.Chapter6ForeignCurrencyTranslationDiscussionQuestionsSolutionsForeigncurrencytranslationistheprocessofrestatingaforeignaccountbalancefromonecurrencytoanother.Foreigncurrencyconversionistheprocessofphysicallyexchangingonecurrencyforanother.Intheforeignexchangespotmarket,currenciesboughtandsoldmustbedeliveredimmediately,normallywithin2businessdays.ThusaSingaporeantouristbuyingU.S.dollarsattheairportbeforeboardingaplaneforNewYorkwouldhandoverSingaporedollarsandimmediatelyreceivetheequivalentamountinU.S.dollars.Theforwardmarkethandlesagreementstoexchangeafixedamountofonecurrencyforanotheronanagreeddateinthefuture.Forexample,aFrenchmanufacturerexportinggoodsinvoicedineurostoaJapaneseimporteron60-daycredittermswouldbuyaforwardcontracttosellyenforeuros2monthsinthefuture.Transactionsintheswapmarketinvolvethesimultaneouspurchase(orsale)ofonecurrencyinthespotmarketandthesale(orpurchase)ofthesamecurrencyintheforwardmarket.Thus,aCanadianinvestorwishingtotakeadvantageofhigherinterestrateson6-monthTreasurybillsintheUnitedStateswouldbuyU.S.dollarswithCanadiandollarsinthespotmarketandinvestintheUnitedStates.ToguardagainstafallinthevalueoftheU.S.dollarbeforematurity(whentheU.S.dollarproceedsareconvertedbacktoCanadiandollars),theCanadianinvestorwouldsimultaneouslyenterintoaforwardcontracttosellU.S.dollarsforCanadiandollars6monthsinthefutureattodaysforwardexchangerate.Thequestionreferstoalternativeexchangeratesthatareusedtotranslateforeignfinancialstatements.Thecurrentrateistheexchangerateatthefinancialstatementdate.Itissometimescalledtheyear-endorclosingrate.Thehistoricalrateistheexchangerateatthetimeoftheunderlyingtransaction.Theaveragerateistheaverageofvariousexchangeratesduringafiscalperiod.Sincetheaverageratenormallyisusedtotranslateincomestatementitems,itisoftenweightedtoreflectanyseasonalchangesinthevolumeoftransactionsduringtheperiod.Translationgainsandlossesdonotoccurifexchangeratesdonotchange.However,ifexchangerateschange,theuseofcurrentandaverageratescausestranslationgainsandlosses.Thesedonotoccurwhenthehistoricalrateisusedbecausethesame(constant)rateisusedeachperiod.Inthisexample,theMexicanAffiliatesCanadiandollarloanisdenominatedinCanadiandollars.However,becausetheMexicanaffiliate’sfunctionalcurrencyisU.S.dollars,thepesoequivalent優(yōu)選.oftheCanadiandollarborrowingwouldberemeasuredinU.S.dollarspriortoconsolidation.IftheMexicanaffiliate’sfunctionalcurrencywerethepeso,theCanadiandollarloanwouldberemeasuredinpesosbeforebeingtranslatedtoU.S.dollars.Atransactiongainorlossoccurswhenaforeigncurrencytransaction,e.g.,aforeigncurrencyborrowing,issettledatadifferentexchangeratethanthatwhichprevailedwhenthetransactionwasoriginallyincurred.Inthiscasethereisanexchangeofonecurrencyforanother.Atranslationgainorloss,ontheotherhand,issimplytheresultofarestatementprocess.Thereisnophysicalexchangeofcurrenciesinvolved.Itisnotpossibletocombine,add,orsubtractaccountingmeasurementsexpressedindifferentcurrencies;thus,itisnecessarytotranslatethoseaccountsthataremeasuredordenominatedinaforeigncurrencyintoasinglereportingcurrency.Foreigncurrencytranslationcaninvolverestatementorremeasurement.Inrestatement,thelocal(functional)currencyiskeptastheunitofmeasure;thatis,thetranslationprocessmultipliesthefinancialresultsandrelationshipsinthelocalcurrencyaccountsbyaconstant,thecurrentrate.Incontrast,remeasurementtranslateslocalcurrencyresultsasiftheunderlyingtransactionshadtakenplaceinthereporting(functional)currencyoftheparentcompany;forexample,itchangestheunitofmeasureofaforeignsubsidiaryfromitslocal(foreign)currencytotheU.S.dollar.7.Majoradvantagesandlimitationsofeachofthemajortranslationmethodsfollow.CurrentRateMethodAdvantages:a.Retainstheinitialrelationshipsintheforeigncurrencystatements.b.Simpletoapply.Limitations:a.Violatesthebasicpurposeofconsolidation,whichistopresenttheresultsofaparentanditssubsidiariesasiftheywereasingleentity.b.Inconsistentwithhistoricalcost.c.Presumesthatalllocalassetsandliabilitiesaresubjecttoexchangerisk.d.WhilestockholdersequityadjustmentsshieldanMNCsbottomlinefromtranslationgainsandlosses,suchadjustmentscoulddistortcertainfinancialratiosandbeconfusing.Current-noncurrentMethodAdvantages:a.Distortionsintranslatedgrossmarginsarereducedasinventoriesandtranslatedatthecurrentrate.優(yōu)選.b.Reportedearningsareshieldedfromthedistortingeffectsofcurrencyfluctuationsasexcesstranslationgainsaredeferredandusedtooffsetfuturetranslationlosses.Limitations:a.Usesbalancesheetclassificationasbasisfortranslation.b.Assumesallcurrentassetsareexposedtoexchangeriskregardlessoftheirform.c.Assumeslong-termdebtisshelteredfromexchangeraterisk.Monetary-nonmonetaryMethodAdvantages:a.Reflectschangesindomesticcurrencyequivalentoflong-termdebtonatimelybasis.Limitations:a.Assumesthatonlymonetaryassetsandliabilitiesaresubjecttoexchangeraterisk.b.Exchangeratechangesdistortprofitmarginsassalestransactedatcurrentpricesarematchedagainstcostofsalesmeasuredathistoricalprices.c.Usesbalancesheetclassificationasbasisfortranslation.d.Nonmonetaryitemsstatedatcurrentmarketvaluesaretranslatedathistoricalrates.TemporalMethodAdvantages:a.Theoreticallyvalid:compatiblewithanyaccountingmeasurementmethod.b.Hastheeffectoftranslatingforeignsubsidiariesoperationsasiftheywereoriginallytransactedinthehomecurrency,whichisdesirableforforeignoperationsthatareextensionsoftheparent’sactivities.Limitation:a.Acompanyincreasesitsearningsvolatilitybyrecognizingtranslationgainsandlossescurrently.Inarguingforonetranslationmethodoveranother,yourstudentsshouldeventuallyrealizethat,inthepresentstateoftheart,thereisprobablynoonetranslationmethodthatisappropriateforallcircumstancesinwhichtranslationsoccurandforallpurposesthattranslationserves.Itisprobablymorefruitfultohavestudentsidentifycircumstancesinwhichtheythinkonetranslationmethodismoreappropriatethananother.Thecurrentratemethodisappropriatewhentheforeignentitybeingconsolidatedislargelyindependentoftheparentcompany.Conditionswhichwouldjustifythismethodologyiswhentheforeignaffiliatetendstogenerateandexpendcashflowsinthelocalcurrency,sellsaproductlocallysothatitssellingpriceislargelyinsulatedfromexchangeratechanges,incursexpenseslocally,financesitsselflocallyanddoesnothaveverymanytransactionswiththeparentcompany.Incontrast,thetemporalmethodseemsappropriateinthoseinstanceswhentheforeignaffiliateoperationsareintegrallyrelatedtotheparentcompany.Conditionswhichwouldjustifyuseofthetemporalmethodarewhentheforeignaffiliatetransactsbusinessintheparentcurrencyandremitssuchcashflowstotheparentcompany,sellsaproductlargelyintheparentcountryandwhose優(yōu)選.sellingpriceissensitivetoexchangeratechanges,sourcesitsfactorinputsfromtheparentcompany,receivesmostofitsfinancingfromtheparentandhasalargetwowayflowoftransactionswithit.優(yōu)選.ThehistoryofforeigncurrencytranslationintheUnitedStatessuggeststhatthedevelopmentofaccountingprinciplesdoesnotdependontheoreticalconsiderationssomuchasonpolitical,institutional,andeconomicinfluencesthataffectaccountingstandardsetting.Itmaybemorerealistictorecognizethattheoreticallysoundsolutionsareimpossibleaslongaspolicyprescriptionsareevaluatedonpracticalgrounds.Withoutspecificchoicecriteriaderivedfrominvestordecisionmodels,itisfruitlesstoarguetheconceptualmeritsofcompetingaccountingtreatments.Itisfarmoreproductivetoadmitthatforeigncurrencytranslationchoicesaresimplyarbitrary.Readersofconsolidatedfinancialstatementsshouldknowthattheforeigncurrencytranslationmethodusedisoneofseveralalternatives,andthisshouldbedisclosed.Thisapproachismoreopenandreducesthechancethatreaderswilldrawmisleadinginferences.Foreigninflation,inparticular,thedifferentialrateofinflationbetweenthecountryinwhichasubsidiaryislocatedandthecountryofitsparentdeterminesforeignexchangerates.Theserates,inturn,areusedtotranslateforeigncurrencybalancestoparentcurrency.IntheUnitedKingdom,financialstatementsofaffiliatesdomiciledinhyperinflationaryenvironmentsmustfirstbeadjustedtocurrentpricelevelsandthentranslatedusingthecurrentrate;intheUnitedStates,thetemporalmethodwouldbeemployed.Thesecondpartofthisquestionisdesignedtogetstudentsfromabroadtofindoutwhatcompaniesintheirhomecountriesaredoingandtherebybeinapositiontosharetheirnewfoundknowledgewiththeirclassmates.Theyneedsimplygetontheinternetandreadthefootnotesofamajormultinationalcompanyintheirhomecountry.UnderFASNo.52,theparentcurrencyisdesignatedasthefunctionalcurrencyforanaffiliate,whoseoperationsareconsideredtobeanintegralpartoftheparentcompany’soperations.Accordingly,anythingthataffectsconsolidatedearnings,includingforeigncurrencytranslationgainsandlosses,isrelevanttoparentcompanyshareholdersandisincludedinreportedearnings.Incontrast,whenaforeignaffiliatesoperationsareindependentoftheparents,thelocalcurrencyisdesignatedasitsfunctionalcurrency.Sincethefocusisontheaffiliateslocalperformance,translationgainsandlossesthatarisesolelyfromconsolidationareirrelevantand,therefore,arenotincludedinconsolidatedincome.優(yōu)選.ExercisesSolutions￥250,000,000X.008557=$2,139,250.￥250,000,000÷￥116.86=$2,139,312Thedifferenceisduetorounding.2.Since￡1=US$1.9590and?1=US$1.3256,￡1=US$1.9590/US$1.3256=?1.4778.Alternatively,?1=US$1.3256/US$1.9590=￡.6767.SingleTransactionPerspective:4/1Purchases(￥32,500,000/￥116.91)$277,992Cash$27,800A/P(￥32,500,000-￥3,250,000)/￥116.91250,192(Creditpurchase)7/1Purchases[(￥29,250,000/￥(￥11629,250,000/.91)–￥115.47)3,120A/P3,120(Torecordincreaseinpurchasesduetoyenappreciation)7/1Interestexpense(￥29,250,000X.08X3/12)/￥1155,066.47A/P(￥29,250,000/￥115.47)253,312Cash258,378(Torecordsettlement)TwoTransactionsPerspective:4/1Purchases$277,992Cash$27,800A/P250,1927/1Transactionloss3,120A/P3,1207/1Interestexpense5,066A/P253,312Cash258,378a.MXN1,750,000/MXN10.3=C$169,903.b.TheCanadiandollarequivalentoftheMexicaninventoryaccountwouldnotchangeifthefunctionalcurrencywastheCanadiandollarasthetemporalmethodtranslatesinventory,anonmonetaryasset,attheexchangeratethatpreservesitsoriginalmeasurementbasis.Sinceinventoryisbeingcarriedatitsnetrealizablevalue,itwouldbetranslatedatthe優(yōu)選.currentrate.HadinventorybeencarriedathistoricalcosuldhavebeentranslatedatthehistoricalrateorMXN3,750,000/MXN9.3=C$403,226.優(yōu)選.5.Bahtisthefunctionalcurrency:B2,500,000/20years=B125,000B125,000/B37=3,378B5,000,000/20years=B250,000B250,000/B37=6,757U.S.dollaristhefunctionalcurrency:B2,500,000/20years=B125,000B125,000/B40=3,125B5,000,000/20years=B250,000B250,000/B38=6,579Totaldepreciation$9,704IftheeuroistheGermansubsidiary’unctionalsfcurrency,itsaccountswouldbetranslatedintoAustraliandollarsusingthecurrentratemethod.InthiscasethetranslationgainofAUD4,545,455wouldappearinconsolidatedequity.Thustheonlyitemaffectingcurrentincomewouldbethetransactionloss(lossonanunsettledtransaction)ofAUD1,514,515ontheeuroborrowing.IftheAustraliandollarisdeemedtobethefunctionalcurrency,thenthetransactionlossandtranslationgainwouldbothappearinreportedearningsasfollows:AUD(1,514,515)transactionlossAUD4,545,455translationgainAUD3,030,940netforeignexchangegain7.U.S.DollarU.S.DollarU.S.DollarBeforeCNYAfterCNYAfterCNYAppreciationAppreciationDepreciationCNYBalanceSheet($.12=CNY1)($.15=CNY1)($0.09=CNY1)AssetsAmountCurrentMonetaryCurrentMonetaryNoncurrentNonmonetaryNoncurrentNonmonetaryCashNT5,000$600$750$750$450$450Accts.Receivable14,0001,6802,1002,1001,2601,260Inventories(cost=24,000)22,0002,6403,3002,6401,9802,640Fixedassets,net39,0004,6804,6804,6804,6804,680TotalCNY80,000$9,600$10,830$10,170$8,370$9,030優(yōu)選.Liabilities&OwnersEquityAccts.PayableCNY21,000$2,520$3,150$3,150$1,890$1,890Long-termdebt27,0003,2403,2404,0503,2402,430Stockholdersequity32,0003,8404,4402,9703,2404,710TotalCNY80,000$9,600$10,830$10,170$8,370$9,030AccountingexposureCNY20,000(29,000)20,000(29,000)Translationgain(loss)US$600(870)(600)8708.U.S.DollarU.S.DollarU.S.DollarBeforeCNYAfterCNYAfterCNYAppreciationAppreciationDepreciationCNYBalanceSheet($.12=CNY1)($.15=CNY1)($.09=CNY1)AssetsAmountTemporalCurrentTemporalCurrentCashCNY5,000$600$750$750$450$450Accts.Receivable14,0001,6802,1002,1001,2601,260Inventories(cost=24,000)22,0002,6403,3003,3001,9801,980Fixedassets,net39,0003,6003,6005,8503,6003,510TotalCNY80,000$8,520$9,750$12,000$11,700$7,200Liabilities&OwnersEquityAccts.PayableCNY21,000$2,520$3,150$3,150$1,890$1,890Long-termdebt27,0003,2404,0504,0502,4302,430Stockholdersequity32,0002,7602,5504,8007,3802,880TotalNT$80,000$8,520$9,750$12,000$11,700$7,200AccountingexposureNT$(7,000)32,000(7,000)32,000Translationgain(loss)US$(210)960210(960)c.Studentswillquicklydiscoverthateachtranslationmethodhasitsadvantagesanddisadvantages.Aftersomediscussion,thequestionoftranslationobjectiveswillarise.Currencytranslationobjectivesarebasedonhowforeignoperationsareviewed.Ifforeignoperationsareconsideredextensionsoftheparent,acasecanbemadeforahistoricalratemethod:current-noncurrent,monetary-nonmonetary,ortemporal.Ifforeignoperationsareviewedfromalocalcompanyperspective,acasecanbemadeforthecurrentratemethod.Giventhecomplexityofmultinationalbusinessactivities,onecouldarguethatasingletranslationmethodwillnotserveallpurposesforwhichtranslationsaredone.Aslongastheobjectivesofforeigncurrencytranslationdifferamongspecificreportingentities,apracticalsolutionistoinsistonfulldisclosureofthetranslationproceduresusedsothatusershaveabasisforreconcilinganydifferencesthatexist.9.優(yōu)選.CompanyA(CountryA)(ReportingCurrency=Apeso)BeginningofYearEndofYearAssets:ExchangeRateTranslatedExchangeRateTranslatedApeso100Apeso100Apeso100Bol100Apeso1=Bol1.25Apeso80Apeso1=Bol2Apeso50Apeso180Apeso150Translationloss=A$30CompanyB(CountryB)(ReportingCurrency=Bol)BeginningofYearEndofYearAssets:ExchangeRateTranslatedExchangeRateTranslatedApeso100Apeso1=Bol1.25Bol125Apeso1=Bol2Bol200Bol100Bol100Bol100Bol225Bol300Translationgain=Bol75b.Thisexercisedemonstratestheeffectofthereportingcurrencyonforeigncurrencytranslationresultswhenthecurrentratemethodisused.Bothcompaniesareinseeminglyidenticalsituations,yetonereportsatranslationlosswhiletheotherreportsatranslationgain.Onecompanyreportsshrinkingassetswhiletheotherreportsincreasingassets.Nothinghasactuallyhappenedbutanexchangeratechange.Also,despiteastrongerApeso,CompanyAreportsaloss.Conversely,theBolweakened,yetCompanyBreportsagain.Itappearsthatastrengtheningcurrencyisnotalwaysgoodnews,norisaweakeningcurrencyalwaysbadnews.Iftheintentionistorepatriatethefundsinvestedintheforeigncountry(CountryBfromCompanyA’sperspective,CountryAfromCompanyB’sperspective),thescenariomakessense.Afterall,CompanyAwillberepatriatingfewerApesosthanoriginallyinvestedandCompanyBwillberepatriatingmolre’Bsthanoriginallyinvested.Fluctuatingexchangerateshavechangedeachcompanyscommandoveraforeigncurrency.Assumingthecompanyintendstorepatriatethecurrency,itmakessensetoincludetherespectivegainorlossinincomeforthecurrentyear.Ontheotherhanditcanbearguedthatthegainorlossshouldbeexcludedfromincomeifthecompanyintendstokeeptheforeignassetsinvestedpermanently..10.優(yōu)選.TranslationRateLocalCurrencyisDollarisFunctionalCurrencyFunctionalCurrencyCashCurrentCurrentMarketablesecurities(cost)CurrentHistoricalaAccountsreceivableCurrentCurrentInventory(market)CurrentCurrentEquipmentCurrentHistoricalAccumulateddepreciationCurrentHistoricalPrepaidexpensesCurrentHistoricalGoodwillCurrentHistoricalAccountspayableCurrentCurrentDuetoparent(denominatedindollars)CurrentCurrentBondspayableCurrentCurrentIncometaxespayableCurrentCurrentDeferredincometaxesCurrentCurrentCommonstockHistoricalHistoricalPremiumoncommonstockHistoricalHistoricalRetainedEarningsBalancingResidualBalancingResidualSalesAverageAveragePurchasesAverageAverageCostofSalesAverageHistoricalGeneralandadministrativeexpensesAverageAverageSellingexpensesAverageHistoricalDepreciationAverageHistoricalAmortizationofgoodwillAverageHistoricalIncometaxexpenseAverageAverageInter-companyinterestexpenseAverageAverage__________________________________________________________________________________________________________________________aFixedincomesecuritiesintendedtobeheldtomaturity.a.Beforeriyaldepreciation:CashSAR60,000,000÷SAR3.75=$16,000,000Inventory120,000,000÷SAR3.75=32,000,000FixedAssets750,000,000÷SAR3.75200,000,000=Total$248,000,000Afterriyaldepreciation:優(yōu)選.CashSAR60,000,000÷SAR4.125$=14,545,455Inventory120,000,000÷SAR3.75=32,000,000FixedAssets750,000,000÷SAR3.75200,000,000=Total$246,545,455Translationloss$(1,454,455)b.ThetranslationlosshasnoeffectonMSC’scashistheflowsreultasofitarestatementprocess.Onapre-taxbasis,ananalystwouldbackoutthetranslationgainfromreportedearningsandaddittoconsolidatedequity.However,inadditioninventoryandfixedassetswouldbetranslatedatthecurrentrate,asopposedtothehistoricalrate,andtheresultingtranslationlosswouldalsobetakentoconsolidatedequity.Thiswouldresultinadifferentearningsnumberaswellasassetmeasures.Beforeriyaldepreciation:CashSAR60,000,000÷SAR3=.75$16,000,000Inventory120,000,000÷SAR3.75=32,000,000FixedAssets750,000,000÷SAR3.75200,000,000=Total$248,000,000Afterriyaldepreciation:CashSAR60,000,000÷SAR4.125$=14,545,455Inventory120,000,000÷SAR4.125=29,090,909FixedAssets750,000,000÷SAR4.125=,818,182181Total$225,454,546Translationadjustnmentreflectedinequity$(22,545,454)StudentscouldalsobeprobedandaskedhowtheadjustednumberswouldimpactcertainratiossuchasROAorROE,DebttoEquity,andassetturnover.a.ThecurrencyeffectsinthefirstandthirdparagraphshaveanimpactonAlcan’cashflows.INthefirstparagraph,echangeratechangesaffectAlcan’sfuturerevenuesandcostsanddirectlyaffectcashreceiptsandpayments.Thethirdparagraphinvolvessettlingforeigncurrencytransactionsatadifferentechangeratethanwhenthetransactionwereenteredinto.b.Alcanappearstobeemployingthemonetary-nonmonetarymethod.Manyanalystsbackouttranslationgainsandlossesfromreportedearningsasthesearelargelynon-cashitemsthatsimplyresultfromarestatementprocess.ThiswouldespeciallybethecaseifAlcanwerebeingcomparedtoacompanyemployingthecurrentratemethod.Disregardingtranslationgainsandlosseswouldhavethefollowingeffectonreportedearnings:20X520X420X3WithtranslationG/L$129m$258m$64mTranslationG/L(86)(153)(326)WithoutTranslationG/L$215m$411m$390m優(yōu)選.Theimpactonthepatternofearningswouldchangesignificantly.Theyeartoyearchangesinearningsbothbeforeandafterabstractingfromcurrencytranslationeffectsare:20X5/20X320X5/20X420X4/20X3WithtranslationG/L102%-50%303%WithoutTranslationG/L45%-48%5%Case6-1RegentsCorporationThenatureofRegents’soperationissuchthatchoiceofanappropriatefunctionalcurrencyisultimatelyajudgementcall.Studentscanargueforeithercurrencyandshouldbeevaluatedonthestrengthoftheiranalysis.Amajorlessonofthiscaseisthatthefunctionalcurrencychoiceisimportantsincethecurrencydesignationdictateswhichtranslationmethod,(currentortemporal)isultimatelyused.Thefinancialstatementeffectscanbeverydifferent.Thusitisimportantforareaderoffinancialstatementstounderstandhowthedifferingmeasurementoptionsaffectthebalancesheetandincomestatementandbepreparedtoadjustfromoneframeworktotheother,evenifonlycrudely.TEMPORALMETHOD(U.S.DOLLARISTHEFUNCTIONALCURRENCY)BalanceSheetAccounts,12/31/X7ForeignCurrencyExchangeRateDollarEquivalentCash￡1,0601.80$1,908Accountsreceivable2,8901.905,491Inventory3,0401.785,411Fixedassets4,4001.707,480Accumulateddepreciation(420)1.70(714)Patent----------Total￡10,970$19,576優(yōu)選.Accountspayable￡1,6101.80$2,898Duetoparent1,8001.803,240Long-termdebt4,5001.808,100Deferredtaxes801.80144Commonstock1,5001.702,550Retainedearnings1,480residual2,644￡10,970$19,576IncomeStatement,12/31/X8ForeignCurrencyExchangeRateDollarEquivalentSales￡16,7001.86$31,062Costofsalesa(11,300)(20,706)Generalandadministrative(1,600)1.86(2,976)Depreciation(280)1.70(476)(20)1.82(36)Interest(480)1.86(893)Transactiongain1251.86233Aggregatetranslationadjustmentb(368)Taxes:Current(670)1.86(1,246)Deferred(40)1.86(74)Netincome￡2,435$4,520Retainedearnings,12/31X71,4802,644Dividends(300)1.86(558)Retainedearnings,12/31X8￡3,615$6,606_____________________________________________________________________________aBeginninginventory￡3,0401.78$5,411Purchases11,6901.8621,743Endinginventory3,4301.886,448CostofSales￡11,300$20,706bAggregatetranslationadjustment:1.Monetaryassets,12/31/X7￡3,950Monetaryliabilities,12/31/X77,990(￡,040)x(1.90-1.80)=($404)2.Changeinnegativeexposure:12/31/X7(￡4,040)12/31/X8(2,565)￡1,475Compositionofdecrease:Sourcesofmonetaryitems:Netincome￡2,435Depreciation300￡2,735Usesofmonetaryitems:Inventoryincrease￡(390)優(yōu)選.Additiontofixedassets(500)Purchaseofpatent(70)Dividends(300)(1,260)￡1,4753.Sourcesofmonetaryitemsxdifferenceinyear-endrateandrateusedtotranslateincomestatement=￡2,345x(1.90-1.86)=$94300x(1.90–1.86)=12$1094.Usesofmonetaryitemsxdifferenceinyear-endrateandrateusedtotranslatethoseitems=￡(390)x(1.90–1.86)=$(15)(300)x(1.90-1.86)=(12)(500)x(1.90-1.82)=(40)(70)x(1.90-1.82)=(6)(73)Aggregatetranslationadjustment=($404)109(73)($368)BalanceSheet,12/31/X8ForeignCurrencyExchangeRateDollarEquivalentCash￡1,1501.90$2,185Accountsreceivable3,1001.905,890Inventory3,4301.886,448a4,9008,390FixedassetsAccumulateddepreciationb(720)(1,226)Patent701.82127Total￡11,930$21,814Accountspayable￡1,3851.90$2,632Duetoparent1,3101.902,489Long-termdebt4,0001.907,600Deferredtaxes1201.90228Commonstock1,5001.702,550Retainedearnings3,6156,309Total￡11,930$21,814___________________________________________________________________________aOriginalassets￡4,4001.70$7,480Newassets5001.82910$8,390bOriginalassets￡7001.70$1,190Newassets201.8236$1,226優(yōu)選.CURRENTRATEMETHOD(LOCALCURRENCYISTHEFUNCTIONALCURRENCY)BalanceSheetAccounts,12/31/X7ForeignCurrencyExchangeRateDollarEquivalentCash￡1,0601.80$1,908Accountsreceivable2,8901.805,202Inventory3,0401.805,472Fixedassets4,4001.807,920Accumulateddepreciation(420)1.80(756)Patent------Total￡10,970$19,746Accountspayable￡1,6101.80$2,898Duetoparent1,8001.803,240Long-termdebt4,5001.808,100Deferredtaxes801.80144Commonstock1,5001.702,550Retainedearnings1,4802,355Cumulativetranslationadjustment---459(given)Total￡10,970$19,746IncomeStatement,12/31/X8ForeignCurrencyExchangeRateDollarEquivalentSales￡16,7001.86$31,062Costofsales(11,300)1.86(21,018)Generalandadministrative(1,600)1.86(2,976)Depreciation(300)1.86(558)Interest(480)1.86(893)Transactiongain1251.86232Taxes:Current(670)1.86(1,246)Deferred(40)1.86(74)Netincome￡2,435$4,529Retainedearnings,12/31X71,4802,355Dividends(300)1.86(558)Retainedearnings,12/31X8￡3,615$6,326優(yōu)選.BalanceSheet,12/31/X8ForeignCurrencyExchangeRateDollarEquivalentCash￡1,1501.90$2,185Accountsreceivable3,1001.905,890Inventory3,4301.906,517Fixedassets4,9001.909,310Accumulateddepreciation(720)1.90(1,368)Patent701.90133Total￡11,930$22,667Accountspayable￡1,3851.90$2,632Duetoparent1,3101.902,4