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Presentation/PPT
27/08/2022
1. Assume that your company owns a subsidiary operating in Germany. The subsidiary conducts most of its business in the European Economic Union and maintains its books using the Euro as its functional currency. Following are the subsidiary’s financial statements (in €) for the most recent year:
Subsidiary (in €)
Income statement:
Sales…………………………………………………………………………..€1,095,000
Cost of goods sold…………………………………………………………… (657,000)
Gross profit…………………………………………………………………… 438,000
Operating expenses…………………………………………………………… (284,700)
Net income…………………………………………………………………… €153,300
Statement of retained earnings:
Beginning of year retained earnings………………………………………….. €574,875
Net income……………………………………………………………………. 153,330
Dividends………………………………………………………………………. (15,330)
Ending retained earnings………………………………………………………. €712,845
Balance Sheet
Assets
Cash……………………………………………………………………………. €311,637
Accounts receivable……………………………………………………………. 254,040
Inventory……………………………………………………………………….. 326,310
PPE, net………………………………………………………………………… 603,564
Total assets……………………………………………………………………… €1,495,551
Liabilities and Stockholders’ equity
Current liabilities………………………………………………………………. €185,712
Long-term liabilities…………………………………………………………… 432,744
Common stock…………………………………………………………………. 73,000
APIC …………………………………………………………………………… 91,250
Retained earnings………………………………………………………………. 712,845
Cumulated translation adjustment……………………………………………….
Total liabilities & equity………………………………………………………… €1,495,551
Statement of cash flows:
Net income……………………………………………………………………… €153,330
Change in accounts receivable………………………………………………….. (42,340)
Change in inventories…………………………………………………………… (54,385)
Change in current liabilities……………………………………………………… 30,952
Net cash flows from operating activities………………………………………… 87,527
Purchase of PPE…………………………………………………………………… (56,064)
Net cash flows from investing activities…………………………………………. (56,064)
Proceeds from long-term debt……………………………………………………. 72,174
Payment of Dividends……………………………………………………………. (15,330)
Net cash flows from financing activities…………………………………………. 56,794
Net Change in cash……………………………………………………………….. 88,257
Effect of exchange rate on cash……………………………………………………
Beginning cash……………………………………………………………………. 223,380
Ending cash……………………………………………………………………….. €311,637
The relevant exchange rate are as follows:
Beginning of year rate…………………………………………………………….. $0.95
Ending of year rate………………………………………………………………… $1.04
Average rate……………………………………………………………………….. $1.01
PPE purchase date rate…………………………………………………………….. $0.99
LTD borrowing date rate…………………………………………………………… $1.03
Dividend declaration date rate……………………………………………………… $1.02
Historical rate (common stock and APIC)…………………………………………. $0.63
Required:
Translate the subsidiary’s income statement, statement of retained earnings, balance sheet and statement of cash flow into the $US statements using the current rate method (assume that the beginning of year Retained Earnings is $437,543).
Income statement:Sales.Cost of goods soldGross profitOperating expensesNet incomeStatement of retained earnings:Beginning of year retained earningsNet incomeDividendsEnding retained…
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