Arlington Company is a U.S.-based organization with numerous…

Arlington Company is a U.S.-based organization with numerous foreign subsidiaries. As a preliminary step in preparing consolidated financial statements for 2020, it must translate the financial information from each foreign operation into its reporting currency, the U.S. dollar.

Arlington owns a Swedish subsidiary that has been in business for several years. On December 31, 2019, this entity’s balance sheet was translated from Swedish kroner (SEK), its functional currency, into U.S. dollars as prescribed by U.S. GAAP. Equity accounts at that date follow (all credit balances):

Common stock

SEK 110,000

=

$21,000

Retained earnings

194,800

=

36,100

Cumulative translation adjustment

3,860

At the end of 2020, the Swedish subsidiary produced the following trial balance. These figures include all of the entity’s transactions for the year except for the results of several transactions related to sales made to a Chinese customer. A separate ledger has been maintained for these transactions denominated in Chinese renminbi (RMB). This ledger follows the company’s trial balance.

Trial Balance—Swedish Subsidiary December 31, 2020

Debit

Credit

Cash

SEK  41,000

Accounts receivable

126,000

Inventory

128,000

Property, plant, and equipment

388,000

Accumulated depreciation

SEK  98,100

Accounts payable

39,000

Notes payable

56,000

Bonds payable

125,000

Common stock

110,000

Retained earnings, 1/1/20

194,800

Sales

350,000

Cost of goods sold

165,000

Depreciation expense

10,900

Salary expense

36,000

Rent expense

12,000

Interest expense

10,000

Other expenses

31,000

Dividends, 7/1/20

25,000

 

Totals

SEK 972,900

SEK 972,900

Ledger—Transactions in Chinese Renminbi December 31, 2020

Debit

Credit

Cash

RMB 10,000

Accounts receivable

28,000

Property, plant, and equipment

20,000

Accumulated depreciation

RMB4,000

Notes payable

15,000

Sales

44,000

Depreciation expense

4,000

Interest expense

1,000

 

Totals

RMB 63,000

RMB 63,000

Additional Information

The Swedish subsidiary began selling to the Chinese customer at the beginning of the current year. At that time, it borrowed 20,000 RMB to acquire a truck for delivery purposes. It paid one-fourth of that debt before the end of the year. The subsidiary made sales to China evenly during the period.

The U.S. dollar exchange rates for 1 SEK are as follows:page 514

January 1, 2020

$0.200 = 1.00 SEK

Weighted average rate for 2020

0.192 = 1.00

July 1, 2020

0.190 = 1.00

December 31, 2020

0.182 = 1.00

The exchange rates applicable for the remeasurement of 1 RMB into Swedish kroner are as follows:

January 1, 2020

1.25 SEK

= 1.00 RMB

Weighted average rate for 2020

1.16

= 1.00

December 1, 2020

1.101

= 1.00

December 31, 2020

1.04

= 1.00

The Swedish subsidiary expended SEK 10,000 during the year on development activities. In accordance with IFRS, this cost has been capitalized within the Property, plant, and equipment account. This expenditure had no effect on the depreciation recognized for the year.

 

A. Translate the Swedish subsidiary from Chinese Remminbi to Swedish Kroner

 

B. Adjust the Kroner trial balance to GAAP

 

C. Translate Swedish kroner trial balance from A +  B into US dollar

 

D. Calculate the Net asset or Net liability position for both the Chinese Renminbi subsidiary and the Swedish Kroner co.

 

 I want you to prepare the balance sheet, Statement of retained earnings and income statement 

 

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