Translation of Financial Statements Case Accounting 5140

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).