Diekmann Company, a U.S.-based company, acquired a 100 percent interest in Rakona A.S. in the Czech Republic on January 1, 2016, when the exchange rate for the Czech koruna (Kčs) was $0.05. Rakona’s financial statements as of December 31, 2017, two years later, follow: Balance Sheet December 31, 2017 Assets Cash Kčs 2,000,000 Accounts receivable (net) 3,300,000 Inventory 8,500,000 Equipment 25,000,000 Less: Accumulated depreciation (8,500,000 ) Building 72,000,000 Less: Accumulated depreciation (30,300,000 ) Land 6,000,000 Total assets Kčs 78,000,000 Liabilities and Stockholders’ Equity Accounts payable 2,500,000 Long-term debt 50,000,000 Common stock 5,000,000 Additional paid-in capital 15,000,000 Retained earnings 5,500,000 Total liabilities and stockholders’ equity Kčs 78,000,000 Income Statement For Year Ending December 31, 2017 Sales Kčs 25,000,000 Cost of goods sold (12,000,000 ) Depreciation expense—equipment (2,500,000 ) Depreciation expense—building (1,800,000 ) Research and development expense (1,200,000 ) Other expenses (including taxes) (1,000,000 ) Net income Kčs 6,500,000 Plus: Retained earnings, 1/1/17 500,000 Less: Dividends, 2017 (1,500,000 ) Retained earnings, 12/31/17 Kčs 5,500,000 Additional Information The January 1, 2017, beginning inventory of Kčs 6,000,000 was acquired on December 18, 2016, when the exchange rate was $0.043. Purchases of inventory were acquired uniformly during 2017. The December 31, 2017, ending inventory of Kčs 8,500,000 was acquired in the latter part of 2017 when the exchange rate was $0.032. All depreciable assets (equipment and buildings) were on the books when the subsidiary was acquired except for Kčs 5,000,000 of equipment acquired on January 3, 2017, when the exchange rate was $0.036, and Kčs 12,000,000 in buildings acquired on March 5, 2017, when the exchange rate was $0.034. Straight-line depreciation is 10 years for equipment and 40 years for buildings. A full year’s depreciation is taken in the year of acquisition. Dividends were declared and paid on December 15, 2017, when the exchange rate was $0.031. Other exchange rates for 1 Kčs follow: January 1, 2017 $ 0.040 Average 2017 0.035 December 31, 2017 0.030 Translate the Czech koruna financial statements at December 31, 2017, in the following three situations: The Czech koruna is the functional currency. The December 31, 2016, U.S. dollar–translated balance sheet reported retained earnings of $22,500. The December 31, 2016, cumulative translation adjustment was negative $202,500 (debit balance). The U.S. dollar is the functional currency. The December 31, 2016, U.S. dollar–remeasured balance sheet reported retained earnings (including a 2016 remeasurement gain) of $353,000. The U.S. dollar is the functional currency. Rakona has no long-term debt. Instead, it has common stock of Kčs 20,000,000 and additional paid-in capital of Kčs 50,000,000. The December 31, 2016, U.S. dollar–remeasured balance sheet reported a negative balance in retained earnings of $147,000 (including a 2016 remeasurement loss). Solve #3, please make sure solution of financial statement (income statement and balance sheet) fits within the box to avoid cut-off. Thank you.
Diekmann Company, a U.S.-based company, acquired a 100 percent interest in Rakona A.S. in the Czech Republic on January 1, 2016, when the exchange rate for the Czech koruna (Kčs) was $0.05. Rakona’s financial statements as of December 31, 2017, two years later, follow:
December 31, 2017 |
|||
| Assets | |||
| Cash | Kčs | 2,000,000 | |
| 3,300,000 | |||
| Inventory | 8,500,000 | ||
| Equipment | 25,000,000 | ||
| Less: |
(8,500,000 | ) | |
| Building | 72,000,000 | ||
| Less: Accumulated depreciation | (30,300,000 | ) | |
| Land | 6,000,000 | ||
| Total assets | Kčs | 78,000,000 | |
| Liabilities and |
|||
| Accounts payable | 2,500,000 | ||
| Long-term debt | 50,000,000 | ||
| Common stock | 5,000,000 | ||
| Additional paid-in capital | 15,000,000 | ||
| 5,500,000 | |||
| Total liabilities and stockholders’ equity | Kčs | 78,000,000 | |
| Income Statement For Year Ending December 31, 2017 |
|||
| Sales | Kčs | 25,000,000 | |
| Cost of goods sold | (12,000,000 | ) | |
| Depreciation expense—equipment | (2,500,000 | ) | |
| Depreciation expense—building | (1,800,000 | ) | |
| Research and development expense | (1,200,000 | ) | |
| Other expenses (including taxes) | (1,000,000 | ) | |
| Net income | Kčs | 6,500,000 | |
| Plus: Retained earnings, 1/1/17 | 500,000 | ||
| Less: Dividends, 2017 | (1,500,000 | ) | |
| Retained earnings, 12/31/17 | Kčs | 5,500,000 | |
Additional Information
-
The January 1, 2017, beginning inventory of Kčs 6,000,000 was acquired on December 18, 2016, when the exchange rate was $0.043. Purchases of inventory were acquired uniformly during 2017. The December 31, 2017, ending inventory of Kčs 8,500,000 was acquired in the latter part of 2017 when the exchange rate was $0.032. All
depreciable assets (equipment and buildings) were on the books when the subsidiary was acquired except for Kčs 5,000,000 of equipment acquired on January 3, 2017, when the exchange rate was $0.036, and Kčs 12,000,000 in buildings acquired on March 5, 2017, when the exchange rate was $0.034. Straight-line depreciation is 10 years for equipment and 40 years for buildings. A full year’s depreciation is taken in the year of acquisition. -
Dividends were declared and paid on December 15, 2017, when the exchange rate was $0.031.
-
Other exchange rates for 1 Kčs follow:
| January 1, 2017 | $ | 0.040 |
| Average 2017 | 0.035 | |
| December 31, 2017 | 0.030 | |
Translate the Czech koruna financial statements at December 31, 2017, in the following three situations:
-
The Czech koruna is the functional currency. The December 31, 2016, U.S. dollar–translated balance sheet reported retained earnings of $22,500. The December 31, 2016, cumulative translation adjustment was negative $202,500 (debit balance).
-
The U.S. dollar is the functional currency. The December 31, 2016, U.S. dollar–remeasured balance sheet reported retained earnings (including a 2016 remeasurement gain) of $353,000.
-
The U.S. dollar is the functional currency. Rakona has no long-term debt. Instead, it has common stock of Kčs 20,000,000 and additional paid-in capital of Kčs 50,000,000. The December 31, 2016, U.S. dollar–remeasured balance sheet reported a negative balance in retained earnings of $147,000 (including a 2016 remeasurement loss).
Solve #3, please make sure solution of financial statement (income statement and balance sheet) fits within the box to avoid cut-off. Thank you.
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