Question

On January 1, 2014, Trenten Systems, a U.S.-based company, purchased a controlling interest in Grant Management Consultants located in Zurich, Switzerland. The acquisition was treated as a purchase transaction. The 2014 financial statements stated in Swiss francs are given below.

GRANT MANAGEMENT CONSULTANTS Comparative Balance Sheets January 1 and December 31, 2014
		Jan. 1		Dec. 31
Cash and Receivables		20,000		54,400
Net Property, Plant, and Equipment		40,500		36,600
Totals		60,500		91,000
Accounts and Notes Payable		29,900		32,100
Common Stock		20,200		20,200
Retained Earnings		10,400		38,700
Totals		60,500		91,000

GRANT MANAGEMENT CONSULTANTS Consolidated Income and Retained Earnings Statement for the Year Ended December 31, 2014
Revenues		73,000
Operating Expenses including Depreciation of 3,900 francs		29,400
Net Income		43,600
Dividends Declared and Paid		15,300
Increase in Retained Earnings		28,300

Direct exchange rates for Swiss franc are:

		Dollars per Franc
January 1, 2014		$0.5987
December 31, 2014		0.5321
Average for 2014		0.5654
Dividend declaration and payment date		0.5810

1. Translate the year-end balance sheet and income statement of the foreign subsidiary using the current rate method of translation.

2. Prepare a schedule to verify the translation adjustment.

Answer 1

GRANT MANAGEMENT CONSULTANTS

BALANCE SHEET

AS ON 31 DECEMBER 2014 (Amt. in $)

Cash and Receivables (54400*.5321) = 28946.24

Net Property,Plant and Equipment (36,600*.5321) = 19474.86

TOTALS = 48421.10

Accounts and Notes Payables (32100*.5321) = 17080.41

Common Stock (20200*.5321) = 10748.42

Retained Earnings (38700*.5321) = 20592.27

TOTALS 48421.10

NOTE:- The above balance sheet figures are converted in dollor by taking the closing exchange rate as mentioned in above table. ( 1FF = $ 0.5321)

Consolidated Income and Retained Earnings Statement

For the Year Ended 31 December, 2014

Revenues (73000*0.5654) = 41274.20

Less : Operating Expenses including depreciation (29400*0.5654) = 16622.76

Net Income = 24651.44

Less : Dividend Declared and Paid (15300*0.5810) = 8889.30

Net Increase in Retained Earnings = 15762.14

NOTE : The figures of Revenues and Operating expenses are converted in dollor by taking the average for 2014 rate of dollor i.e. 1FF = $ 0.5654 and for dividend declared and payment, the specific rate as provided in the table is used i.e. 1FF = $ 0.5810