Chap13 Pbms MBF12e - Problem 13.1 Trident Europe (A) a....

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Unformatted text preview: Problem 13.1 Trident Europe (A) a. What is the amount of translation gain or loss? b. Where should it appear in the financial statements? Translation Using the Current Rate Method: euro depreciates from $1.2000/euro to $0.9000/euro. Just before devaluation Just after devaluation Translated Translated Euros Exchange Rate Accounts Exchange Rate Accounts Assets Statement (US$/euro) US dollars (US$/euro) US dollars Cash 1,600,000 1.2000 $1,920,000 0.9000 $1,440,000 Accounts receivable 3,200,000 1.2000 3,840,000 0.9000 2,880,000 Inventory 2,400,000 1.2000 2,880,000 0.9000 2,160,000 Net plant & equipment 4,800,000 1.2000 5,760,000 0.9000 4,320,000 Total 12,000,000 $14,400,000 $10,800,000 Liabilities & Net Worth Accounts payable 800,000 1.2000 $960,000 0.9000 $720,000 Short-term bank debt 1,600,000 1.2000 1,920,000 0.9000 1,440,000 Long-term debt 1,600,000 1.2000 1,920,000 0.9000 1,440,000 Common stock 1,800,000 1.2760 2,296,800 1.2760 2,296,800 Retained earnings 6,200,000 1.2000 7,440,000 1.2000 7,440,000 CTA account (loss)- $(136,800) $(2,536,800) Total 12,000,000 $14,400,000 $10,800,000 a. The translation gain (loss) is: $(2,536,800) 136,800 $(2,400,000) Using facts in the chapter for Trident Europe, assume that the exchange rate on January 2, 2011, in Exhibit 13.4 dropped in value from $1.2000/ to $0.9000/ rather than to $1.0000/. Recalculate Trident Europes translated balance sheet for January 2, 2011 with the new exchange rate using the current rate method . b. The translation gain (loss) for the year is added to the balance in the Cumulative Translation adjustment account, which is carried as a separate balance sheet account within the equity section of the consolidated balance sheet. The lsos does not pass through the income statement under the Current Rate Method, in which the currency of the foreign subsidiary is local currency functional. Problem 13.2 Trident Europe (B) Translation Using the Temporal Method: euro depreciates from $1.2000/euro to $0.9000/euro. Just before devaluation Just after devaluation Translated Translated Euros Exchange Rate Accounts Exchange Rate Accounts Assets Statement (US$/euro) (US dollars) (US$/euro) (US dollars) Cash 1,600,000 1.2000 $1,920,000 0.9000 $1,440,000 Accounts receivable 3,200,000 1.2000 3,840,000 0.9000 2,880,000 Inventory 2,400,000 1.2180 2,923,200 1.2180 2,923,200 Net plant & equipment 4,800,000 1.2760 6,124,800 1.2760 6,124,800 Total 12,000,000 $14,808,000 $13,368,000 Liabilities & Net Worth Accounts payable 800,000 1.2000 $960,000 0.9000 $720,000 Short-term bank debt 1,600,000 1.2000 1,920,000 0.9000 1,440,000 Long-term debt 1,600,000 1.2000 1,920,000 0.9000 1,440,000 Common stock 1,800,000 1.2760 2,296,800 1.2760 2,296,800 Retained earnings 6,200,000 1.2437 7,711,200 1.2437 7,711,200 CTA account (loss)- $(0) $(240,000) Total 12,000,000 $14,808,000 $13,368,000 a. The translation gain (loss) is: $(240,000) 0 $(240,000) b. Under the Temporal Method, the translation loss of $240,000 would be closed into retained earnings through the income statement,...
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Chap13 Pbms MBF12e - Problem 13.1 Trident Europe (A) a....

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