Gramado Company was created as a wholly owned subsidiary of Porto Alegre Corporation on January 1, Year 1. On that date, Porto Alegre invested $42,000 in Gramado’s capital stock. Given the exchange 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 on January 1, there were no transactions involving stockholders’ equity in Year 1. Gramado’s cruzeiro-denominated financial statements for Year 2 are as follows: 

The cruzeiro is the primary currency that Gramado uses in its day-to-day operations. The cruzeiro has steadily fallen in value against the dollar since Porto Alegre made the investment in Gramado on January 1, Year 1. Relevant exchange rates for the cruzeiro for Years 1 and 2 are as follows:

Required:

a. Translate Gramado Company’s Year 2 financial statements into dollars.

b. Compute the translation adjustment for Year 1 and for Year 2 and reconcile these amounts to the cumulative translation adjustment reported on the translated balance sheet at December 31, Year 2.