Using ficts in this chapter for Instruments du Rhone, assume the exchange rate on January 2. 2002, in Fxhibit 8.4 is \(\$ 0.9918\) /€ rather than \(\$ 1.0000\) / Recalculate Instruments du Rhone's translated balance sheet for January 2, 2002, with the new exchange rate, using both the current-rate method and temporal method

a. Current-rate method: What would be the new value of the CTA account? What was the translation gain or loss?

b. Temporal method: What would be the translation gain/loss?

c. Had the euro appreciated versus the L.S. dollar to, say, \(\$ 1.2500 /\), instead of dropping in valuc, what would be the current rate's CTA value and the temporal method's translation gain or loss?

Transcribed Image Text:

Exhibit 8.4 Hypothetical Case: Instruments du Rhone, S.A. Translation Loss Just after Depreciation of the Euro In US dollars December 31, 2001 January 2, 2002 Just before Just after In euros $/euro Depreciation $/euro Depreciation Current Rate Method Cash 1,600,000 1.2000 $1,920,000 1.0000 $1,600,000 Accounts receivable 3,200,000 1.2000 3,840,000 1.0000 3,200,000 Inventory 2,400,000 1.2000 2,880,000 1.0000 2,400,000 Net plant and equipment 4,800,000 1.2000 5,760,000 1.0000 4,800,000 12,000,000 $14,400,000 $12,000,000 Accounts payable 800,000 1.2000 S 960,000 1.0000 $ 800,000 Short-term bank loan 1.600,000 1.2000 1,920,000 1.0000 1,600,000 Long-term debt 1,600,000 1.2000 1,920,000 1.0000 1,600,000 Common stock 1,800,000 1.2760 2,296,800 1.2760 2,296,800 Retained earnings 6.200,000 7,440,000 1.2000) 7,440,000 Cumulative Translation adjustment (CTA) (136,800) (1,736,800) 12,000,000 $14.400,000 $12,000,000 Temporal Method Cash 1.600,000 1.2000 $1,920,000 1.0000 $1,600,000 Accounts receivable 3,200,000 1.2000 3.840,000 1.000) 3,200,000 Inventory 2.400,000 1.2180 2.923.200 1.2180 2923.200 Net plant and equipment 4.800,000 1.2760 6,124,800 1.2760 6,124,800 12.000.000 $14,808,000 $13,848,000