Gramado Company was created as a wholly owned subsidiary of Porto…
Question Answered step-by-step Gramado Company was created as a wholly owned subsidiary of Porto… Gramado Company was created as a wholly owned subsidiary of Porto Alegre Corporation (a U.S.-based company) on January 1, Year 1. On that date, Porto Alegre invested $42,000 in Gramado’s capital stock. Given the exchange rate on that date of $0.84 per cruzeiro, the initial investment of $42,000 was converted into 50,000 cruzeiros (Cz). Gramado’s cruzeiro-denominated opening Balance Sheet are as follows: Balance Sheet as of January 1, 2021 CzCash50,000Plant and equipment300,000Total350,000Long-term debt300,000Capital stocks50,000Total350,000 Gramado’s cruzeiro-denominated financial statements for the year ended December 31, 2021 are as follows:Income Statement for the Year Ended December 31, 2021 CzSales 540,000Cost of goods sold (310,000)Gross profit 230,000Operating expenses(108,000)Income before tax 122,000Income taxes (40,000)Net income82,000 During 2021, dividends in the amount of Cz20,000 were paid to the parent on December 1. Inventory was acquired evenly throughout the year with ending inventory acquired on December 1, 2021.Statement of Retained Earnings for the Year Ended December 31, 2021 CzRetained earnings, 1/1/2021-Net income82,000Dividends(20,000)Retained earnings, 31/12/202162,000 Balance Sheet as at December 31, 2021 CzCash50,000Receivables100,000Inventory32,000Plant and equipment (net)230,000Total assets412,000 Long-term debt300,000Common stock50,000Retained earnings, 12/31/202162,000Total liabilities and stockholders’ equity412,000 The cruzeiro is the primary currency that Gramado uses in its day-to-day operations. The cruzeiro has steadily fallen in value against the dollar since Porto Alegre made the investment in Gramado on January 1, 2021. Relevant U.S. dollar ($) exchange rates for the cruzeiro for 2021 are as follows:Average for 2020$ 0.80January 1, 20210.84Average for 20210.72December 1, 20210.71December 31, 20210.70 REQUIRED: a) Translate Gramado Company’s 2021 financial statements into U.S. dollars. b) Compute the translation adjustment by considering the impact of exchange rate changes on subsidiary’s net income. Accounting Business Financial Accounting ACC 410 Share QuestionEmailCopy link Comments (0)
