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Darvish Company is a European subsidiary of Cubbie Corporation, a U.S. company. Darvish had the following balance sheet at December 31, 20X1: (in millions of
Darvish Company is a European subsidiary of Cubbie Corporation, a U.S. company. Darvish had the following balance sheet at December 31, 20X1:
(in millions of euros) | |||
Cash | 50 | ||
Accounts receivable | 75 | ||
Inventory | 120 | ||
Fixed assets, net of accumulated depreciation | 480 | ||
Total assets | 725 | ||
Note payable | 280 | ||
Common equity | 445 | ||
Total liabilities and equity | 725 | ||
There are no differences between local GAAP and U.S. GAAP for Darvish. Cubbie translates Darvishs financial statements into U.S. dollars using the temporal method.
Required:
- What is the amount of Darvishs translation exposure at December 31, 20X1?
- Ignoring any changes in Darvishs translation exposure that might arise during 20X2, what amount of translation gain or loss arises in 20X2 if the euros value falls from $1.20 at December 31, 20X1, to $1.15 at December 31, 20X2?
- Is the translation gain or loss referred to in Requirement 2 included in net income or in other comprehensive income?
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