Cash Flows and Valuing Foreign Deposits Blankman Corporation has operations in a number of foreign countries. The corporate controller has included in the cash balance what she believes to be appropriate amounts by translating each foreign currency balance into U.S. dollars using current exchange rates. However, the president of finance is concerned about misleading investors by reporting amounts that may never be brought back to the United States as currency. He is especially concerned about three foreign currency totals:

1. A balance of 600,000 currency units from the country of Innstable. The current government is unlikely to remain in power after the next election and, at present, foreign companies are not permitted to transfer currency out of the country.

A balance of 1,500,000 currency units from the country of Inncrease. Prices have been increasing within the country at a rate much faster than in the United States, and there are fears the currency may eventually be devalued and will be worth far fewer U.S. dollars.

3. A balance of 800,000 currency units from the country of Outflow. The country has had a serious trade deficit for the past 5 years and within the next decade may have trou- ble making payments on amounts borrowed from international banks.

a. What factors should Blankman Corporation consider in deciding whether or not each of these balances is to be included as cash in the corporate balance sheet?

b. Which, if any, of the balances should be included as cash in Blankman’s balance sheet? Explain.

c. Which, if any, of the balances would you expect to be disclosed in notes? Explain.