Ganado Europe (A). Using facts in the chapter for Ganado Europe, assume the exchange rate on January 2, 2020, in Exhibit 11.5 dropped in value from $1.2000 = €1.00 to $0.9000 = €1.00 (rather than to $1.0000 = €1.00). Recalculate Ganado Europe’s translated balance sheet for January 2, 2020, with the new exchange rate using the current rate method. What is the amount of translation gain or loss? Where should the translation gain or loss appear in the financial statements?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Ganado Europe (A). Using facts in the chapter for Ganado Europe, assume the exchange rate on January 2, 2020, in Exhibit 11.5 dropped in value from $1.2000 = €1.00 to $0.9000 = €1.00 (rather than to $1.0000 = €1.00). Recalculate Ganado Europe’s translated balance sheet for January 2, 2020, with the new exchange rate using the current rate method.

  1. What is the amount of translation gain or loss?
  2. Where should the translation gain or loss appear in the financial statements?
Assets
Cash
Accounts receivable
Inventory
Net plant & equipment
Total
Liabilities & Net Worth
Accounts payable
Short-term bank debt
Long-term debt
Common stock
Retained earnings
Translation adjustment (CTA)
Total
In Euros (€)
1,600,000
3,200,000
2,400,000
4,800,000
12,000,000
800,000
1,600,000
1,600,000
1,800,000
6,200,000
December 31, 2019
Exchange Rate
($ = €1.00)
1.2000
1.2000
1.2000
1.2000
1.2000
1.2000
1.2000
1.2760
1.2000 (a)
Translated
Accounts ($)
$ 1,920,000
3,840,000
2,880,000
5,760,000
$ 14,400,000
$
960,000
1,920,000
1,920,000
2,296,800
7,440,000
$ (136,800)
$ 14,400,000
January 2, 2020
Translated
Accounts ($)
Exchange Rate
($ = €1.00)
1.0000
1.0000
1.0000
1.0000
1.0000
1.0000
1.0000
1.2760
1.2000 (b)
$ 1,600,000
3,200,000
2,400,000
4,800,000
$ 12,000,000
800,000
1,600,000
1,600,000
2,296,800
7,440,000
$ (1,736,800)
$ 12,000,000
12,000,000
(a) Dollar retained earnings before depreciation are the cumulative sum of additions to retained earnings of all prior years, translated at exchange rates in
each year.
(b) Translated into dollars at the same rate as before depreciation of the euro.
Transcribed Image Text:Assets Cash Accounts receivable Inventory Net plant & equipment Total Liabilities & Net Worth Accounts payable Short-term bank debt Long-term debt Common stock Retained earnings Translation adjustment (CTA) Total In Euros (€) 1,600,000 3,200,000 2,400,000 4,800,000 12,000,000 800,000 1,600,000 1,600,000 1,800,000 6,200,000 December 31, 2019 Exchange Rate ($ = €1.00) 1.2000 1.2000 1.2000 1.2000 1.2000 1.2000 1.2000 1.2760 1.2000 (a) Translated Accounts ($) $ 1,920,000 3,840,000 2,880,000 5,760,000 $ 14,400,000 $ 960,000 1,920,000 1,920,000 2,296,800 7,440,000 $ (136,800) $ 14,400,000 January 2, 2020 Translated Accounts ($) Exchange Rate ($ = €1.00) 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.2760 1.2000 (b) $ 1,600,000 3,200,000 2,400,000 4,800,000 $ 12,000,000 800,000 1,600,000 1,600,000 2,296,800 7,440,000 $ (1,736,800) $ 12,000,000 12,000,000 (a) Dollar retained earnings before depreciation are the cumulative sum of additions to retained earnings of all prior years, translated at exchange rates in each year. (b) Translated into dollars at the same rate as before depreciation of the euro.
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