Question:
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 (Kcs) was $0.05. Rakona's financial statements as of December 31, 2017, two years later, follow:
| Balance Sheet |
|
| 31-Dec-17 |
|
| Assets |
|
| Cash Kcs |
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 Kcs |
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 Kcs |
78,000,000 |
|
|
| Income Statement |
|
| For Year Ending December 31, 2017 |
|
| Sales Kcs |
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 Kcs |
6,500,000 |
| Plus: Retained earnings, 1/1/17 |
500,000 |
| Less: Dividends, 2017 |
-1,500,000 |
| Retained earnings, 12/31/17 Kcs |
5,500,000 |
Additional Information
The January 1, 2017, beginning inventory of Kcs 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 Kcs 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 Kcs 5,000,000 of equipment acquired on January 3, 2017, when the exchange rate was $0.036, and Kcs 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 Kcs 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:
a. 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).
b. 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.
c. The U.S. dollar is the functional currency. Rakona has no long-term debt. Instead, it has common stock of Kcs 20,000,000 and additional paid-in capital of Kcs 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).
Complete this question by entering your answers in the tabs below.
. Required A
. Required B
. Required C
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). (Amounts to be deducted and negative amounts should be indicated with a minus sign.)