Columbia Corporation, A U.S.- based compan, acquired a 100 percent interest in Swoboda Company in Lodz, Poland, on January 1, Year 1, when the exchange rate for the Polish zloty (PLN) was $0.25. The financial statements of Swoboda as of December 31, Year 2, two years later, are as follows: Look at images! • declared and paid on 15, 2, the ratenapter Sevenwas $0.155.• Other exchange rates for Year 2 are:$0.2000.175January 1Average for the year0.150December 31Required:1. Translate Swoboda's financial statements into U.S. dollars in accordance with ISGAAP at December 31, Year 2, using the following scenarios.a. Assume the Polish zloty is the functional currency. The December 31, Year 1retained earnings amount that appeared in Swoboda's translated financial statementswas $56.250. The December 31, Year 1, cumulative translation adjustment thatappeared in Swoboda's translated balance sheet was negative $506,250.b. Assume the U.S. dollar is the functional currency. The December 31, Year 1, retainedearnings amount that appeared in Swoboda's remeasured financial statements was$882,500.c. Assume the same scenario described in (b) except Swoboda has no long-termdebt. Instead, Swoboda has common stock of PLN 10,000,000 and additionalpaid-in capital of PLN 25,000,000. The December 31, Year 1, retained earningsamount that appeared in Swoboda's remeasured financial statements was negative$367,500.2. Explain why the sign of the translation adjustments in (la), (1b), and (1c) is positive ofnegative.Case 7-2Palmerstown CompanyPalmerstown Company established a subsidiary in a foreign country on January 1, pegoti-ated a bank loan of 4,000,000 pounds on January 5, Year 1, and purchased plant maniment in the amount of 10,000,000 pounddepreciated ation of Foreign Currency Financial Statements 325BALANCE SHEETDecember 31, Year 2AssetsCashbsid-Accounts receivable (net)r 31,Inventory1,650,000Equipment4,250,000ar 1Less: Accumulated depreciation12,500,000Building(4,250,000)Less: Accumulated depreciationLand(15,150,000)Total assetsPLN 39,000,000Liabilities and Stockholders' EquityAccounts payablePLN 1,250,000Long-term debtCommon stock000'000Additional paid-in capital7,500,000Retained earnings2,750,000Total liabilities and stockholders' equityPLN 39,000,000STATEMENT OF INCOME AND RETAINED EARNINGSFor the Year Ending December 31, Year 2SalesPLN 12,500,000Cost of goods sold(000'000'9)Depreciation expense-equipment(1,250,000)Depreciation expense-buildingResearch and development expenseOther expenses (including taxes)...PLN 3,250,000Net incomePlus: Retained earnings, 1/1/Y2(750,000)Less: Dividends, Year 2PLN 2,750,000Retained earnings, 12/31/Y2...Additional information:• The January 1, Year 2, beginning inventory of PLN 3,000,000 was acquired onDecember 15, Year 1, when the exchange rate was $0.215. Purchases of inventory dur-ing Year 2 were acquired uniformly throughout the year. The December 31, Year 2,ending inventory of PLN 4,250,000 was acquired evenly throughout the fourth quarterof Year 2 when the exchange rate was $0.16.• All fixed assets were on the books when the subsidiary was acquired except for PLN2,500,000 of equipment, which was acquired on January 3, Year 2, when the exchangerate was $0.18, and PLN 6,000,000 in buildings, which were acquired on August 5,Year 2, when the exchange rate was $0.17. Equipment is depreciated on a straight-linebasis over 10 years. Buildings are depreciated on a straight-line basis over 40 years.A full year's depreciation is taken in the year of acquisition.

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Answered: Required: 1. Translate Swoboda's…

10th Edition

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Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q