Using facts in the chapter for Ganado Europe, assume the exchange rate on January 2, 2006, in Exhibit 11.4 appreciated from $1.2000/ to $1.500/. Calculate Ganado Europe's translated balance sheet for January 2, 2006 with the new exchange rate using the current rate method.
a. What is the amount of translation gain or loss?
b. Where should it appear in the financial statements?
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Exhibit 11.4: Ganado Corporation, Selected Financial Results, 2014-2015 Average Exchange Rate ($/ and YUN/$) 2014 2015 % Change United States Europe China Total Sales (millions, local currency) 2014 2015 % Change $280 $300 7.1% 118 120 1.7% YUN 600 YUN 600 0.0% Sales (millions of US$) 2014 2015 % Change $280.0 $300.0 7.1% $165.2 $158.4 -4.1% $87.8 $89.6 1.9% $533.0 $548.0 2.8% 1.4000 6.8300 1.3200 6.7000 -5.71% 1.94% Average Exchange Rate ($/ and YUN/$) 2014 2015 % Change Earnings (millions, local currency) 2014 2015 % Change $28.2 $28.6 1.4% 10.4 10.5 1.0% YUN 71.4 YUN 71.4 0.0% United States Europe China Total Earnings (millions of US$) 2014 2015 % Change $28.2 $28.6 1.4% $14.6 $13.9 -4.8% $10.5 $10.7 1.9% $53.2 $53.1 -0.2% -5.71% 1.4000 6.8300 1.3200 6.7000 1.94% Translation Using the Current Rate Method: euro appreciates from $1.2000/euro to $1.5000/euro. Just after revaluation Exchange Rate (US$/euro) Translated Accounts US dollars Assets Cash Accounts receivable Inventory Net plant & equipment Total Euros Statement 1,600,000 3,200,000 2,400,000 4,800,000 12,000,000 Just before revaluation Translated Exchange Rate Accounts (US$/euro) US dollars 1.2000 $ 1,920,000 1.2000 3,840,000 1.2000 2,880,000 1.2000 5,760,000 $ 14,400,000 $ Liabilities & Net Worth Accounts payable Short-term bank debt Long-term debt Common stock Retained earnings CTA account (loss) Total 800,000 1,600,000 1,600,000 1,800,000 6,200,000 1.2000 1.2000 1.2000 1.2760 1.2000 960,000 1,920,000 1,920,000 2,296,800 7,440,000 (136,800) 14,400,000 $ 12,000,000 $ Exhibit 11.4: Ganado Corporation, Selected Financial Results, 2014-2015 Average Exchange Rate ($/ and YUN/$) 2014 2015 % Change United States Europe China Total Sales (millions, local currency) 2014 2015 % Change $280 $300 7.1% 118 120 1.7% YUN 600 YUN 600 0.0% Sales (millions of US$) 2014 2015 % Change $280.0 $300.0 7.1% $165.2 $158.4 -4.1% $87.8 $89.6 1.9% $533.0 $548.0 2.8% 1.4000 6.8300 1.3200 6.7000 -5.71% 1.94% Average Exchange Rate ($/ and YUN/$) 2014 2015 % Change Earnings (millions, local currency) 2014 2015 % Change $28.2 $28.6 1.4% 10.4 10.5 1.0% YUN 71.4 YUN 71.4 0.0% United States Europe China Total Earnings (millions of US$) 2014 2015 % Change $28.2 $28.6 1.4% $14.6 $13.9 -4.8% $10.5 $10.7 1.9% $53.2 $53.1 -0.2% -5.71% 1.4000 6.8300 1.3200 6.7000 1.94% Translation Using the Current Rate Method: euro appreciates from $1.2000/euro to $1.5000/euro. Just after revaluation Exchange Rate (US$/euro) Translated Accounts US dollars Assets Cash Accounts receivable Inventory Net plant & equipment Total Euros Statement 1,600,000 3,200,000 2,400,000 4,800,000 12,000,000 Just before revaluation Translated Exchange Rate Accounts (US$/euro) US dollars 1.2000 $ 1,920,000 1.2000 3,840,000 1.2000 2,880,000 1.2000 5,760,000 $ 14,400,000 $ Liabilities & Net Worth Accounts payable Short-term bank debt Long-term debt Common stock Retained earnings CTA account (loss) Total 800,000 1,600,000 1,600,000 1,800,000 6,200,000 1.2000 1.2000 1.2000 1.2760 1.2000 960,000 1,920,000 1,920,000 2,296,800 7,440,000 (136,800) 14,400,000 $ 12,000,000 $
