Answer
Inventory 402,300 $Answer Answer
Property, plant, and equipment (PPE), net 744,120 $Answer Answer
Total assets $1,843,830 $Answer
Liabilities and stockholders' equity
Current liabilities $228,960 Answer $Answer
L-T liabilities 533,520 Answer Answer
Common stock 90,000 Answer Answer
APIC 112,500 Answer Answer
Ret. earnings 878,850 Answer
AnswerCumulative translation adjustmentEffect of exchange rate on cash Answer
Total liabilities and equity $1,843,830 $Answer
Statement of Cash Flows:
Net income $189,000 Answer $Answer
Change in accounts receivable (52,200) Answer Answer
Change in inventories (67,050) Answer Answer
Change in current liabilities 38,160 Answer Answer
Net cash from operating activities 107,910 Answer
Change in PPE, net (69,120) Answer Answer
Net cash from investing activities (69,120) Answer
Change in long-term debt 88,920 Answer Answer
Dividends (18,900) Answer Answer
Net cash from financing activities 70,020 Answer
Net change in cash 108,810 Answer
AnswerCumulative translation adjustmentEffect of exchange rate on cash Answer
Beginning cash 275,400 Answer Answer
Ending cash $384,210 Answer $Answer


Solutions

Expert Solution

Income Statement: In CADs Translation In
Rate US Dollars
Sales 1,350,000 0.73 985500
Cost of goods sold -810,000 0.73 -591300
Gross profit 540,000 394200
Operating expenses -351,000 0.73 -256230
Net income 189,000 137970
Statement of Retained Earnings:
BOY ret. earnings 708,750 553612
Net income 189,000 137970
Dividends -18,900 0.75 -14175
EOY ret. earnings 878,850 677407
Balance Sheet:
Assets
Cash $384,210 0.76 $291,999.60
Accounts receivable 313,200 0.76 $238,032.00
Inventory 402,300 0.76 $305,748.00
Property, plant, and equipment (PPE), net 744,120 0.74 $550,648.80
Total assets $1,843,830 $1,386,428.40
Liabilities and stockholders' equity
Current liabilities $228,960 0.76 $174,009.60
L-T liabilities 533,520 0.74 $394,804.80
Common stock 90,000 0.6 $54,000.00
APIC 112,500 0.6 $67,500.00
Ret. earnings 878,850 677407
AnswerCumulative translation adjustmentEffect of exchange rate on cash 18707
Total liabilities and equity $1,843,830 $1,386,428.40
Statement of Cash Flows:
Net income $189,000 0.73 $137,970
Change in accounts receivable -52,200 0.73 ($38,106)
Change in inventories -67,050 0.73 ($48,947)
Change in current liabilities 38,160 0.73 $27,857
Net cash from operating activities 107,910 $78,774
Change in PPE, net -69,120 0.74 ($51,149)
Net cash from investing activities -69,120 ($51,149)
Change in long-term debt 88,920 0.74 $65,801
Dividends -18,900 0.75 ($14,175)
Net cash from financing activities 70,020 $51,626
Net change in cash 108,810 $79,251
AnswerCumulative translation adjustmentEffect of exchange rate on cash 18707
Beginning cash 275,400 0.7 192780
Ending cash $384,210 0.76 291999.6

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