Pbm10 MBF11

Pbm10 MBF11 - Problem 10.1 Siam Toys, Ltd. (A) Siam Toys,...

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Problem 10.1 Siam Toys, Ltd. (A) TRANSLATION BY THE CURRENT RATE METHOD Balance Sheet (thousands) Before Devaluation After Devaluation Translated Translated Thai baht Exchange Rate Accounts Exchange Rate Accounts Assets Statement (Baht/US$) US dollars (Baht/US$) US dollars Cash 30 $800 40 $600 Accounts receivable 36,000 30 1,200 40 900 Inventory 48,000 30 1,600 40 1,200 60,000 30 2,000 40 1,500 Total $5,600 $4,200 Accounts payable 30 $600 40 $450 Bank loans 60,000 30 2,000 40 1,500 Common stock 18,000 20 900 20 900 Retained earnings 72,000 34 2,100 34 2,100 CTA account (loss) 0 - $(750) Total $5,600 $4,200 Note: Dollar retained earnings before devaluation are the cumulative sum of additions to retained earnings of all prior years, translated at exchange rates in effect in each of those years. This cumulative translation account (CTA) loss of $750,000 would be entered into the company's consolidated balance sheet under equity. TRANSLATION BY THE TEMPORAL METHOD Balance Sheet (thousands) Before Devaluation After Devaluation Translated Translated Thai baht Exchange Rate Accounts Exchange Rate Accounts Assets Statement (Baht/US$) US dollars (Baht/US$) US dollars Cash 30 $800 40 $600 Accounts receivable 36,000 30 1,200 40 900 Inventory 48,000 30 1,600 30 1,600 60,000 20 3,000 20 3,000 Total $6,600 $6,100 Accounts payable 30 $600 40 $450 Bank loans 60,000 30 2,000 40 1,500 Common stock 18,000 20 900 20 900 Retained earnings 72,000 23 3,100 23 3,100 CTA account (loss) 0 - $150 Total $6,600 $6,100 Note a: Dollar retained earnings before devaluation are the cumulative sum of additions to retained earnings of all prior years, translated at exchange rates in effect in each of those years. Note b: Retained earnings after devaluation are translated at the same effective rate (see Note a) as before devaluation. The translation gain of $150,000 would be passed-through to the consolidated income statement. EXPLANATION OF DIFFERENT OUTCOME BY TRANSLATION METHODOLOGY The Temporal Method results in a translation gain, as opposed to the CTA loss found under the Current Rate Method, because of the different at relevant historical exchange rates. Siam Toys, Ltd., is the Thai affiliate of a U.S. toy manufacturer. Siam toys manufactures plastic injection molding equipment for making toy cars. Sales are primarily in the United States and Europe. Siam Toys’ balance sheet in thousands of Thai bahts (B) as of March 31st is as follows. Using the data presented on Siam Toys, assume that the Thai baht dropped in value from B30/$ to B40/$ between March 31 and April 1. Assuming no change in
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Pbm10 MBF11 - Problem 10.1 Siam Toys, Ltd. (A) Siam Toys,...

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