Practice 8 - Ch 10 Foreign Currency Translation

Practice 8 - Ch 10 Foreign Currency Translation - Ch 10:...

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1 Ch 10: Foreign Currency Translation Four Practice Problems: 10-23, 10-24, 10-33, and 10-35 (translation only) Solutions: Problem 1: 10 – 23 . Determine Appropriate Exchange Rates under the Current Rate Method (Translation) and Temporal Method (Remeasurement ) (10 minutes) Translation Remeasurement Accounts payable $.16 C $.16 C Accounts receivable $.16 C $.16 C Accumulated depreciation $.16 C $.26 H Advertising expense $.19 A $.19 A Amortization expense $.19 A $.25 H Buildings $.16 C $.26 H Cash $.16 C $.16 C Common stock $.28 H $.28 H Depreciation expense $.19 A $.26 H Dividends paid (10/1) $.20 H $.20 H Notes payable $.16 C $.16 C Patents (net) $.16 C $.25 H Salary expense $.19 A $.19 A Sales $.19 A $.19 A * C = current rate, H = historical rate, A = average rate
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2 Problem 2: 10 -24. Calculate Translation Adjustment and Remeasurement Gain/Loss and Explain Their Economic Relevance (20 minutes) The translation adjustment and remeasurement gain/loss can be determined as the plug figure that keeps the dollar balance sheet in balance: Translation Remeasurement CHF Rate US$ Rate Cash . .............................. 500,000 $.75 C 375,000 $.75 C 375,000 US$ Inventory . ........................ 1,000,000 $.75 C 750,000 $.70 H 700,000 Fixed assets. ................... 3,000,000 $.75 C 2,250,000 $.70 H Total assets . .................. 4,500,000 3,375,000 3,175,000 2,100,000 Notes payable . ................ 800,000 $.75 C 600,000 $.75 C 600,000 Owners equity ........................................ 3,700,000 $.70 H 2,590,000 $.70 H 2,590,000 Translation adjustment . ... 185,000 Retained earnings (remeasurement loss) . ... (15,000 Total ............................. 4,500,000 3,375,000 3,175,000 ) Alternatively, the translation adjustment and remeasurement loss can be calculated by analyzing the subsidiary’s balance sheet exposure: Translation Beginning net assets, 12/1 CHF3,700,000 x $.70 = $2,590,000 Ending net assets, 12/31 at current exchange rate CHF3,700,000 x $.75 = (2,775,000 Translation adjustment (positive) $( 185,000 ) ) Remeasurement Beginning net monetary liability position, 12/1 CHF(300,000 ) x $.70 = $(210,000) Ending net monetary liability position, 12/31 at current exchange rate CHF(300,000 ) x $.75 = (225,000 Remeasurement loss $ 15,000 )
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Practice 8 - Ch 10 Foreign Currency Translation - Ch 10:...

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