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Translation of Financial Statements Case Accounting 5140 (50 points)


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


850,000

Retained earnings, 12/31/Y2

6,900,000


Balance Sheet

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).

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