Ganado Europe (B). Using facts in the chapter for Ganado Europe, assume that the exchange rate on January 2, 2016, in Exhibit 11.6 dropped in value from $1.1800/ to $0.8600/. Recalculate Ganado Europe's translated balance sheet for January 2, 2016, with the new exchange rate using the temporal rate method as shown in the popup window,
a. What is the amount of translation gain or loss?
b. Where should it appear in the financial statements?
c. Why does the translation loss or gain under the temporal method differ from the loss or gain under the current rate method?
X Data Table December 31, 2015 January 2, 2016 Exchange Rate Translated Exchange Rate Translated Assets In Euros (C) (US$/euro) Accounts (US$) (US$/euro) Accounts (US$) Cash 1,200,000 1.1800 $1,416,000 0.8600 $1,032,000 Accounts receivable 3,500,000 1.1800 4,130,000 0.8600 3,010,000 Inventory 3,000,000 1.1950 3,585,000 1.1950 3,585,000 Net plant and equipment 4,500,000 1.2520 5,634,000 1.2520 5,634,000 Total 12,200,000 $14,765,000 $13,261,000 Liabilities and Net Worth Accounts payable 600,000 1.1800 $708,000 0.8600 $516,000 Short-term bank debt 1,200,000 1.1800 1,416,000 0.8600 1,032,000 Long-term debt 1,000,000 1.1800 1,180,000 0.8600 860,000 Common stock 1,900,000 1.2520 2,378,800 1.2520 2,378,800 Retained earnings 7,500,000 1.2263 (a) 9,082,200 1.2263 (b) 9,082,200 Translation gain (loss) (c) ? Total 12,200,000 $14,765,000 $13,261,000 (a) Dollar retained earnings before depreciation are the cumulative sum of additions to retained earnings of all prior years, translated to exchange rates in each year. (b) Translated into dollars at the same rate as before depreciation of the euro. (c) Under the temporal method, the translation loss would be closed into retained earnings through the income statement rather than left as a separate line item as shown here. X Data Table December 31, 2015 January 2, 2016 Exchange Rate Translated Exchange Rate Translated Assets In Euros (C) (US$/euro) Accounts (US$) (US$/euro) Accounts (US$) Cash 1,200,000 1.1800 $1,416,000 0.8600 $1,032,000 Accounts receivable 3,500,000 1.1800 4,130,000 0.8600 3,010,000 Inventory 3,000,000 1.1950 3,585,000 1.1950 3,585,000 Net plant and equipment 4,500,000 1.2520 5,634,000 1.2520 5,634,000 Total 12,200,000 $14,765,000 $13,261,000 Liabilities and Net Worth Accounts payable 600,000 1.1800 $708,000 0.8600 $516,000 Short-term bank debt 1,200,000 1.1800 1,416,000 0.8600 1,032,000 Long-term debt 1,000,000 1.1800 1,180,000 0.8600 860,000 Common stock 1,900,000 1.2520 2,378,800 1.2520 2,378,800 Retained earnings 7,500,000 1.2263 (a) 9,082,200 1.2263 (b) 9,082,200 Translation gain (loss) (c) ? Total 12,200,000 $14,765,000 $13,261,000 (a) Dollar retained earnings before depreciation are the cumulative sum of additions to retained earnings of all prior years, translated to exchange rates in each year. (b) Translated into dollars at the same rate as before depreciation of the euro. (c) Under the temporal method, the translation loss would be closed into retained earnings through the income statement rather than left as a separate line item as shown here
