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Exhibit 1 presents the balance sheet for December 31, 2018 of a Swiss subsidiary, which keeps its books in Swiss francs. However, they should be

Exhibit 1 presents the balance sheet for December 31, 2018 of a Swiss subsidiary, which keeps its books in Swiss francs. However, they should be translated into U.S. dollars, the reporting currency of the MNC.

Exhibit 1:

Assets

Liabilities & Net Worth

Cash

SF2,100,000

Accounts payable

SF800,000

Accounts receivable

1,500,000

Notes payable

2,200,000

Inventory

3,000,000

Common stock

2,700,000

Retained earnings

900,000

Total

6,600,000

Total

6,600,000

Assume that the Swiss Franc dropped in value from $1.10/SF to $1.00/SF between December 31 and January 1, 2019. All inventory and common stock were acquired from the exchange rate of $0.90/SF. If there is no change in balance sheet accounts between these two days, calculate the gain or loss from translation by temporal rate method.

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