statement of retained earnings

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Assume that our company owns a subsidiary operating in Switzerland. The subsidiary has adopted the Swiss Franc (CHF) as its functional currency. Our company operates this subsidiary like a division or branch office, making all of its operating decisions, including pricing its products. We conclude, therefore, that the functional currency of this subsidiary is the $US and that its financial statements must be remeasured prior to consolidation. Following are the subsidiary’s financial statements (in CHF) for the most recent year:

Income statement:

Sales

3,000,000

Cost of goods sold

-2,321,500

Gross profit

678,500

Operating expenses

-252,000

Depreciation

-225,000

Remeasurement gain or loss

Net income

201,500

Statement of retained earnings:

BOY retained earnings

1,506,500

Net income

201,500

Dividends

-75,000

Ending retained earnings

1,633,000

Balance sheet:

Assets

Cash

850,000

Accounts receivable

1,273,300

Inventory

650,000

PPE, net

927,000

Total Assets

3,700,300

Liabilities and Stockholders’ Equity

Current Liabilities

250,000

Long-term Liabilities

1,097,300

Common Stock

220,000

APIC

500,000

Retained Earnings

1,633,000

Total Liabilities & Equity

3,700,300

Our subsidiary also reports the following additional financial statement information (in CHF):

Beginning inventory

450,000

Purchases

2,521,500

Ending inventory

-650,000

Cost of Goods Sold

2,321,500

Land

52,000

Building

750,000

Accumulated Depreciation—Building

-500,000

Equipment

1,250,000

Accumulated Depreciation—Equipment

-625,000

PPE, net

927,000

Depreciation expense—Building

100,000

Depreciation expense—Equipment

125,000

Depreciation expense

225,000

The relevant exchange rates for the $US value of the Swiss Franc (CHF) are as follows:

BOY Rate

$0.60

EOY rate

$0.80

Avg. rate

$0.70

Dividend rate

$0.77

Historical rates:

Beginning inventory

$0.60

Land

$0.35

Building

$0.35

Equipment

$0.45

Historical rate (Common Stock and APIC)

$0.20

Required: Remeasure the subsidiary’s income statement, statement of retained earnings, and balance sheet into $US for the current year (assume that the BOY Retained Earnings is $1,100,000).

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