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