Question

Kingscraft Inc., a company with headquarters in London, England, is a fully owned subsidiary of Dover Company. The accountant for Dover just received Kingscraft’s financial statements and must translate them from British pounds into U.S. dollars to prepare consolidated financial statements. Income statement and balance sheet data for the year just ended, along with relevant exchange rates, are as follows:

	(in pounds)
Revenues	£445,000
Cost of goods sold	260,000
Gross margin	£185,000
Other expenses	80,000
Net income	£105,000
Cash	£ 46,000
Accounts receivable	102,000
Inventory	84,000
Plant and equipment	172,000
Total assets	£404,000
Current liabilities	£ 62,000
Long-term debt	54,000
Common stock	90,000
Retained earnings	198,000
Total liabilities and equity	£404,000

Exchange rates follow. The numbers shown are the U.S. dollar equivalent of one pound.

On date of purchase	$2.03
Average rate for the year	1.87
On the balance sheet date	1.84
On date of dividend payment	1.89

In addition, dividends of 60,000 pounds were paid during the year. Kingscraft’s translated financial statements at year-end result in a translation adjustment with a debit balance of $73,000.

Instructions: Determine Kingscraft’s Retained Earnings balance, in U.S. dollars, at the beginning of the year.

Answer 1

Refer the below images for the above mentioned questions, in a detailed way of solution.

Solution : In the given (examples) in the text, the objective was to translate the financial statement items and determine amount of translation adiostment required to balance the trial balance. In this case, the translation adjustmes is given as the amount of Retained Earnings must be solved. Earnings most be Kingscraft Inc. Trial Balance Trial Balance Exchange Rate Trial Balance Amount Cash Accounts Receivable Inventory plant y eqoipment cost of goods Sold other expenses Dividends Translation Adjustment Total debits E 46000 102 000 84000 172000 260000 20000 $ 1.84 1.84 1084 1.84 1.87 187 $ 84640 187680 154560 316430 486200 149600 113400 73000 6oooo 1.89 E 804000 $15 65560 814080 99360 182700 $1.84 1.84 2003 Corrent liabilities long-term Debt common stock Retained Earnings Revenues Total credits E 62000 54000 90000 153000* 445000 Computed 3372707 1.87 732150 & 204000 $ 1565560

Notes points ; * Total debits of € 804000 less eredits (excluding retained earnings ) of € 651000 a retained earnings of E153000 as of the beginning of the year Total debits of $ 1565560 less credits earnings) of $12282900 retained 4333 22 o as of the be gemoj of (excluding retained earnings of te yeav - * Retained is as Earnings follows : balance at the end of the year earnings Beginning retained plus. Net income $337270 & 196350 1533620 Dividends $(113400) Less Ending ५२०२२० retained earnings →