Question: On January 1 2008 a U S company purchased 100 of

On January 1, 2008, a U.S. company purchased 100% of the outstanding stock of Ventana Grains, a company located in Latz City, New Zealand. Ventana Grains was organized on January 1, 1994. All the property, plant, and equipment held on January 1, 2008, was acquired when the company was organized. The business combination was accounted for as a purchase transaction. The 2008 financial statements for Ventana Grains, prepared in its local currency, the New Zealand dollar, are given here.

The account balances are computed in conformity with U.S. generally accepted accounting standards.
Other information is as follows:
1. Direct exchange rates for the New Zealand dollar on various dates were:
Date Exchange Rate
January 1, 1994............ $.8011
September 1, 2004.......... .5813
January 1, 2008............ .7924
July 1, 2008............ .7412
December 31, 2008......... .7298
Average for 2008......... .7480
Average for the last four months of 2008 .7476
2. Ventana Grains purchased additional equipment for 100,000 New Zealand dollars on July 1, 2008, by issuing a note for 80,000 New Zealand dollars and paying the balance in cash.
3. Sales were made and purchases and “Other Expenses” were incurred evenly throughout the year.
4. Depreciation for the period in New Zealand dollars was computed as follows:
Building............... 45,000
Equipment—Purchased before 1/1/2008... 85,000
Equipment—Purchased July 1, 2008.... 10,000
5. The inventory is valued on a FIFO basis. The beginning inventory was acquired when the exchange rate was $.7480. The ending inventory was acquired during the last four months of 2008.
6. Dividends of 50,000 New Zealand dollars were paid on July 1 and December 31.

A. Translate the financial statements into dollars assuming that the local currency of the foreign subsidiary was identified as its functional currency.
B. Prepare a schedule to verify the translation adjustment determined in requirement A.
Describe how the translation adjustment would be reported in the financialstatements.
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