The Mexican subsidiary of US firm has current assets of Peso 1mn, long term assets of...

The Mexican subsidiary of US firm has current assets of Peso 1mn, long term assets of Peso 4mn, current liabilities of Peso 400,000 and long term liabilities of Peso 1.5mn. If the Peso appreciated during a year from $0.05249 to $0.05312. Under FASB-52, what is the translation gain (loss) in dollar if peso is the functional currency?

a. $ 0

b. $ 1,575 loss

c. $ 378 gain

d. $ 1,953 gain

Solutions

Expert Solution

d. $1,953 gain

Under FASB-52, the parent company must translate foreign subsidiary results from the functional currency to the reporting currency. Thus, in our case $ is the reporting currency and Peso is the functional currency.

As no other information is mentioned with regards to holding, we assume that the Mexican subsidiary of US firm is wholly owned subsidiary of the US firm (i.e. 100% holding by the US firm). In such a case, the US firm has to record the "networth of the subsidiary" in it's consolidated books. With the information provided, we can prepare the abridged financial statements of the Mexican Subsidiary as follows to find the Networth of the company:

Equity & liabilities	Amount	Assets	Amount
	(Peso)		(Peso)
Networth (Bal fig.)	3,100,000	Long Term Assets	4,000,000
Long Term Liabilities	1,500,000	Current Assets	1,000,000
Current Liabilities	400,000
	5,000,000		5,000,000

So, the above networth of Mexican subsidiary of the US firm is Peso 3.1mn. As the Peso appreciated, the networth of the Mexican subsidiary for the US firm will also increase/appreciate.

The gain is calculated as follows:

3,100,000 x (0.05312 - 0.05249) = $1,953/-.

jeff jeffy answered 11 months ago

Next > < Previous

Related Solutions

A firm has $200,000 in current assets, $800,000 in long-term assets and $900,000 in long-term financing....

A firm has $200,000 in current assets, $800,000 in long-term assets and $900,000 in long-term financing. What is its net working capital (CA -CL)? Hint: Prepare a Balance Sheet.

US policymakers' decisions to bring down the value of the country's exchange rate, say from US$ 1 = 21 Mexican Peso today to US$1 = 19 Mexican Peso

US policymakers' decisions to bring down the value of the country's exchange rate, say from US$ 1 = 21 Mexican Peso today to US$1 = 19 Mexican Peso, would tend to ____ the value of exports to Mexico; thus, ____ the value of GDP in the United States.reduce ; reducingincrease ; reducingincrease ; increasingreduce ; increasingcannot be assessed based on information provided

Suppose Mexican central bank chooses to peg the peso to the US dollar and commits to...

Suppose Mexican central bank chooses to peg the peso to the US dollar and commits to a fixed exchange rate of $0.05 per peso(par value). Use a graph of dollar-peso foreign exchange market (you can put dollars per peso on the vertical axis) to show what happens when the Fed pursues contractionary monetary policy. Will peso become overvalued or undervalued? What kind of intervention should Mexican central bank employ to defend the peg?

A firm has a long-term debt–equity ratio of .4. Shareholders’ equity is $1 million. Current assets...

A firm has a long-term debt–equity ratio of .4. Shareholders’ equity is $1 million. Current assets are $200,000, and total assets are $1.5 million. If the current ratio is 2.0, what is the ratio of debt to total long-term capital? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Debt to long-term capital ____ % 28.6% and 28.57% is not a correct answer

Ruskin has the following balance sheet: Current assets $30,000,000, Current liabilities $10,000,000, Fixed assets 60,000,000, Long-term...

Ruskin has the following balance sheet: Current assets $30,000,000, Current liabilities $10,000,000, Fixed assets 60,000,000, Long-term debt 25,000,000, Common stock (1 million shares) 1,000,000, Retained earnings 39,000,000, Preferred Stock 15,000,000, Total assets $90,000,000, Total claims $90,000,000. The current liabilities consist entirely of notes payable to banks, and the interest rate on this debt is 10%, the same as the rate on new bank loans. These bank loans are not used for seasonal financing but instead are part of the company’s...

Bing, Incorporated, has current assets of $4,750, net fixed assets of $23,900, current liabilities of $3,000, and long-term debt of $13,400.

Bing, Incorporated, has current assets of $4,750, net fixed assets of $23,900, current liabilities of $3,000, and long-term debt of $13,400.a. What is the value of the shareholders' equity account for this firm? (Do not round intermediate calculations.)b. How much is net working capital? (Do not round intermediate calculations.)a. Shareholders' equity _____b. NWC ______

Bing, Incorporated, has current assets of $4,750, net fixed assets of $23,900, current liabilities of $3,000, and long-term debt of $13,400.

Arredondo, Inc., has current assets of $2,076, net fixed assets of $10,157, current liabilities of $684, and long-term debt of $1,753.

Arredondo, Inc., has current assets of $2,076, net fixed assets of $10,157, current liabilities of $684, and long-term debt of $1,753. What is the value of the shareholders’ equity account for this firm?

a Swiss subsidiary (Swiss AS) of a US firm, Kendall Systems. The current exchange rate is...

a Swiss subsidiary (Swiss AS) of a US firm, Kendall Systems. The current exchange rate is $0.80/SF. Swiss AS sells 6 million units, of which 3 million are sold at home and 3 million are exported selling at SF15/unit. It has fixed overhead costs of SF 6 million and direct costs (labor, raw material, etc.) of SF 10/unit. The firms has a straight line depreciation of SF 1 million each year and has a tax rate of 30%. depreciation of...

Prepare a memorandum of the accounting requirements for the impairment of long-term assets under the US...

Prepare a memorandum of the accounting requirements for the impairment of long-term assets under the US GAAP and IFRS including a comparison of the two methods. You must include citations from the Accounting Standards Codification (ASC) and the International Accounting Standards (IAS) in your memo. Treat your memo as a formal memo addressed to the Chief Financial Officer (CFO), which will also be reviewed by the company’s auditors.

Subjects