Multico, a US company forms a wholly owned subsidiary in Italy (Italco) on 31/12/20X0.

On that date, Assets € Liabilities and €

Equity
Multico invests $1,350,000 in exchange for all of the subsidiary’s capital stock. Italco purchased its
Cash 400,000 $1.35= 1 euros
inventory on 31/12/20X0 and its beginning balance sheet on 1 Jan 20X1 is as follows: Capital stock 1,000,000
Inventory 600,000

Financial Statement of Italco at Translation using current rate method: translation adjustment
Dec 31, 20X0 goes to stockholder’s equity.
Income statement STEP 1 Income statement for 20X1
€ € Translation rate $
Sales 8,000,000 Sales 8,000,000 1.3 10,400,000
COGS 6,000,000 COGS 6,000,000 1.3 7,800,000
Selling and Admin expenses 500,000 Selling and Admin expenses 500,000 1.3 650,000
Depn expense 200,000 Depn expense 200,000 1.3 260,000
Amortization expense 20,000 Amortization expense 20,000 1.3 26,000
Interest expense 180,000 Interest expense 180,000 1.3 234,000
Income tax expense 275,000 Income tax expense 275,000 1.3 357,500
Net income 825,000 Net income 825,000 1,072,500

Balance sheet

Assets € Retained earnings Statement Euro USD

STEP 2 for 20X1
Cash 550,000 RE, 1/1/X1 0 0
A/R 600,000 Net income 825,000 per IS 1,072,500
Inventory 800,000 Dividend, 1/12/X1 325,000 1.27 412,750
PPE 2,000,000 RE, 31/12/X1 500,000 calculate 659,750
Acc. Depn -200,000
Patent, net 80,000
Total asset 3,830,000
Liabilities & equity €

A/P 330,000 Balance sheet at

STEP 3 31/12/20X1
Long-term liability 2,000,000 Assets € Translation rate $
Capital stock 1,000,000 Cash 550,000 1.25 687,500
RE 500,000 A/R 600,000 1.25 750,000
Inventory 800,000 1.25 1,000,000
PPE 2,000,000 1.25 2,500,000
Total 3,830,000 Acc. Depn -200,000 1.25 -250,000
Patent, net 80,000 1.25 100,000
–Dividend of € 325,000 is declared on Dec 1 year 1. Total asset 3,830,000 4,787,500
–Relevant exchange rates Liabilities & Equity
January 1, 20X1 (Historical rate) 1.35 A/P 330,000 1.25 412,500
Rate when PPE are acquired and long-term debt Long-term liability 2,000,000 1.25 2,500,000
was incurred, Jan 15, X1 1.33 Capital stock 1,000,000 1.35 1,350,000
Rate when patent was acquired, Feb 1, X1 1.32 RE 500,000 659,750 4,922,250 Before adjustment
Cumulative translation -134,750
Average for 20X1 (Average rate) 1.3 adjustment
Rate when dividends was declared, Dec 1, X1 1.27 dividend rate Total E&L 3,830,000 4,787,500
Average for the month of Dec 1.26
Dec 31, 20X1 (Current rate) 1.25
Multico, a US company forms a wholly owned subsidiary in Italy (Italco) on 31/12/20X0. On that date, Assets € Liabilities
Equity
and €
Multico invests $1,350,000 in exchange for all of the subsidiary’s capital stock. Italco purchased its
inventory on 31/12/20X0 and its beginning balance sheet on 1 Jan 20X1 is as follows: Cash 400,000
Capital stock 1,000,000
Inventory (beginning) 600,000

Translation using temporal method: translation adjustment

goes to net income
Income statement

€ Balance sheet at
STEP 1 31/12/20X1
Sales 8,000,000 Assets € Translation rate $
COGS 6,000,000 Cash 550,000 1.25 687,500
Selling and Admin expenses 500,000 A/R 600,000 1.25 750,000
Depn expense 200,000 Inventory 800,000 1.26 1,008,000
Amortization expense 20,000 PPE 2,000,000 1.33 2,660,000
Interest expense 180,000 Acc. Depn -200,000 1.33 -266,000
Income tax expense 275,000 Patent, net 80,000 1.32 105,600
Net income 825,000 Total assets 3,830,000 4,945,100
Liabilities & Equity 0
A/P 330,000 1.25 412,500
Balance sheet Long-term liability 2,000,000 1.25 2,500,000
Assets € Capital stock 1,000,000 1.35 1,350,000
Cash 550,000 RE 500,000 calculate 682,600 fix total capital và tính RE
A/R 600,000 Total capital 3,830,000 4,945,100
Inventory (ending) 800,000
PPE 2,000,000
Acc. Depn -200,000 STEP 2 Retained earnings Statement for 20X1
Patent, net 80,000 RE, 1/1/X1 0 0
Total asset 3,830,000 Net income 825,000 1,095,350
Liabilities & equity € Dividend, 1/12/X1 -325,000 1.27 -412,750
A/P 330,000 RE, 31/12/X1 500,000 682,600
Long-term liability 2,000,000
Capital stock 1,000,000
RE 500,000 STEP 3 Income statement for 20X1 W1: COGS
€ Translation rate $ Inventory, 1/1/X1 600,000 1.35 810,000

Sales 8,000,000 1.3 10,400,000 Purchase (sd tỉ giá bình 6,200,000 1.3 8,060,000
quân năm)
Total 3,830,000 COGS 6,000,000 from table W1 7,862,000 COGS 6,000,000 7,862,000
from
Selling and Admin expenses 500,000 1.3 650,000 Inventory, 31/12/X1 800,000 balance
sheet 1,008,000
(step 1)

–Dividend of € 325,000 is declared on Dec 1 year 1. Depn expense 200,000 1.33 266,000
–Relevant exchange rates Amortization expense 20,000 1.32 26,400
January 1, 20X1 1.35 Historical rate Interest expense 180,000 1.3 234,000
Rate when PPE are acquired and long-term debt 1.33 HR Income tax expense 275,000 1.3 357,500 before adjustment of net income
was incurred, Jan 15, X1 Gain on translation 91,250 1,004,100
Rate when patent was acquired, Feb 1, X1 1.32 HR Net income 825,000 1,095,350
Average for 20X1 1.3 AR
Rate when dividends was declared, Dec 1, X1 1.27 HR
Average for the month of Dec 1.26
Dec 31, 20X1 1.25 Current rate
Italco uses FIFO to calculate inventories used
Inventories were purchased evenly throughout the year
Gramado Company was created as a wholly owned subsidiary of Porto Corporation (a US based
company) on January 1, 2020. On that date, Porto invested $50,000 in Gramado’s capital stock.
Given the exchange rate on that date of 0.84 Cruzeiro (Czk) per USD. Gramado’s opening balance
sheet (in Czk) was as follows:
Balance Sheet
January 1, 2020
Czk Czk
Cash 20,000
Capital Stock 42,000
Inventory 22,000
Total Assets 42,000 Total liabilities and Equity 42,000
Relevant USD exchange rates for the Czk for Years 1 and 2 are as follows:
January 1, 2020 0.84 Czk/$
HR
Average for 2020 0.80 Czk/$ AV
Rate when PPE were acquired and long-
0.82 Czk/$
term debt was incurred on Jan 10, 2020 HR
Rate when capital was increased Feb 25,
0.83 Czk/$
2020 HR
Rate when dividends were declared. Dec 1,
0,78 Czk/$
2020 HR
Average for the month of December 2020 0.76 Czk/$ AV
31-Dec-20 0.75 Czk/$ CR
Gramado’s Czk denominated financial statements for the year ended December 31, 2020 are as
follows:
Income statement
For the year ended December 31, 2020
Czk
Sales 540,000
COGS -310,000
Selling and administrative expenses -93,000
Depreciation expense -10,000
Interest expense -5,000
Income before tax 122,000
Income taxes -40,000
Net income 82,000

Statement of Retained Earnings

For the year ended December 31, 2020
Czk
Retained earnings, 1/1/2020 0
Net income 82,000
Dividends (declared on 1/12/2020) -20,000
Retained earnings, 12/31/2020 62,000

Balance sheet
As at 31 December 2020
Czk
Cash 30,000
A/R 20,000
Inventory (1) 72,000
Plant and equipment 100,000
Less: acc. depn -10,000
Total asset 212,000
Account payable 30,000
Long-term Debt 65,000
Capital stock (2) 55,000
Retained earnings, 12/31/2020 62,000
Total liabilities and stockholders’ equity 212,000

Additional information:
(1) Inventory is carried at FIFO cost. Opening inventory was purchased on Jan 1, 2020. Ending
inventory was acquired evenly throughout the month of December.
(2) 13,000 Czk additional capital was raised on Feb 25, 2020
Required: Please choose one of the following
1. Translate Gramado Czk denominated financial statements into USD, assuming that Czk is the
primary currency that Gramado uses in its day-to-day operations.
2. Translate Gramado Czk denominated financial statements into USD, assuming that USD is the
primary currency that Gramado uses in its day-to-day operations
 CURRENT RATE METHOD
STEP 1 Income statement
For the year ended December 31, 2020
Czk Exchange rate
Sales 540,000 0.8
COGS -310,000 0.8

Selling and administrative expenses -93,000

0.8
Depreciation expense -10,000 0.8
Interest expense -5,000 0.8

Income before tax 122,000

0.8
Income taxes -40,000 0.8

Net income 82,000

0.8

STEP 2 Statement of Retained Earnings

For the year ended December 31, 2020
Czk Exchange rate
Retained earnings, 1/1/2020 0
Net income 82,000 102,500
Dividends (declared on 1/12/2020) -20,000 0.78
Retained earnings, 12/31/2020 62,000

STEP 3 Balance sheet

As at 31 December 2020
Czk Exchange rate
Cash 30,000 0.75
A/R 20,000 0.75
Inventory (1) 72,000 0.75
Plant and equipment 100,000 0.75
Less: acc. depn -10,000 0.75
Total asset 212,000 0.75
Account payable 30,000 0.75
Long-term Debt 65,000 0.75
Capital stock (2) 55,000
Retained earnings, 12/31/2020 62,000
Gain on translation (cummulative adjustments)
Total liabilities and stockholders’ equity 212,000
 TEMPORAL METHOD
STEP 1 Income statement
For the year ended December 31, 2020
USD
AR 675,000 Sales
AR (387,500) COGS

Selling and administrative expenses

AR (116,250)
AR (12,500) Depreciation expense
AR (6,250) Interest expense

Income before tax

AR 152,500 152,500
AR (50,000) Income taxes

Loss on translation
AR 102,500 102,500

Net income

STEP 2 Statement of Retained Earnings

For the year ended December 31, 2020
USD
HR - Retained earnings, 1/1/2020
From IS 102,500 Net income
HR (25,641) Dividends (declared on 1/12/2020)
Cal 76,859 Retained earnings, 12/31/2020

STEP 3 Balance sheet

As at 31 December 2020
USD
CR 40,000 Cash
CR 26,667 A/R
CR 96,000 Inventory (1)
CR 133,333 Plant and equipment
CR (13,333) Less: acc. depn
CR 282,667 Total asset
CR 40,000 Account payable
CR 86,667 Long-term Debt
HR 65,663 Capital stock (2)
Step2 76,859 Retained earnings, 12/31/2020
13,478
282,667 Total liabilities and stockholders’ equity
CURRENT RATE METHOD

TEMPORAL METHOD
Czk Exchange rate USD WORKING FOR COGS
540,000 #DIV/0! Inventory as at 01/01/2020
-310,000 #DIV/0! Purchases

-93,000
#DIV/0! COGS
-10,000 #DIV/0! Inventory as at 31/12/2020
-5,000 #DIV/0!

122,000
#DIV/0!
-40,000 #DIV/0!

#DIV/0! #DIV/0!

82,000

Czk Exchange rate USD

0 -
82,000 #DIV/0!
-20,000 #DIV/0!
62,000 #DIV/0!

Czk Exchange rate USD

30,000 #DIV/0!
20,000 #DIV/0!
72,000 #DIV/0!
100,000 #DIV/0!
-10,000 #DIV/0!
212,000 #DIV/0!
30,000 #DIV/0!
65,000 #DIV/0!
55,000
62,000 #DIV/0!

212,000 #DIV/0!
Czk ER USD
22,000 #DIV/0!
360,000 #DIV/0!

(310,000) #DIV/0!
72,000 #DIV/0!
Brookhurst Company (a U.S.-based company) established a subsidiary in Spain on January 1,
2020, by investing €800,000. The subsidiary’s opening balance sheet (in Euro) was as
follows:
Balance Sheet
January 1, 2020
€ €
Cash 200,000 Capital Stock 800,000
Inventory 600,000
Total Liabilities and
Total Assets 800,000 800,000
Equity
Relevant exchange rates for 2020 are as follows:
Jan 1. 2020 1 historical rate
Average 2020 0.95 AR
Rate when property and equipment were acquired and long-term debt was incurred. Jan
0.98 historical rate
15. 2020
Rate when capital was increased Feb 1. 2020 0.97 HR
Rate when dividends were declared. Dec 1. 2020 0.92 HR
Average for the month of December 0.91 AR/month
December 31. 2020 0.9 Current rate
The subsidiary’s financial statements for the year ended December 31. 2020 are as follows.
Income Statement
2020
€ Exchange rate USD
Sales 8,000,000 0.95 8,421,053
Costs of goods sold 6,000,000 0.95 6,315,789
Selling and administrative expenses 500,000 0.95 526,316
Depreciation expense 200,000 0.95 210,526
Interest expense 180,000 0.95 189,474
Income before taxes 1,120,000 0.95 1,178,947
Income tax 280,000 0.95 294,737
Net income 840,000 0.95 884,211

Statement of Retained Earnings

2020
€
Retained Earnings, 1/1/2020 100,000 1 100,000
Net Income 840,000 884,211
Less: Dividends 01/12/2020 -440,000 0.92 -478,261
Retained Earnings, 31/12/2020 500,000 505,950

Balance Sheet Dec 31

2020
€
Assets
Cash 550,000 0.9 611,111
Account Receivable 600,000 0.9 666,667
Inventory* 800,000 0.9 888,889
Property and equipment 2,080,000 0.9 2,311,111
Accumulated Depreciation -200,000 0.9 -222,222
Total Assets 3,830,000 0.9 4,255,556
Liabilities and Equity
Account Payable 330,000 0.9 366,667
Long-term Debt 2,000,000 0.9 2,222,222
Total Liabilities 2,330,000 2,588,889
Capital Stock 1,000,000 culculate 1,006,186
Retained Earnings 500,000 505,950
Cummulative translation gain 154,531
Total Equity 1,500,000 1,666,667

Total Liabilities and Equity 3,830,000 4,255,556

* Inventory is carried at FIFO cost, ending inventory was acquired evenly throughout the
month of December
Required: Translate the Spain subsidiary’s financial statements into U.S. dollars using
Current rate Method. Whereas, Remeasurement Gain is $89,200
TEMPORAL METHOD
STEP 1: Balance sheet
€
Assets
Cash 550,000
Account Receivable 600,000
Inventory* 800,000
Property and equipment 2,080,000
Accumulated Depreciation -200,000
Total Assets 3,830,000
Liabilities and Equity
Account Payable 330,000
Long-term Debt 2,000,000
Total Liabilities 2,330,000
Capital Stock 1,000,000
Retained Earnings 500,000

Total Equity 1,500,000

Total Liabilities and Equity 3,830,000
STEP 2: Statement of Retained
Earnings
2020 €
Retained Earnings, 1/1/2020 100,000
Net Income 840,000
Less: Dividends 01/12/2020 -440,000
 Retained Earnings, 31/12/2020 500,000

STEP 3: Income Statement

2020
€
Sales 8,000,000
Costs of goods sold 6,000,000
Selling and administrative expenses 500,000
Depreciation expense 200,000
4,101,024 before adjusment Interest expense 180,000
Income before taxes 1,120,000
Income tax 280,000
Translation loss
Net income 840,000
 equity historic rate

Exchange rate USD

0.9 611,111
0.9 666,667
0.91 879,121
0.98 2,122,449
0.98 -204,082
4,075,266

0.9 366,667
0.9 2,222,222
2,588,889
2 invenments 1,006,186
480,192

1,486,377
4,075,266

Exchange rate
1 100,000
858,452
0.92 -478,261
 480,192

Exchange rate USD

0.95 8,421,053 COGS Euro
6,247,195 Inventory at 1 Jan 2020 600,000
0.95 526,316 Purchased 6,200,000
0.98 204,082 Inventory at 31 Dec 2020 800,000
0.95 189,474 COGS 6,000,000
1,253,987
0.95 294,737 before adjustment
858,452
858,452
Exchange rate USD
1 600,000
0.95 6,526,316
879,121
6,247,195
 Income statement
for 2022
VND Translation Rate

Sales 19,000,000,000 23,200

Less: Costs of goods sold 10,500,000,000 23,200

Less: Selling and administrative
3,500,000,000 23,200
expenses

Less: Depreciation expense 220,000,000 23,200

Less: Interest expense 250,000,000 23,200

Income before taxes 4,530,000,000 Calculation

Less: Income tax 900,000,000 23,200
Net income 3,630,000,000 Calculation

Retained earnings statement

for 2022
VND Translation Rate
Retained Earnings, 1/1/2022 0
Add: Net Income 3,630,000,000 From Income Statement
Less: Dividends 1,630,000,000 23300
Retained Earnings, 31/12/2022 2,000,000,000 Calculation

Balance sheet
December 31, 2022
VND Translation Rate
Assets
Cash 19,330,000,000 23,400
23,400
6,900,000.00
Account Receivable 23,400
23,400
3,960,000,000
Inventory 23,400
23,400
4,400,000,000
Property and equipment 23,400
23,400
220,000,000
 220,000,000
Less: Accumulated Depreciation 23,400
Total Assets 34,370,000,000
Liabilities and Equity

7,370,000,000 23,400
Account Payable

2,000,000,000 23,400
Long-term Debt

23,000,000,000 23,000
Capital Stock
From Retained Earnings
2,000,000,000
Retained Earnings Statement
Cumulative translation adjustment Calculation
Total Liabilities and Equity 34,370,000,000
 Date

USD Jan 1, 2022

Average of the month of January,
818965.517241379
2022
452586.206896552 Average for 2022 (Current rate )
Rate when property and equipment
150862.068965517
were acquired on Jan 15, 2022
Rate when dividends were declared
9,483
on December 1, 2022
Average for the month of
10,776
December, 2022
195258.620689655 December 31, 2022
38,793.103
156,465.52

USD

156,465.52
69957.0815450644
86,508.44

USD

826068.376068376
294.871794871795
0
169230.769230769
0
188034.188034188
0
9401.7094017094
0
1183628.20512821

314957.264957265

85470.0854700855

1000000

86,508.44
before ajustment 1400427.35042735
-216799.145299145
1183628.20512821
Exchange rate
VND/USD
23,000 VND/USD

23,100 VND/USD

23,200 VND/USD

23,150 VND/USD

23,300 VND/USD

23,350 VND/USD

23,400 VND/USD
 Income statement
for 2022
VND Translation Rate

Sales 19,000,000,000 23,200

Less: Costs of goods sold 10,500,000,000 23,200

Less: Selling and administrative
3,500,000,000 23,200
expenses

Less: Depreciation expense 220,000,000 23,200

Less: Interest expense 250,000,000 23,200

Income before taxes 4,530,000,000 Calculation

Less: Income tax 900,000,000 23,200
Net income 3,630,000,000 Calculation

Retained earnings statement

for 2022
VND Translation Rate
Retained Earnings, 1/1/2022 0
Add: Net Income 3,630,000,000 From Income Statement
Less: Dividends 1,630,000,000 23300
Retained Earnings, 31/12/2022 2,000,000,000 Calculation

Balance sheet
December 31, 2022
VND Translation Rate
Assets
Cash 19,330,000,000 23400
23400
6,900,000.00
Account Receivable 23400
23400
3,960,000,000
Inventory 23400
23400
4,400,000,000
Property and equipment 23400
23400
220,000,000
 220,000,000
Less: Accumulated Depreciation 23400
Total Assets 34,370,000,000
Liabilities and Equity

7,370,000,000 23,400
Account Payable

2,000,000,000 23,400
Long-term Debt

23,000,000,000 23,400
Capital Stock
From Retained Earnings
2,000,000,000
Retained Earnings Statement
Cumulative translation adjustment Calculation
Total Liabilities and Equity 34,370,000,000
 Date

USD Jan 1, 2022

Average of the month of January,
818,966
2022
452,586 Average for 2022 (Current rate )
Rate when property and equipment
150,862
were acquired on Jan 15, 2022
Rate when dividends were declared
9,483
on December 1, 2022
Average for the month of
10,776
December, 2022
195,259 December 31, 2022
38,793.103
156,465.52

USD

156,465.52
69957.0815450644
86,508.44

USD

826068.376068376
294.871794871795
0
169230.769230769
0
188034.188034188
0
9401.7094017094
0
1183628.20512821

314957.264957265

85470.0854700855

982905.982905983

86,508.44
before ajustment 1383333.33333333
-199705.128205128
1183628.20512821
Exchange rate
VND/USD
23,000 VND/USD

23,100 VND/USD

23,200 VND/USD

23,150 VND/USD

23,300 VND/USD

23,350 VND/USD

23,400 VND/USD
 Income statement
for 2022
VND Translation Rate USD
19,000,000,0
Sales
00
10,500,000,0
Less: Costs of goods sold
00
3,500,000,00
Less: Selling and administrative expenses
0

Less: Depreciation expense 220,000,000

Less: Interest expense 250,000,000

4,530,000,00
Income before taxes Calculation
0

Less: Income tax 900,000,000

3,630,000,00
Net income Calculation
0

Balance sheet
December 31, 2022

VND Translation Rate USD

Assets
19,330,000,0
Cash
00

6,900,000,00
0
 6,900,000,00
Account Receivable 0

3,960,000,00
Inventory 0

4,400,000,00
Property and equipment 0

220,000,000
Less: Accumulated Depreciation

34,370,000,0
Total Assets
00

Liabilities and Equity

7,370,000,00
Account Payable 0

2,000,000,00
Long-term Debt 0

23,000,000,0
Capital Stock 00

2,000,000,00 From Retained Earnings

0 Statement
Retained Earnings

Cumulative translation adjustment Calculation

34,370,000,0
Total Liabilities and Equity
00
 Retained earnings statement

for 2022

VND

Retained Earnings, 1/1/2022 0

Add: Net Income 3,630,000,000

Less: Dividends 1,630,000,000

Retained Earnings, 31/12/2022 2,000,000,000

ed earnings statement

for 2022

Translation Rate USD

From Income Statement

Calculation