Question
Montevideo Products S.A. is the Uruguayan subsidiary of a US manufacturing company. Its balance sheet for January 1 follows. The January 1 exchange rate between
Montevideo Products S.A. is the Uruguayan subsidiary of a US manufacturing company. Its balance sheet for January 1 follows. The January 1 exchange rate between the USD and the UYU (Uruguayan peso) is UYU20/USD1.
Assets | Liabilities and Net Worth | ||
Cash | UYU60,000 | Current liabilities | UYU30,000 |
Accounts receivable | UYU120,000 | Long term debt | UYU90,000 |
Inventory | UYU120,000 | Capital stock | UYU300,000 |
Net plant & equipment | UYU240,000 | Retained earnings | UYU120,000 |
Total | UYU540,000 | Total | UYU540,000 |
Determine Montevideos contribution to the translation exposure of its parent on January 1 using the current rate method.
Calculate Montevideos contribution to its parents translation gain or loss if the exchange rate on December 31 is UYU32/USD1. Assume all UYU accounts remain as they were at the beginning of the year. Where and how would you record any difference?
Calculate Montevideos contribution to its parents translation gain or loss if the exchange rate on December 31 is UYU12/USD1. Assume all UYU accounts remain as they were at the beginning of the year. Where and how would you record any difference?
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