Question
Trojan Corporation USA borrowed 1,000,000 New Zealand dollars (NZ$) at the beginning of the calendar year when the exchange rate was $0.60 = NZ$1. Before
Trojan Corporation USA borrowed 1,000,000 New Zealand dollars (NZ$) at the beginning of the calendar year when the exchange rate was $0.60 = NZ$1. Before repaying this one-year loan, Trojan learns that the NZ dollar has appreciated to $0.70 = NZ$1. It discovers, also, that its New Zealand subsidiary has an exposed net asset position of NZ$ 3,000,000, which will produce a translation gain upon consolidation. What is the amount of the exchange gain or loss that will be reported in consolidated income if: a. the U.S. dollar is the foreign operations functional currency? b. the New Zealand dollar is the foreign operations functional currency and Trojan Corporation. designates the New Zealand dollar borrowing as a hedge of the New Zealand affiliates positive exposure?
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