Translation of financial statements and consolidation of a foreign subsidiary (no amortization of AAP) Assume that your company owns a subsidiary operating in Great Britain. The subsidiary maintains its books in the British pound (GBP) as its functional currency. Following are the subsidiary’s financial statements (in GBP) for the most recent year:

Following are the subsidiary’s financial statements (in GBP) for the most recent year:

	(in GBP)			(in GBP)			(in GBP)
Income Statement:			Balance Sheet:			Statement of Cash Flows:
Sales	2,730,000		Assets			Net Income	382,200
Cost of Goods Sold	(1,638,000)		Cash	776,958		Change in accounts receivable	(105,560)
Gross profit	1,092,000		Accounts receivable	633,360		Change in inventories	(135,590)
Operating expenses	(709,800)		Inventory	813,540		Change in current liabilities	77,168
Net income	382,200		Property, plant, and			Net cash from operating activities	218,218
			equipment (PPE), net	1,504,776
			Total assets	3,728,634
Statement of retained earnings:						Change in PPE, net	(139,776)
BOY ret. earnings	1,433,250		Liabilities and stockholders’ equity			Net cash from investing activities	(139,776)
Net income	382,200		Curr. liabilities	463,008
Dividends	(38,220)		L-T liabilities	1,078,896		Change in long-term debt	179,816
EOY ret. earnings	1,777,230		Common stock	182,000		Dividends	(38,220)
			APIC	227,500		Net cash from financing activities	141,596
			Ret. earnings	1,777,230
			Total liabilities and equity	3,728,634		Net change in cash	220,038
						Beginning cash	556,920
						Ending cash	776,958

The relevant exchange rates for the $US value of the British pound (GBP) are as follows:

BOY rate	$1.50
EOY rate	$1.57
Avg. rate	$1.53
PPE purchase date rate	$1.54
LTD borrowing date rate	$1.54
Dividend rate	$1.55
Historical rate (common stock and APIC)	$0.60

HINT: For all parts of this problem, use a negative sign with your answers to indicate a reduction.

a. Translate the subsidiary’s income statement, statement of retained earnings, balance sheet, and statement of cash flows from British pounds (GBP) into $US (assume that the BOY Retained Earnings for the subsidiary is $2,535,897).

Round answers in the "In US Dollars" column to the nearest whole number.

	(in GBP)	Translation Rate	In US Dollars
Income Statement:
Sales	2,730,000
Cost of goods sold	(1,638,000)
Gross profit	1,092,000
Operating expenses	(709,800)
Net income	382,200
Statement of retained earnings:
BOY ret. earnings	1,433,250
Net income	382,200
Dividends	(38,220)
EOY ret. earnings	1,777,230
Balance sheet:
Assets
Cash	776,958
Accounts receivable	633,360
Inventory	813,540
Property, plant, and equipment (PPE), net	1,504,776
Total assets	3,728,634
Liabilities and stockholders' equity
Current liabilities	463,008
Long-term liabilities	1,078,896
Common stock	182,000
APIC	227,500
Ret. earnings	1,777,230
AnswerCumulative translation adjustmentEffect of exchange rate on cash
Total liabilities and equity	3,728,634
Statement of cash flows:
Net income	382,200
Change in accounts receivable	(105,560)
Change in inventories	(135,590)
Change in current liabilities	77,168
Net cash from operating activities	218,218
Change in PPE, net	(139,776)
Net cash from investing activities	(139,776)
Change in long-term debt	179,816
Dividends	(38,220)
Net cash from financing activities	141,596
Net change in cash	220,038
Effect of exchange rate on cash
Beginning cash	556,920
Ending cash	776,958

Answer rating: 100% (QA)

The translation is done as below in GBP Translation Rate In US Dollars Income Statement Sales 273000... View the full answer