Dieckmann Company, a U.S.-based company, acquired a 100 percent interest in Rakona A.S. in the Czech Republic on January 1, 2023, when the exchange rate for the Czech koruna (Kčs) was $0.05. Rakona’s financial statements as of December 31, 2024, two years later, follow:

Additional Information

∙ The January 1, 2024, beginning inventory of Kčs 6,000,000 was acquired on December 18, 2023, when the exchange rate was $0.043. Purchases of inventory were acquired uniformly during 2024. The December 31, 2024, ending inventory of Kčs 8,500,000 was acquired in the latter part of 2024 when the exchange rate was $0.032. All depreciable assets (equipment and buildings) were on the books when the subsidiary was acquired—except for Kčs 5,000,000 of equipment acquired on January 3, 2024, when the exchange rate was $0.036, and Kčs 12,000,000 in buildings acquired on March 5, 2024, when the exchange rate was $0.034. Straight-line depreciation is 10 years for equipment and 40 years for buildings. A full year’s depreciation is taken in the year of acquisition.

∙ Dividends were declared and paid on December 15, 2024, when the exchange rate was $0.031.

∙ Other exchange rates for 1 Kčs follow:

Part I. Translate the Czech koruna financial statements on December 31, 2024, in the following three situations:

a. The Czech koruna is the functional currency. The December 31, 2023, U.S. dollar–translated balance sheet reported retained earnings of $22,500. The December 31, 2023, cumulative translation adjustment was negative $202,500 (debit balance).

b. The U.S. dollar is the functional currency. The December 31, 2023, U.S. dollar–remeasured balance sheet reported retained earnings (including a 2023 remeasurement gain) of $353,000.

c. The U.S. dollar is the functional currency. Rakona has no long-term debt. Instead, it has common stock of Kčs 20,000,000 and additional paid-in capital of Kčs 50,000,000. The December 31, 2023, U.S. dollar–remeasured balance sheet reported a negative balance in retained earnings of $147,000 (including a 2023 remeasurement loss).

Part II. Explain the positive or negative sign of the translation adjustment in Part I(a), and explain why a remeasurement gain or loss exists in Parts I(b) and I(c).

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Assets Cash .... Accounts receivable (net) Inventory. Equipment. Balance Sheet December 31, 2024 Less: Accumulated depreciation Buildings Less: Accumulated depreciation. Land ..... Total assets.. Liabilities and Stockholders' Equity Accounts payable Long-term debt... Common stock ... Additional paid-in capital Retained earnings .... Total liabilities and stockholders' equity Kčs 2,000,000 3,300,000 8,500,000 25,000,000 (8,500,000) 72,000,000 (30,300,000) 6,000,000 Kčs 78,000,000 Kčs 2,500,000 50,000,000 5,000,000 15,000,000 5,500,000 Kčs 78,000,000