Short_case_solutions_Chapter_7

Short_case_solutions_Chapter_7 - 13. Alexander Corporation...

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13. Alexander Corporation a. Swiss franc is functional currency (Current rate method) Swiss Exchange U.S. Francs Rate Dollars Net assets, 12/20/Y1 8,200,000 0.70 5,740,000 Change in net assets - - Net assets, 12/31/Y1 8,200,000 5,740,000 Net assets, 12/31/Y1 at the current exchange rate 8,200,000 0.75 6,150,000 Translation adjustment (positive) (410,000 ) b. U.S. dollar is functional currency (Temporal method) Swiss Exchange U.S. Francs Rate Dollars Net monetary liabilities, 12/20/Y1 (800,000) 0.70 (560,000) Change in net monetary liabilities - - Net monetary liabilities, 12/31/Y1 (800,000) (560,000) Net monetary liabilities, 12/31/Y1 at the current exchange rate (800,000) 0.75 (600,000) Remeasurement loss 40,000 Economic Relevance of Translation Adjustment The translation adjustment increases stockholders’ equity by $410,000. The positive translation adjustment arises because the Swiss subsidiary has a net asset position of CHF8,200,000 and the Swiss franc appreciates by $.05 [CHF8,200,000 x $.05 = $410,000]. The positive translation adjustment is not realized in terms of U.S. dollar
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Short_case_solutions_Chapter_7 - 13. Alexander Corporation...

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