Reference no: EM131725865

Problem - Rushville Corporation, a U.S.-based company, acquired a 100% interest in Guilin Company in China, on January 1, 2016, when the exchange rate for Chinese RMB was $0.200. The financial statements of Guilin Company as of December 31, 2017, are as follows:

Balance Sheet December 31, 2017
Assets
Cash	RMB	1,000,000
Accounts receivable (net)		1,500,000
Inventory (at cost)		4,500,000
Equipment		13,000,000
Less: Accumulated depreciation		(4,500,000)
Building		40,000,000
Less: Accumulated depreciation		(8,500,000)
Land		15,000,000
Total assets	RMB	62,000,000
Liabilities and shareholders' equity
Accounts payable	RMB	2,500,000
Long-term debt		25,000,000
Common stock		3,000,000
Additional paid-in-capital		26,000,000
Retained earnings		5,500,000
Total liabilities and shareholders' equity	RMB	62,000,000

 

Statement of Income and Retained Earnings For the Year Ending December 31, 2017
Sales	RMB	17,500,000
Cost of goods sold		(7,500,000)
Depreciation expense - equipment		(2,200,000)
Depreciation expense - buildings		(1,300,000)
Other operating expenses (including taxes)		(4,300,000)
Net income	RMB	2,200,000
Plus: Retained earnings, 1/1/2017		2,250,000
Less: Dividends, 2017		(750,000)
Retained earnings, 12/31/2017	RMB	3,700,000

Additional information:

1. The 1/1/2017 beginning inventory of RMB3,000,000 was acquired when the exchange rate was $0.195. Purchases of inventory during 2017 were acquired evenly throughout the year. 12/31/2017 ending inventory of RMB4,500,000 was acquired when the exchange rate was $0.157.

2. All fixed assets were on the books when the subsidiary was acquired except for RMB3,000,000 of equipment which was acquired on 1/1/2017 when the exchange rate was $0.165 and RMB6,000,000 in buildings which was acquired on 5/1/2017 when the exchange rate was $0.160. Equipment is depreciated on a straight-line basis over 10 years; buildings are depreciated on a straight-line basis over 40 years. A full year's depreciation is taken in the year of acquisition.

3. Dividends were declared and paid on 12/1/2017 when the exchange rate was 0.158.

4. Other exchange rate for 2017 are:

1/1/2017                            $0.165

Average for the year           $0.160

12/31/2017                        $0.155

Required -

1. Translate Guilin Company's financial statements into U.S. dollars at 12/31/2017, assuming that RMB is the functional currency. Retained earnings and cumulative translation adjustment appeared in Guilin Company's 12/31/2016 translated balance sheet were $405,000 and $(751,750), respectively.

2. Translate Guilin Company's financial statements into U.S. dollars at 12/31/2017, assuming that U.S. dollar is the functional currency. Retained earnings appeared in Guilin Company's 12/31/2016 translated balance sheet was $1,205,750.