Question 1: Suggested time 40 minutes: 20% points:
Corcovado Company was created as a wholly owned subsidiary of Campinhas Corporation on January 1, 2012. On that date Campinhas invested $42,000 in Corcovado’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). Other than the capital investment in January 1, there were no transactions involving stockholder’s equity for 2012. Corcovado’s Cz denominated financial statements for December 31, 2013 are as follows:
Income Statement
For the year ended December 31, 2013
(in Cz)
|
Sales
|
540,000
|
|
COGS
|
310,000
|
|
Gross Profit
|
230,000
|
|
Operating expenses
|
108,000
|
|
Income before tax
|
122,000
|
|
Income taxes
|
40,000
|
|
Net Income
|
82,000
|
Statement of Retained Earnings
December 31, 2013
(in Cz)
|
Retained earnings, January 1, 2013
|
154,000
|
|
Net Income
|
82,000
|
|
Dividends paid, December 1, 2013
|
20,000
|
|
Retained earnings, December 31, 2013
|
216,000
|
Balance Sheet
December 31, 2013
(in Cz)
|
Cash
|
50,000
|
|
Receivables
|
100,000
|
|
Inventory
|
72,000
|
|
Plant and equipment, net
|
300,000
|
|
Accumulated Depreciation
|
70,000
|
|
TOTAL ASSETS
|
452,000
|
|
Liabilities
|
186,000
|
|
Capital stock
|
50,000
|
|
Retained earnings, December 31, 2013
|
216,000
|
|
TOTAL LIABILITIES AND EQUITY
|
452,000
|
The Cz is the primary currency that Corcovado uses in its day to day operations. The Cz has steadily fallen in value against the USD since Campinhas made the investment Corcovado on January 1, 2012. Relevant exchange rates for 2012 and 2013 are as follows:
|
January 1, 2012
|
$0.84
|
|
Average for 2012 (year)
|
$0.80
|
|
December 31, 2012
|
$0.75
|
|
Average for 2013 (year)
|
$0.72
|
|
December 1, 2013
|
$0.71
|
|
December 31, 2013
|
$0.70
|
Instructions
style=”margin-left: 36.0pt; mso-list: l1 level1 lfo2; text-indent: -18.0pt;”>a) Translate Corcovado’s Year 2013 financial statements into dollars.