1. Johnson Controls Corp., a major U.S. auto parts supplier, has a manufacturing subsidiary in Nuevo Laredo, Mexico, which assembles wiring harnesses for auto electrical systems. Quarterly, Johnson Controls must consolidate the financial statements of all its foreign subsidiaries into one overall corporate-wide financial statement as required by U.S. accounting standards. This results in translation gains and losses as exchange rates fluctuate against the U.S. dollar. The Mexican peso has been particularly volatile the last few years so the Treasurer of Johnson Controls has been following the translation exposure of the Mexican subsidiary with unusual interest. Prepare the Translation Exposure Report by both the current rate and temporal methods from the balance sheet information for the Mexican subsidiary presented below (all accounts are in pesos 000s).

Assets Liabilities

Cash Ps 5400 Accounts Payable Ps 4600

Accounts Receivable 8750 Bank loans 13800

Inventory 12860 Bonds 8370

Plant & Equipment 25430 Common Stock 24000

Retained Earnings 1670

1. Prepare the Translation Exposure Report for the Mexican subsidiary by the a. current rate method and b. temporal method. A. current rate method is true.

2. What is the translation exposure in USD for the Mexican subsidiary if the current spot rate is Ps 15.6432/$ by the a. current rate method and b. temporal method? B. Temporal method is true

3. If the exchange rate is Ps 14.2650/$ at the end of the next quarter, what would be the translation gain or loss by the a. current rate method and b. temporal method? Gain on temporal method and is $117.

4. If the exchange rate is Ps 16.8455/$ at the end of the next quarter, what would be the translation gain or loss by the a. current rate method and b. temporal method?