Translation and Calculation of Translation Adjustment

On January 1, 20X4, Alum Corporation acquired DaSilva Company, a Brazilian subsidiary, by purchasing all its common stock at book value. DaSilva’s trial balances on January 1, 20X4, and December 31, 20X4, expressed in Brazilian reals (BRL), follow:

Â	January 1, 20X4			December 31, 20X4
Â	Debit	Credit	Debit		Credit
Cash	BRL 62,000	Â	BRL 57,700
Accounts Receivable (net)	83,900	Â	82,000		Â
Inventories	95,000	Â	95,000		Â
Prepaid Insurance	5,600	Â	2,400		Â
Plant & Equipment	250,000	Â	350,000		Â
Accumulated Depreciation	Â	BRL 67,500				BRL 100,000
Intangible Assets	42,000	Â	30,000		Â
Accounts Payable	Â	20,000	Â		24,000
Income Taxes Payable	Â	30,000	Â		27,000
Interest Payable	Â	1,000	Â		1,100
Notes Payable	Â	20,000	Â		20,000
Bonds Payable	Â	120,000	Â		120,000
Common Stock	Â	80,000	Â		80,000
Additional Paid-In Capital	Â	150,000	Â		150,000
Retained Earnings	Â	50,000	Â		50,000
Sales	Â	Â	Â		500,000
Cost of Goods Sold	Â	Â	230,000		Â
Insurance Expense	Â	Â	3,200		Â
Depreciation Expense	Â	Â	32,500		Â
Amortization Expense	Â	Â	12,000		Â
Operating Expense	Â	Â	152,300		Â
Dividends Paid	Â	Â	25,000		Â
Total	BRL538,500	BRL538,500	BRL1,072,100		BRL1,072,100

Additional Information

1. DaSilva uses FIFO inventory valuation. Purchases were made uniformly during 20X4.

Ending inventory for 20X4 is composed of units purchased when the exchange rate was $0.25.

2. The insurance premium for a two-year policy was paid on October 1, 20X3.

3. Plant and equipment were acquired as follows:

Date	Cost
January 1, 20X1	BRL200,000
July 10, 20X2	50,000
April 7, 20X4	100,000

4. Plant and equipment are depreciated using the straight-line method and a 10-year life, with no residual value. A full month’s depreciation is taken in the month of acquisition.

5. The intangible assets are patents acquired on July 10, 20X2, at a cost of BRL60,000. The estimated life is five years.

6. The common stock was issued on January 1, 20X1.

7. Dividends of BRL10,000 were declared and paid on April 7. On October 9, BRL15,000 of dividends were declared and paid.

8. Exchange rates were as follows:

Â	BRL	$
January 1, 20X1	1 =	 0.45
July 10, 20X2	1 =	 0.40
October 1, 20X3	1 =	 0.34
January 1, 20X4	1 =	 0.30
April 7, 20X4	1 =	 0.28
October 9, 20X4	1 =	 0.23
December 31, 20X4	1 =	 0.20
20X4 average	1 =	 0.25

Required

a. Prepare a schedule translating the December 31, 20X4, trial balance of DaSilva from reals to dollars assuming the real is the functional currency.

b. Prepare a schedule calculating the translation adjustment as of the end of 20X4. The net assets on January 1, 20X4, were BRL280,000.