statement of retained earnings
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Free InquiryAssume 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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