Suppose that on January 1,2014, La-Z-Boy Inc. established a subsidiary in Ireland, La-Z-Boy Ireland, to design, manufacture and distribute specialized furniture in the European market. Its condensed balance sheet at January 1,2014, in euros, is below (in thousands).

At December 31,2014, La-Z-Boy Ireland reported the following condensed trial balance:

No dividends were declared or paid. Relevant exchange rates are as follows:

Required
a. Prepare a translated income statement and balance sheet for La-Z-Boy Ireland as of December 31, 2014, assuming the subsidiary's functional currency is the euro. Include an analysis of the 2014 translation adjustment.
b. Assume that operating expenses include ‚¬50,000 of depreciation on the original plant assets, the merchandise inventory on hand at December 31 was acquired when the exchange rate was $1.15, and merchandise purchases and cash operating expenses were incurred evenly during 2014. Repeat the requirements of part a, assuming the subsidiary's functional currency is the U.S. dollar. Include a separate calculation, of the remeasurement gain or loss for the year.
c. Compute the ratios of net income/sales and net income/total assets at December 31, 2014, using the euro financial statements and the translated and remeasured financial statements. Comment on the results.
d. Suppose the euro continues to weaken ($/‚¬ continues to decline) in subsequent years. What will happen to the ratios computed in part c? Do the signals they provide indicate improving or deteriorating performance? Should La-Z-Boy's management use the ratios as justification for additional investments in La-Z-Boy Ireland?

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Assets Cash Liabilities and equity Liabilities... ..._. 100,000 200,000 ....200,000 Total assets .400,000 Total liabilities and equity....400,000 ······.. ,-. Dr (Cr) Cash Merchandise inventory.... . 10,000 200,000 250,000 220,000) (200,000) (500,000) 320,000 140,000 Capital stock Sales. Total S/E January 2, 2014$1.50 Average for 2014..*..1.30 1.10 December 31.2014