Difference in transaction exposure and accounting exposure

Assignment Help Financial Management
Reference no: EM13850553

Answer with explanation:

1. What is meant by the “translation” of foreign currency financial statements?

2. What is the cause of balance sheet exposure?

3. What is the primary difference between transaction exposure and accounting exposure?

4. When would the balance sheet exposure arising from the current rate method become realized?

5. Why would the management of a multinational corporation incur real costs to hedge accounting exposure, which is only on paper?

P 13-3 Translation worksheet, parent accounting

Pylon Corporation acquired all the outstanding capital stock of Sooth Company of London on January 1, 2008, for $800,000, when the exchange rate for British pounds was $1.60 and Sooth's stockholders' equity consisted of £400,000 capital stock and £100,000 retained earnings. Sooth's functional currency is the British pound. Balance sheet accounts for Sooth at January 1, 2008, in British pounds and U.S. dollars are summarized as follows:

                                                                                British' Pounds                  Exchange Rate U.S. Dollors

Cash                                                                      £ 50,000                                $1.60 $                  80,000

Accounts receivable-net 60,000 1.60 96,000

Inventories 40,000 1.60 64,000

Equipment 750,000 1.60 1,200,000

                Total                                                      £900,000 $1,440,000

Accumulated depreciation £250,000 $1.60 $ 400,000

Accounts payable 150,000 1.60 240,000

Capital stock 400,000 1.60 640,000

Retained earnings 100,000                                 1.60 160,000

                Total                                                      £900,000 $1,440,000

Exchange rates for 2008 are as follows:

Current exchange rate January 1, 2008 $1.60

Average exchange rate for 2008                                                1.63

Rate for cash dividends 1.62

Current exchange rate December 31, 2008 1.65

Sooth's adjusted trial balance in British pounds at December 31, 2008, is as follows:

Debits

Cash £                                                   20,000

Accounts receivable-net 70,000

Inventories 50,000

Equipment 800,000

Cost of sales 350,000

Depreciation expense 80,000

Operating expenses 100,000

Dividends 30,000

Total £1,500,000

Credits

Accumulated depreciation £ 330,000

Accounts payable 70,000

Capital stock 400,000

Retained earnings 100,000

Sales 600,000

Total £1,500,000

REQUIRED with calculation:

1. Prepare a translation worksheet to convert Sooth's December 31, 2008, adjusted trial balance into U.S.

2. Prepare journal entries on Pylon's books to account for the investment in Sooth for 2008.

3. Directly compute the translation gain or loss.

P 13-5 Remeasurement worksheet

Philip Corporation, a U.S. firm, acquired 100% of Stuart Corporation's outstanding stock at book value on January 1, 2008, for $112,000. Stuart is a New Zealand company, and its functional currency is the U.S. dollar. The exchange rate for New Zealand dollars (NZ$) was $0.70 when Philip acquired its interest. Stuart's stockholders' equity on January 1, 2008, consisted of NZ$150,000 capital stock and NZ$10,000 retained earnings. The adjusted trial balance for Stuart at December 31, 2008, is as follows:

Debits

Cash                                                      NZ$ 15,000

Accounts receivable—net 60,000

Inventories 30,000

Prepaid expenses 10,000

Land 45,000

Equipment 60,000

Cost of sales 120,000

Depreciation expense 12,000

Other operating expenses 28,000

Dividends 20,000

Total                                                      NZ$400,000

Credits

Accumulated depreciation           NZ$ 22,000

Accounts payable 18,000

Capital stock 150,000

Retained earnings 10,000

Sales 200,000

Total NZ$400,000

ADDITIONAL INFORMATION

1. Prepaid expenses (supplies) of NZ$18,000 were on hand when Philip acquired Stuart. Other operating expenses include NZ$8,000 of these supplies that were used in 2008. The remaining NZ$10,000 of sup-plies is on hand at year-end.

2. The NZ$120,000 cost of sales consists of NZ$50,000 inventory on hand at January 1, 2008, and NZ$100,000 in purchases during the year, less NZ$30,000 ending inventory that was acquired when the exchange rate was $0.66.

3. The NZ$60,000 of equipment consists of NZ$50,000 included in the business combination and NZ$10,000 purchased during 2008, when the exchange rate was $0.68. A depreciation rate of 20% is applicable to all equipment for 2008.

4. Exchange rates for 2008 are summarized as follows:

Current exchange rate January 1, 2008                                   $0.70

Exchange rate when new equipment was acquired 0.68

Average exchange rate for 2008 0.67

Exchange rate for December 31, 2008, inventory 0.66

Exchange rate for dividends 0.66

Current exchange rate December 31, 2008 0.65

REQUIRED with calculation:

Prepare a worksheet to premeasure the adjusted trial balance of Stuart Corporation into U.S. dollars at December 31, 2008.

Reference no: EM13850553

Questions Cloud

Question regarding the organization anti-union culture : You have just received an email from your boss (the CEO). He wants you to help turn around the organization's anti-union culture. He has asked you to prepare a slide presentation (10-15 slides) with notes at the bottom that he (the CEO) will give ..
What was yield to maturity : On December 20, 1994 the Nippon Telegraph & Telephone Corporation (NTT) issued ¥1 billion of 10-year debentures due December 20, 2004. The debentures carried a 4 3/4% coupon. What was the yield to maturity of NTT’s debentures at the time of issuance?..
Brief the facts of the case - burlarley vs walmart stores : Brief the facts of the case - Burlarley v. Walmart Stores, Inc. and assume your boss is seeking your opinions as noted in the Critical Legal Thinking, Ethics, and Contemporary Business questions. Argue both sides of all issues.
Write the cost function : Production and Cost focuses on a perfectly competitive industry. Each competitive firm in this industry has a Cobb-Douglas production function: q=0.02K0.5L0.5. These firms combine capital and labor to produce output. In task 3-2 you will use graph..
Difference in transaction exposure and accounting exposure : What is meant by the “translation” of foreign currency financial statements? What is the cause of balance sheet exposure? What is the primary difference between transaction exposure and accounting exposure? When would the balance sheet exposure arisi..
Supply chain management chain : Particularly since 2001 the field of SCM has gotten a lot of attention, with folks saying things like "It is no longer competition between individual companies, it is competition between supply chains," yet certainly procurement has been going on ..
What is the value of the preferred stock : Stephen and Chris are also looking at issuing preferred and common stock to further expand TechU's businesses. Instead of common stock, TechU is also looking at issuing preferred stock so Stephen Jobs can retain close ownership in the company. The pr..
Members of the bpm team : Should all members of the BPM team be considered as possible mentors? Explain and justify your answer. Who within the organization would be the mentee(s) for the institutionalization of the new processes? Make sure you fully support your conclusion..
The sales office and the printer in the business office : A table identifying each subnet, the subnet address, subnet mask in dotted decimal, highest useable address, lowest useable address, and broadcast address.The IP address, subnet mask, and gateway address for the printer in the Sales office and the pr..

Reviews

Write a Review

Financial Management Questions & Answers

  Foreign company acquisition

Acquisition by a foreign company and the effects of that decision and the results of foreign exchange in Euro and the exchange rate differences.

  Financial management for profit and non profit organizations

In this essay, we are going to discuss the issues of financial management in a non-profit organisation.

  Method for estimating a venture''s value

Evaluate venture's present value, cash and surplus cash and basic venture capital.

  Replacement analysis

This document show the Replacement Analysis of modling machine. Is replacement give profit to company or not?

  Business finance task - capital budgeting

Your company is considering using the payback period for capital-budgeting. Discuss the advantages and disadvantages of this technique.

  Analysis of the investment

In this project, you will focus on one of these: the additional cost resulting from the purchase of an apple press (a piece of equipment required to manufacture apple juice).

  Conduct a what-if analysis

Review the readings and media for this unit, including the Anthony's Orchard case study media. Familiarise yourself with the Anthony's Orchard company and its current situation.

  Determine operational expenditures

Organisations' behaviour is guided by financial data. In the short term, such data will help determine operational expenditures; in the long term, historical data may help generate forecasts aimed at determining strategic plans. In both instances.

  Personal financial management

How much will you have left over each half year if you adopt the latter course of action?

  Sources of finance for expansion into new foreign markets

A quoted company is considering several long-term sources of finance for expansion into new foreign markets.

  Long term financial planning

This assignment is designed for analyze Long term financial planning begins with the sales forecast and the key input in the long term fincial planning.

  Explain the role of fincial manager

This assignment explain the role of fincial manager, function of manger. And what are the motives of financial manager.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd