Darvish Company is a European subsidiary of Cubbie Corporation, a U.S. company. Darvish had the following...

Darvish Company is a European subsidiary of Cubbie Corporation, a U.S. company. Darvish had the following balance sheet at December 31, 20X1:

(in millions of euros)
Cash	€	50
Accounts receivable		75
Inventory		120
Fixed assets, net of accumulated depreciation		480
Total assets	€	725

Note payable	€	280
Common equity		445
Total liabilities and equity	€	725

There are no differences between local GAAP and U.S. GAAP for Darvish. Cubbie translates Darvish’s financial statements into U.S. dollars using the current rate method.

Required:

What is the amount of Darvish’s translation exposure at December 31, 20X1?
Ignoring any changes in Darvish’s translation exposure that might arise during 20X2, what amount of translation gain or loss arises in 20X2 if the euro’s value falls from $1.20 at December 31, 20X1, to $1.15 at December 31, 20X2?
Is the translation gain or loss referred to in Requirement 2 included in net income or in other comprehensive income?

Solutions

Expert Solution

This solution comprises the defination of Translation exposure, and Translation exposure at december 31 ,20X1 and Translation gain or loss relating to asset and laibilities and total loss on Translation exposure.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Darvish Company is a European subsidiary of Cubbie Corporation, a U.S. company. Darvish had the following...

Darvish Company is a European subsidiary of Cubbie Corporation, a U.S. company. Darvish had the following balance sheet at December 31, 20X1: (in millions of euros) Cash € 50 Accounts receivable 75 Inventory 120 Fixed assets, net of accumulated depreciation 480 Total assets € 725 Note payable € 280 Common equity 445 Total liabilities and equity € 725 There are no differences between local GAAP and U.S. GAAP for Darvish. Cubbie translates Darvish’s financial statements into U.S. dollars using the...

The Williams Company, a U.S.-based company, owns 100% of a European Subsidiary (ES). The investment in...

The Williams Company, a U.S.-based company, owns 100% of a European Subsidiary (ES). The investment in ES totals $10 million (euros 13.5 million) as of the end of Year 1. This represents an initial investment of $6 million and retained earnings of $4 million. The Currency Translation Adjustment (CTA) account included in Other Comprehensive Income (OCI) totals $1 million (loss) at the end of Year 1. During Year 2, Williams decided to sell 25% of ES to the Tremont Company,...

Ealing Company began operations as a new subsidiary of Fundamental Company, a U.S. Corporation, on January...

Ealing Company began operations as a new subsidiary of Fundamental Company, a U.S. Corporation, on January 2, 2018, by issuing common stock for 180,000 foreign currency units (FCU). Ealing immediately borrowed 35,000 FCU with a 10-year, 10% note, interest payable annually on January 1. On the same date, Ealing bought a building for 200,000 FCU. The building was to be depreciated for 20 years on a straight-line basis with a residual value of 40,000 FCU. During the year, the building...

Ealing Company began operations as a new subsidiary of Fundamental Company, a U.S. Corporation, on January...

Consolidation of an International Subsidiary at Date of Acquisition Fairview Corporation, a U.S. company, has a...

Consolidation of an International Subsidiary at Date of Acquisition Fairview Corporation, a U.S. company, has a wholly-owned subsidiary in Mexico. The subsidary's functional currency is the Mexican peso, and translation to U.S. dollars is appropriate. The subsidiary was acquired for $10,800,000. The balance sheet of the subsidiary on the date of acquisition is as follows: Mexican Subsidiary Balance Sheet at Date of Acquisition Assets Cash and receivables P9,000,000 Inventories 21,000,000 Noncurrent assets, net 45,000,000 Total assets P75,000,000 Liabilities and stockholders'...

Maples Corporation is a Canadian subsidiary of a U.S. parent company. Shown below is the company’s...

Maples Corporation is a Canadian subsidiary of a U.S. parent company. Shown below is the company’s local currency income statement for 20X1. All transactions the company entered into should be considered to have occurred evenly throughout the year, except for the loss on storm damage, which occurred on September 30, 20X1, and resulted in the destruction of certain fixed assets. The U.S. parent translates Maples’ financial statements into U.S. dollars using the current rate method. (in millions of Canadian dollars)...

Portsmouth Corporation, a British corporation, is a wholly owned subsidiary of Salem Corporation, a U.S. corporation....

Portsmouth Corporation, a British corporation, is a wholly owned subsidiary of Salem Corporation, a U.S. corporation. During the year, Portsmouth reported the following income: $250,000 interest income received from a loan to an unrelated French corporation. $100,000 dividend income received from a less than 1 percent owned unrelated Dutch corporation. $150,000 rent income from an unrelated British corporation on property Portsmouth actively manages. $500,000 gross profit from the sale of inventory manufactured by Portsmouth in Great Britain and sold to...

4. Todor owns a U.S. corporation that operates a subsidiary corporation in Bulgaria. Because of the...

4. Todor owns a U.S. corporation that operates a subsidiary corporation in Bulgaria. Because of the world wide tax approach adopted in the United States, all income of the Bulgarian subsidiary is potentially taxed twice, once in Bulgaria and again in the United States. Name and provide a brief description of the adjustments available on the U.S. return of the parent corporation which mitigate the impact of this potential double tax on all Bulgarian income?

Translation and Remeasurement of Subsidiary Trial Balance Costsave Corporation, a U.S. company, acquired Denner, a discount...

Translation and Remeasurement of Subsidiary Trial Balance Costsave Corporation, a U.S. company, acquired Denner, a discount supermarket chain in Switzerland, on January 1, 2017. Denner is a subsidiary of Costsave, and its results are consolidated with those of Costsave in Costsave's financial statements. Denner's trial balances for January 1 and December 31, 2017, in Swiss francs (CHF) appear below. Dr(Cr) (in thousands) December 31 January 1 Cash and receivables CHF 45,000 CHF30,000 Inventories 55,000 65,000 Plants and equipment, net 180,000...

Wick Corporation has a Mexican subsidiary that had the following balance sheet at December 31, 20X1...

Wick Corporation has a Mexican subsidiary that had the following balance sheet at December 31, 20X1 (stated in millions of pesos): (millions of pesos) Cash 300 Accounts receivable 125 Inventory 400 Property and equipment 1,950 Total assets 2,775 Accounts payable 280 Long-term debt 1,200 Common equity 1,295 Total liabilities and equity 2,775 At December 31, 20X1, it took 19.66 pesos to buy one U.S. dollar. At December 31, 20X2, it took only 19.50 pesos to buy one U.S. dollar because...

Subjects