Atreides International has operations in Arrakis. The balance sheet for this div
ID: 2730490 • Letter: A
Question
Atreides International has operations in Arrakis. The balance sheet for this division in Arrakeen solaris shows assets of 48,000 solaris, debt in the amount of 21,000 solaris, and equity of 27,000 solaris. Assume the equity increases by 2,400 solaris due to retained earnings.
What will the balance sheet look like in Arrakeen solaris?
If the exchange rate at the end of the year is 1.59 solaris per dollar, what does the balance sheet look like?(Round your answers to 2 decimal places, e.g., 32.16.)
Atreides International has operations in Arrakis. The balance sheet for this division in Arrakeen solaris shows assets of 48,000 solaris, debt in the amount of 21,000 solaris, and equity of 27,000 solaris. Assume the equity increases by 2,400 solaris due to retained earnings.
Explanation / Answer
1. New equity = 27,000 solaris+retained earnings = 27,000+2,400 = 29,400 solaris.
It is obvious that the retained earnings of 2,400 solaris is the amount retained (net income - dividends) for the current year.
Now, the increase in retained earnings means that revenue for the current year is more than the expenses. The revenue has been due to providing goods and services. If the goods and services are provided on credit the accounts receivables on the asset side will increase and if the goods and services are sold on cash then the cash account will increase. Thus the asset side will also increase by 2,400 solaris. New assets = 48,000+2,400 = 50,400
2. Exchange rate = 1.59 solaris per dollar i.e. 1 USD = 1.59 solaris or 1 solaris = 1/1.59 dollar. The figures of the above balance sheet are in solaris and will have to be converted to dollar using the exchange rate. Thus total assets in dollar = assets in solaris*value of 1 solaris in terms of dollar
= 50,400*1/1.59 = 31,698.11. Similarly other items like debt and equity have been converted to dollar using the same formula.
Balance Sheet (in Arrakeen solaris) (in Arrakeen solaris) Assets 50,400 Debt 21,000 Equity 29,400 Total assets 50,400 Total liabilities and equity 50,400Related Questions
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