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).
