Chapter 10 – Translation of Foreign Currency Financial Statements – Hoyle, Schaefer, Doupnik, 13e
10-54
Education.
Excel and Analysis Case (continued)
b. Schedule detailing the change in Suffolk’s cumulative translation adjustment
for 2016 and 2017.
Determination of Cumulative Exchange Exchange
Translation Adjustment Pounds Rate Rate Dollars
Net assets, 1/1/16 £50,000,000 $1.64 $1.60 $2,000,000
Net income, 2016 2,000,000 $1.64 $1.62 40,000
Translation adjustment, 2016
Exchange
Cost Allocation Schedule Pounds Rate Dollars
Cost £52,000,000 $1.60 $83,200,000
Book value 50,000,000 $1.60 80,000,000
Excess of cost over book value £ 2,000,000 $ 3,200,000
Translation Adjustment Related to Exchange
Excess of Cost Over Book Value Pounds Rate Dollars
Chapter 10 – Translation of Foreign Currency Financial Statements – Hoyle, Schaefer, Doupnik, 13e
10-55
Education.
Excel and Analysis Case (continued)
c. Consolidation Worksheet—December 31, 2017
Parker
Suffolk
Adjustments & Eliminations
Consolidated
Sales
($70,000,000)
($46,480,000)
($116,480,000)
Cost of goods sold
34,000,000
26,560,000
60,560,000
Depreciation
20,000,000
3,320,000
23,320,000
Other expenses
6,000,000
9,960,000
15,960,000
Dividend income
(2,887,500)
2,887,500
0
Net income
($12,887,500)
($6,640,000)
($16,640,000)
Ret. earnings, 1/1/17
($48,000,000)
($12,840,000)
12,840,000
3,240,000
($51,240,000)
Net income
(12,887,500)
(6,640,000)
(16,640,000)
Dividends
4,500,000
2,887,500
2,887,500
4,500,000
Ret. earnings,
12/31/17
($56,387,500)
($16,592,500)
($63,380,000)
Cash
$3,687,500
$2,520,000
$6,207,500
Accounts receivable
10,000,000
8,736,000
18,736,000
Inventory
30,000,000
30,240,000
60,240,000
Investment in Suffolk
83,200,000
3,240,000
83,240,000
0
3,200,000
Prop, plant & eq. (net)
105,000,000
60,480,000
3,200,000
168,840,000
160,000
Accounts payable
(25,500,000)
(2,436,000)
(27,936,000)
Long-term debt
(50,000,000)
(8,400,000)
(58,400,000)
Common stock
(100,000,000)
(70,400,000)
70,400,000
(100,000,000)
Ret. earnings,
12/31/17
(56,387,500)
(16,592,500)
(63,380,000)
Cum. trans. adj.
(4,147,500)
160,000
(4,307,500)
$0
$0
$92,727,500
$92,727,500
$0
Excel and Analysis Case (continued)
Chapter 10 – Translation of Foreign Currency Financial Statements – Hoyle, Schaefer, Doupnik, 13e
Education.
d. Consolidated income statement and balance sheet—2017.
Parker, Inc.
Consolidated Income Statement
For the year ended December 31, 2017
Parker, Inc.
Consolidated Balance Sheet
December 31, 2017
Total $254,023,500
Liabilities and Shareholders’ Equity
Accounts payable $ 27,936,000
Long-term debt 58,400,000
Common stock 100,000,000
Chapter 10 – Translation of Foreign Currency Financial Statements – Hoyle, Schaefer, Doupnik, 13e
10-57
Education.
Excel and Analysis Case (continued)
Part II—Stable Foreign Currency
Relevant exchange rates: January 1, 2016 $1.60
a. Translation of Suffolk’s December 31, 2017 trial balance from British pounds
to U.S. dollars.
Suffolk PLC
Trial Balance
December 31, 2017
Exchange
Pounds Rate Dollars
Cash £ 1,500,000 $1.60 $ 2,400,000
Accounts receivable 5,200,000 $1.60 8,320,000
Inventory 18,000,000 $1.60 28,800,000
Property, plant, & equipment (net) 36,000,000 $1.60 57,600,000
Accounts payable (1,450,000) $1.60 (2,320,000)
Long-term debt (5,000,000) $1.60 (8,000,000)
£ 0 $ 0
Note: Amounts in parentheses are credit balances.
Exchange
Schedule A Pounds Rate Dollars
Retained earnings, 1/1/16 £(6,000,000) $1.60 $ (9,600,000)
Chapter 10 – Translation of Foreign Currency Financial Statements – Hoyle, Schaefer, Doupnik, 13e
10-58
Education.
Excel and Analysis Case (continued)
b. Schedule detailing the change in Suffolk’s cumulative translation adjustment
for 2016 and 2017.
Determination of Cumulative Exchange Exchange
Translation Adjustment Pounds Rate Rate Dollars
Net assets, 1/1/16 £50,000,000 $1.60 $1.60 $0
Net income, 2016 2,000,000 $1.60 $1.60 0
Translation adjustment, 2016 $0
Exchange
Cost Allocation Schedule Pounds Rate Dollars
Cost £52,000,000 $1.60 $83,200,000
Book value 50,000,000 $1.60 80,000,000
Excess of cost over book value £ 2,000,000 $ 3,200,000
Translation Adjustment Related to Exchange
Excess of Cost Over Book Value Pounds Rate Dollars
Chapter 10 – Translation of Foreign Currency Financial Statements – Hoyle, Schaefer, Doupnik, 13e
10-59
Education.
Excel and Analysis Case (continued)
c. Consolidation Worksheet—December 31, 2017
Parker
Suffolk
Adjustments & Eliminations
Consolidated
Sales
($70,000,000)
($44,800,000)
($114,800,000)
Cost of goods sold
34,000,000
25,600,000
59,600,000
Depreciation
20,000,000
3,200,000
23,200,000
Other expenses
6,000,000
9,600,000
15,600,000
Dividend income
(2,800,000)
2,800,000
0
Net income
($12,800,000)
($6,400,000)
($16,400,000)
Ret. earnings, 1/1/17
($48,000,000)
($12,800,000)
12,800,000
3,200,000
($51,200,000)
Net income
(12,800,000)
(6,400,000)
(16,400,000)
Dividends
4,500,000
2,800,000
2,800,000
4,500,000
Ret. earnings,
12/31/17
($56,300,000)
($16,400,000)
($63,100,000)
Cash
$3,600,000
$2,400,000
$6,000,000
Accounts receivable
10,000,000
8,320,000
18,320,000
Inventory
30,000,000
28,800,000
58,800,000
Investment in Suffolk
83,200,000
3,200,000
83,200,000
0
3,200,000
Prop, plant & eq. (net)
105,000,000
57,600,000
3,200,000
165,800,000
0
Accounts payable
(25,500,000)
(2,320,000)
(27,820,000)
Long-term debt
(50,000,000)
(8,000,000)
(58,000,000)
Common stock
(100,000,000)
(70,400,000)
70,400,000
(100,000,000)
Ret. earnings,
12/31/17
(56,300,000)
(16,400,000)
(63,100,000)
Cum. Trans. adj.
0
0
0
$0
$0
$92,400,000
$92,400,000
$0
Chapter 10 – Translation of Foreign Currency Financial Statements – Hoyle, Schaefer, Doupnik, 13e
10-60
Education.
Excel and Analysis Case (continued)
d. Consolidated income statement and balance sheet—2017.
Parker, Inc.
Consolidated Income Statement
For the year ended December 31, 2017
Sales $114,800,000
Cost of goods sold (59,600,000)
Parker, Inc.
Consolidated Balance Sheet
December 31, 2017
Assets
Cash $ 6,000,000
Accounts receivable 18,320,000
Inventory 58,800,000
Chapter 10 – Translation of Foreign Currency Financial Statements – Hoyle, Schaefer, Doupnik, 13e
10-61
Education.
Excel and Analysis Case (continued)
Part III—Depreciating Foreign Currency
Relevant exchange rates: January 1, 2016 $1.60
a. Translation of Suffolk’s December 31, 2017 trial balance from British pounds to
U.S. dollars.
Suffolk PLC
Trial Balance
December 31, 2017
Exchange
Pounds Rate Dollars
Cash £ 1,500,000 $1.52 $ 2,280,000
Accounts receivable 5,200,000 $1.52 7,904,000
Inventory 18,000,000 $1.52 27,360,000
Property, plant, & equipment (net) 36,000,000 $1.52 54,720,000
Accounts payable (1,450,000) $1.52 (2,204,000)
adjustment—negative (debit balance) 4,147,500
£ 0 $ 0
Note: Amounts in parentheses are credit balances.
Exchange
Schedule A Pounds Rate Dollars
Retained earnings, 1/1/16 £(6,000,000) $1.60 $ (9,600,000)
Chapter 10 – Translation of Foreign Currency Financial Statements – Hoyle, Schaefer, Doupnik, 13e
10-62
Education.
Excel and Analysis Case (continued)
b. Schedule detailing the change in Suffolk’s cumulative translation adjustment
for 2016 and 2017.
Determination of Cumulative Exchange Exchange
Translation Adjustment Pounds Rate Rate Dollars
Net assets, 1/1/16 £50,000,000 $1.56 $1.60 $(2,000,000)
Exchange
Cost Allocation Schedule Pounds Rate Dollars
Cost £52,000,000 $1.60 $83,200,000
Book value 50,000,000 $1.60 80,000,000
Excess of cost over book value £ 2,000,000 $ 3,200,000
Chapter 10 – Translation of Foreign Currency Financial Statements – Hoyle, Schaefer, Doupnik, 13e
10-63
Education.
Excel and Analysis Case (continued)
c. Consolidation Worksheet—December 31, 2017
Parker
Suffolk
Adjustments & Eliminations
Consolidated
Sales
($70,000,000)
($43,120,000)
($113,120,000)
Cost of goods sold
34,000,000
24,640,000
58,640,000
Depreciation
20,000,000
3,080,000
23,080,000
Other expenses
6,000,000
9,240,000
15,240,000
Dividend income
(2,712,500)
2,712,500
0
Net income
($12,712,500)
($6,160,000)
($16,160,000)
Ret. earnings, 1/1/17
($48,000,000)
($12,760,000)
12,760,000
3,160,000
($51,160,000)
Net income
(12,712,500)
(6,160,000)
(16,160,000)
Dividends
4,500,000
2,712,500
2,712,500
4,500,000
Ret. earnings,
12/31/17
($56,212,500)
($16,207,500)
($62,820,000)
Cash
$3,512,500
$2,280,000
$5,792,500
Accounts receivable
10,000,000
7,904,000
17,904,000
Inventory
30,000,000
27,360,000
57,360,000
Investment in Suffolk
83,200,000
3,160,000
83,160,000
0
3,200,000
Prop, plant & eq. (net)
105,000,000
54,720,000
3,200,000
162,760,000
160,000
Accounts payable
(25,500,000)
(2,204,000)
(27,704,000)
Long-term debt
(50,000,000)
(7,600,000)
(57,600,000)
Common stock
(100,000,000)
(70,400,000)
70,400,000
(100,000,000)
Ret. earnings,
12/31/17
(56,212,500)
(16,207,500)
(62,820,000)
Cum. Trans. adj.
4,147,500
160,000
4,307,500
$0
$0
$92,392,500
$92,392,500
$0
Chapter 10 – Translation of Foreign Currency Financial Statements – Hoyle, Schaefer, Doupnik, 13e
10-64
Education.
Excel and Analysis Case (continued)
d. Consolidated income statement and balance sheet—2017.
Parker, Inc.
Consolidated Income Statement
For the year ended December 31, 2017
Sales $ 113,120,000
Parker, Inc.
Consolidated Balance Sheet
December 31, 2017
Assets
Cash $ 5,792,500
Accounts receivable 17,904,000
Chapter 10 – Translation of Foreign Currency Financial Statements – Hoyle, Schaefer, Doupnik, 13e
10-65
Education.
Excel and Analysis Case (continued)
Part IV—Risk Assessment Report and Financial Management Recommendations
December 31, 2017 Exchange Rate
$1.68 $1.60 $1.52
Consolidated net income $16,640,000 $16,400,000 $16,160,000
Percentage difference 101.5% 100% 98.5%
+ 1.5% — – 1.5%
Cash flow from dividends $2,887,500 $2,800,000 $2,712,500
Percentage difference 103% 100% 97%
+ 3% — – 3%
Total Liabilities $86,336,000 $85,820,000 $85,304,000
debt-to-equity ratio being 2% higher than if there had been no change in
exchange rates.
An increase in the dollar value of the British pound results in higher
profitability, greater cash inflow, and an improved debt–to–equity ratio. The
opposite is true for a decrease in the dollar value of the British pound.
If the British pound is expected to appreciate, Parker should not hedge its
British pound exposure associated with its investment in Suffolk. However, if