In 1995, Ajax Manufacturing\'s German subsidiary has the following balance sheet
ID: 2764101 • Letter: I
Question
In 1995, Ajax Manufacturing's German subsidiary has the following balance sheet:
Cash, marketable securities
Accounts receivable
Inventory (at market.
Fixed Assets
Total assets
DM 250,000
1,000,000
2,700,000
5,100,000
-----------------
DM 9,050,000
Current liabilities
Long-term debt
Equity
Total liabilities
plus equity
DM 750,000
3,400,000
4,900,000
---------------
DM 9,050,000
Suppose the DM appreciates from $0.70 to $0.76 during the period.
Under the current/noncurrent method, what is Ajax's translation gain (loss).?
a) a gain of $294,000
b) a gain of $192,000
c) a loss of $174,000
d) a loss of $12,000
answer: b
Please show work. Thanks.
Cash, marketable securities
Accounts receivable
Inventory (at market.
Fixed Assets
Total assets
DM 250,000
1,000,000
2,700,000
5,100,000
-----------------
DM 9,050,000
Current liabilities
Long-term debt
Equity
Total liabilities
plus equity
DM 750,000
3,400,000
4,900,000
---------------
DM 9,050,000
Explanation / Answer
Assets
In DM
Rate
in $
Liabilities and Equity
In DM
Rate
in $
cash
250,000
0.76
190,000
Current Liabilities
750,000
0.76
570,000
Marketable securities
1,000,000
0.76
760,000
Long Term Dent
3,400,000
0.7
2,380,000
Accounts Receivable
2,700,000
0.76
2,052,000
Equity
4,900,000
0.7
3,430,000
Inventory( Market )
-
Fixed Assets
5,100,000
0.7
3,570,000
-
Total Assets
9,050,000
6,572,000
9,050,000
6,380,000
Gain=Total Assets – Total Liabilities and Equity with exchange rate s$6,572,000-$6,380,000=$192,000
Assets
In DM
Rate
in $
Liabilities and Equity
In DM
Rate
in $
cash
250,000
0.76
190,000
Current Liabilities
750,000
0.76
570,000
Marketable securities
1,000,000
0.76
760,000
Long Term Dent
3,400,000
0.7
2,380,000
Accounts Receivable
2,700,000
0.76
2,052,000
Equity
4,900,000
0.7
3,430,000
Inventory( Market )
-
Fixed Assets
5,100,000
0.7
3,570,000
-
Total Assets
9,050,000
6,572,000
9,050,000
6,380,000
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