Question
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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