51．nt Company is a U.S. Company with a subsidiary, Grande, Inc., that operates in Mexico. Giant Company uses either the temporal or the all-current method of foreign currency translation for its subsidiaries. § Grande, Inc., began operations January 1, 2001. § Common Stock and Fixed Assets were acquired January 1, 2000. § Inventory is accounted for under the last in, first out (LIFO) cost flow assumption, with a slow rate of turnover. §
The beginning U.S. dollar value of Giant's retained earnings was $2,600,000. § The inventory in the January 1, 2001, Balance Sheet was acquired on January 1, 2001. Exchange Rates were: | January 1, 2000 | $0.14/M peso | | January 1, 2001 | $0.12/M peso | | June 30, 2001 | $0.11/M peso (this is the 2001 average rate) | | December 31, 2001 | $0.10/M peso |
| Grande, Inc. | | Balance Sheet (in M Pesos) | | Jan. 1, 2001 | Dec. 31, 2001 | Cash | 5,000,000 | 20,000,000 | Accounts Receivable | 20,000,000 | 35,000,000 | Inventory | 15,000,000 | 15,000,000 | Fixed Assets (net) | 70,000,000 | 60,000,000 | | | | Accounts Payable | 10,000,000 | 10,000,000 | Long Term Debt | 40,000,000 | 35,000,000 | Common Stock | 80,000,000 | 80,000,000 | Retained Earnings | | 5,000,000 | | | | | 2001 Income Statement | | (in M Pesos) | Sales | 60,000,000 | Cost of Goods Sold | (45,000,000) | Depreciation | (10,000,000) | Net Income | 5,000,000 |
Assume that Giant Company considers the Mexican peso to be the local currency and the functional currency of Grande, Inc. Giant Company should use the following method to reflect the results of Grande, Inc., in its financial statements: A) the all-current method. B) the temporal method. C) the temporal method followed by the all-current method. D) the all-current method followed by the temporal method. The correct answer was A) The all-current method is used when the local currency and functional currency are the same. 52． Net Income of Grande, Inc., expressed in U.S. dollars for the year ended December 31, 2001, is: A) $250,000. B) $400,000. C) $500,000. D) $550,000. The correct answer was D) Using the all-current method, the income statement is translated using the average rate for all income statement accounts: Sales – Cost of Goods Sold – Depreciation = Net Income. [(60,000,000) * ($0.11)] – [(45,000,000) * ($0.11)] – [(10,000,000) * ($0.11)] = $550,000. 53．t is the translation gain or loss for Grande, Inc., for the year ended December 31, 2001? A) -$1,650,000. B) +$50,000. C) -$400,000. D) -$2,350,000. The correct answer was A) Exposure under the all-current method is simply equity, which means exposure = 85,000 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 = 80,000,000 Ending exposure = 85,000,000 Change in exposure = 85,000,000 – 80,000,000 = 5,000,000 Flow effect (in $) = 5,000,000 × [$0.10 – $0.11] = 5,000,000 × [– $0.01] = -$50,000 Holding gain/loss effect (in $) = 80,000,000 × [$0.10 – $0.12] = 80,000,000 × [- $0.02] = $-$1,600,000 Translation loss (in $) = flow effect + holding gain/loss effect = $-50,000 + (-$1,600,000) = -$1,650,000 54．e translation gain or loss from the activities of Grande, Inc., should be reported in: A) the statement of cash flows. B) the equity accounts. C) the income statement. D) net fixed assets. The correct answer was B) Under the all-current method, translation gains or losses are accumulated on the balance sheet in the equity section. |
发表于 2008-5-13 11:38
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