Question
Ganado Europe (D).Using facts in the chapter for Ganado Europe, assume that the exchange rate on January 2, 2016, in Exhibit 11.6 appreciated from $1.1800/
Ganado Europe (D).Using facts in the chapter for Ganado Europe, assume that the exchange rate on January 2, 2016, in Exhibit 11.6 appreciated from $1.1800/ to $1.5600/euro.
Calculate Ganado Europe's translated balance sheet for January 2, 2016, with the new exchange rate using the temporal rate method as shown.
EXHIBIT 11.6 Ganado Europe's Translation Loss After Depreciation of the Euro: Temporal Method |
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December 31, 2015 | January 2, 2016 | |||||||||||||||
Assets | In Euros (euro) | Exchange Rate (US$/euro) | Translated Accounts (US$) | Exchange Rate (US$/euro) | Translated Accounts (US$) | |||||||||||
Cash | 1,800,000 | 1.1800 | $2,124,000 | 1.5600 | $2,808,000 | |||||||||||
Accounts receivable | 3,100,000 | 1.1800 | 3,658,000 | 1.5600 | 4,836,000 | |||||||||||
Inventory | 2,400,000 | 1.2040 | 2,889,600 | 1.2040 | 2,889,600 | |||||||||||
Net plant and equipment | 5,200,000 | 1.2510 | 6,505,200 | 1.2510 | 6,505,200 | |||||||||||
Total | 12,500,000 | $15,176,800 | $17,038,800 | |||||||||||||
Liabilities and Net Worth | ||||||||||||||||
Accounts payable | 600,000 | 1.1800 | $708,000 | 1.5600 | $936,000 | |||||||||||
Short-term bank debt | 1,900,000 | 1.1800 | 2,242,000 | 1.5600 | 2,964,000 | |||||||||||
Long-term debt | 1,900,000 | 1.1800 | 2,242,000 | 1.5600 | 2,964,000 | |||||||||||
Common stock | 2,200,000 | 1.2510 | 2,752,200 | 1.2510 | 2,752,200 | |||||||||||
Retained earnings | 5,900,000 | 1.2293 | (a) | 7,232,600 | 1.2293 | (b) | 7,232,600 | |||||||||
Translation gain (loss) | long dash | (c) | ? | |||||||||||||
Total | 12,500,000 | $15,176,800 | $17,038,800 | |||||||||||||
(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. |
a. What is the amount of translation gain or loss? Enter a positive number for a gain and negative for a loss. $___(Round to the nearest dollar.)
b. Where should it appear in the financial statements?(Select the best choice below.)
A.The translation gain (loss) for the year is added to the balance in the Retained Earnings account.
B.The translation gain (loss) for the year is added to the balance in the Total Assets account.
C.The translation gain (loss) for the year is added to the balance in the Cumulative Translation Adjustment (CTA) account.
D.The translation gain (loss) for the year is added to the balance in the Total Liabilities and Net Worth account.
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