Publix Inc., a U.S.-based grocery store, established a subsidiary in Mexico (Calimax S.A.) by investing Mex$25,000,000 on January 1, 2012, when the exchange rate was $0.25 per Mex$. The financial statements of Calimax as of December 31, 2013, two years later, are as follows:
Balance Sheet
December 31, 2013
Assets
Cash…………………………………………….. 1,000,000
Accounts receivable (net)…………………….. 1,650,000
Inventory………………………………………. 4,250,000
Equipment………………………………………. 12,500,000
Less: Accumulated depreciation ………….. (2,250,000)
Building………………………………………… 36,000,000
Less: Accumulated depreciation …………… (3,300,000)
Land……………………………………………… 3,000,000
Total assets………………………………….. 52,850,000
Liabilities and Stockholders’ Equity Current liabilities……………………………… 3,100,000
Long-term debt………………………………… 22,000,000
Capital stock……………………………………. 25,000,000
Retained earnings……………………………… 2,750,000
Total liabilities and stockholders’ equity 52,850,000
Statement of Income
For the Year Ending December 31, 2013
Sales…………………………………………….. 14,000,000
Cost of goods sold……………………………… (6,000,000)
Gross profit…………………………………….. 8,000,000
Depreciation expense – equipment…………… (1,250,000)
Depreciation expense – building……………… (1,800,000)
Other expenses………………………………… (850,000)
Income before tax……………… …………….. 4,100,000
Tax…………..…………………………………… (850,000)
Net income….………………………………….. 3,250,000
Statement of Retained Earnings
For the Year Ending December 31, 2013
Retained earnings, 1/1/2013………………….. 250,000
Plus: Net Income, 2013………………………. 3,250,000
Less: Dividends, 12/15/2013……….…………… (750,000)
Retained earnings, 12/31/2013……………….. 2,750,000
Additional Information: The January 1, 2013 beginning inventory of Mex$3,000,000 was acquired on December 15, 2012, when the exchange rate was $0.23. Purchases of inventory during 2013 were acquired uniformly throughout the year. The December 31, 2013 ending inventory of Mex$4,250,000 was acquired evenly throughout the fourth quarter of 2013, when the average exchange rate was $0.175.
All fixed assets were acquired on January 1, 2012 except for Mex$2,500,000 of equipment and Mex$6,000,000 of building which were both acquired on January 1, 2013, when the exchange rate was $0.20. Equipment is depreciated on a straight-line basis over 10 years. Buildings are depreciated on a straight-line basis over 20 years. Dividends were declared on December 15, 2013, when the exchange rate was $0.17.
Other relevant exchange rates are as follows. The average exchange rate for 2013 was $0.18 and the exchange rate on December 31, 2013 was $0.16.
Required:
1. Assuming that Calimax’s functional currency is the Mexican peso, translate Calimax’s financial statement into U.S. dollars at December 31, 2013. Retained earnings appeared in Calimax’s translated financial statements on December 31, 2012 were $56, 250.
2. Assuming that Calimax’s functional currency is the U.S. dollar, remeasure Calimax’s financial statement into U.S. dollars at December 31, 2013. Retained earnings appeared in Calimax’s translated financial statements on December 31, 2012 were $882, 500.
