Velky s.r.o. (a Czech company) invests 1,200,000 schillings in a foreign subsidiary on January 1, Year 1. The subsidiary commences operations on that date and generates net income of 400,000 schillings during its first year of operations. No dividends are sent to the parent this year. Relevant exchange rates between Velky’s reporting currency (CZK) and the schilling are as follows: 

Required: 

Determine the amount of translation adjustment that Velky will report on its December 31, Year 1, balance sheet assuming that the schilling is the foreign subsidiary’s functional currency.

Transcribed Image Text:

January 1, Year 1 CZK 0.82 Average, Year 1 0.85 December 31, Year 1 0.88