Q27. The Precision Screen Printers (PSP) Company has a foreign subsidiary, the Acer Tool & Die Company, located in the country
of Rolivia. The currency of Rolivia is the
year-ended December 31, 2005, is shown below. The balance sheet has been restated using the U.S. dollar as the functional
currency.
Acer Tool & Die Company Balance Sheet | ||||||||
| (millions) | Exchange Rate (Chad/US$) | (millions) | |||||
Cash | 20 | | 0.25 | | $80 | | ||
Accounts receivable | 30 | | 0.25 | | 120 | | ||
Inventory | 100 | | 0.3125 | | 320 | | ||
Fixed assets (net) | 500 | | 0.3333 | | 1,500 | | ||
Total assets | 650 | | | | $2,020 | | ||
| ||||||||
Accounts payable | 50 | | 0.25 | | $200 | | ||
Capital stock | 380 | | 0.3333 | | 1,140 | | ||
Retained earnings | 220 | | -- | | 680 | | ||
Total liabilities and equity | 650 | | | | $2,020 | | ||
Acer Tool & Die Company Income Statement | ||||||||
Revenues | 1,000 | |||||||
Cost of sales | 700 | |||||||
Depreciation expense | 50 | |||||||
Selling expense | 30 | |||||||
Translation gain (or loss) | | |||||||
Net income | 220 | |||||||
Acer has determined that the exchange rate exposure at the beginning of 2005 is −260
The exchange rate at the beginning of 2005 was 0.3333 Chad/US$. The exchange rate at the end of 2005 was 0.25 Chad/US$. The average rate for 2005 is 0.3125 Chad/US$. Beginning inventory is 90
What is Acer Tool & Die's cost of sales in U.S. dollars using the temporal method?
A) $2,242.
B) $2,240.
C) $2,222.
Q28. What is the translation gain or loss for the period using the temporal method?
A) $52 loss.
B) $50 gain.
C) $32 loss.
答案和详解如下:
Q27. The Precision Screen Printers (PSP) Company has a foreign subsidiary, the Acer Tool & Die Company, located in the country
of Rolivia. The currency of Rolivia is the
year-ended December 31, 2005, is shown below. The balance sheet has been restated using the U.S. dollar as the functional
currency.
Acer Tool & Die Company Balance Sheet | ||||||||
| (millions) | Exchange Rate (Chad/US$) | (millions) | |||||
Cash | 20 | | 0.25 | | $80 | | ||
Accounts receivable | 30 | | 0.25 | | 120 | | ||
Inventory | 100 | | 0.3125 | | 320 | | ||
Fixed assets (net) | 500 | | 0.3333 | | 1,500 | | ||
Total assets | 650 | | | | $2,020 | | ||
| ||||||||
Accounts payable | 50 | | 0.25 | | $200 | | ||
Capital stock | 380 | | 0.3333 | | 1,140 | | ||
Retained earnings | 220 | | -- | | 680 | | ||
Total liabilities and equity | 650 | | | | $2,020 | | ||
Acer Tool & Die Company Income Statement | ||||||||
Revenues | 1,000 | |||||||
Cost of sales | 700 | |||||||
Depreciation expense | 50 | |||||||
Selling expense | 30 | |||||||
Translation gain (or loss) | | |||||||
Net income | 220 | |||||||
Acer has determined that the exchange rate exposure at the beginning of 2005 is −260
The exchange rate at the beginning of 2005 was 0.3333 Chad/US$. The exchange rate at the end of 2005 was 0.25 Chad/US$. The average rate for 2005 is 0.3125 Chad/US$. Beginning inventory is 90
What is Acer Tool & Die's cost of sales in U.S. dollars using the temporal method?
A) $2,242.
B) $2,240.
C) $2,222.
Correct answer is C)
The basis for using the all current method is when Functional Currency is NOT the same as Parent's Presentation (reporting) Currency. The basis for using the temporal method is when Functional Currency = Parent's Presentation Currency.
Purchases = COGS − Beginning inventory + ending inventory = 710
| Conversion | US$ | |
Beginning inventory | 90 | 0.3333 | $270 |
Purchases | 710 | 0.3125 | 2,272 |
Ending inventory | 100 | 0.3125 | 320 |
COGS | 700 |
| $2,222 |
Q28. What is the translation gain or loss for the period using the temporal method?
A) $52 loss.
B) $50 gain.
C) $32 loss.
Correct answer is A)
When using the temporal method, only cash, accounts receivable, accounts payable, current debt, and long-term debt are translated at the current rate. This means that exposure under the temporal method is:
(cash + accounts receivable) − (accounts payable + current debt + long-term debt)
The currency translation adjustment (CTA) is calculated as the sum of the flow effect and holding effect.
Flow effect (in $) = change in exposure (in LC) × (ending rate − average rate)
Holding gain/loss effect (in $) = beginning exposure (in LC) × (ending rate − beginning rate)
Going back to our data in the example:
Beginning exposure = −260
Ending exposure = (20 + 30) − (50 + 0 + 0) = 0
Change in exposure = (0 − (−260)) = 260
Flow effect (in $) = 260 × [(1 / 0.25) − (1 / 0.3125)] = 260 × [4 − 3.2] = 208
Holding gain/loss effect (in $) = −260 × [(1 / 0.25) − (1 / 0.3333)] = −260 × [4 − 3] = −260
Translation loss (in $) = flow effect + holding gain/loss effect = $208 + (−$260) = −$52
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