Translation of Financial Statements Case
Accounting 5140
(50 points)
Blue Sky Corporation, a U.S.-based company, invested 11 million Polish zloty in Green Mountain Company in Lodz, Poland, on January 1, Year 2, when the exchange rate for the Polish zloty (PLN) was $0.255. $2.5 million of the $11M zloty was recorded in Common Stock and $8.5 million was recorded in Additional Paid in Capital. The financial statements of Green Mountain as of December 31, Year 2, one year later, are presented on the following page:
Additional information:
· The December 31, Year 2, ending inventory of PLN 5,150,000 was acquired evenly throughout the fourth quarter of Year. The January 1, Year 2 beginning inventory was zero.
· All fixed assets were on the books when the subsidiary was acquired as follows:
· PLN 12,500,000 of equipment which was acquired on January 3, Year 2
· PLN 17,000,000 in buildings and PLN 2,000,000 in land was acquired on August 5, Year
· An Additional PLN 500,000 of land was acquired on December 15.
· An Additional PLN 1,500,000 of land was acquired on December 20.
· Dividends were declared and paid on December 15, Year 2
· Exchange rates for Year 2 are:
|
January 1, Year 2 |
0.255 |
|
January 3, Year 2 |
0.22 |
|
Average Year 2 |
0.235 |
|
August 5, Year 2 |
0.19 |
|
Fourth quarter, Year 2 |
0.215 |
|
December 15, Year 2 December 20, Year 2 |
0.18 0.175 |
|
December 31, Year 2 |
0.20 |
·
The Year 2 financial statements for Green Mountain Company are on the next page.
|
Income Statement and Statement of Retained Earnings |
PLN |
|
Sales |
19,000,000 |
|
Cost of goods sold |
-8,000,000 |
|
Depreciation expense-equipment |
-1,250,000 |
|
Depreciation expense-building |
-900,000 |
|
Research and development expense |
-700,000 |
|
Other expenses (including taxes) |
-400,000 |
|
Income before remeasurement gain |
7,750,000 |
|
Remeasurement gain/loss, Year 2 |
– |
|
Net income |
7,750,000 |
|
Plus: Retained earnings, 1/1/Y2 |
0 |
|
Less: Dividends paid |
– |
|
Retained earnings, 12/31/Y2 |
6,900,000 |
|
|
|
|
Cash |
6,000,000 |
|
Accounts receivable (net) |
1,650,000 |
|
Inventory |
5,150,000 |
|
Equipment |
12,500,000 |
|
Less: accumulated depreciation |
-1,250,000 |
|
Building |
17,000,000 |
|
Less: accumulated depreciation |
-900,000 |
|
Land |
4,000,000 |
|
Total assets |
44,150,000 |
|
Accounts payable |
1,250,000 |
|
Long-term debt |
25,000,000 |
|
Common stock |
2,500,000 |
|
Additional paid-in capital |
8,500,000 |
|
Retained earning AOCI Translation Gain Adjustment |
6,900,000 |
|
Total |
44,150,000 |
Required
1. Translate Green Mountain’s financial statements into U.S. dollars in accordance with U.S. GAAP at December 31, Year 2 and
prove out the Foreign Exchange gain or loss through a
reconciliation schedule:
a. Assuming the Polish zloty is the functional currency.
b. Assuming the U.S. dollar is the functional currency.
Please provide schedules for any calculations for any account that is a mix rate (i.e., cost of goods sold).
