Question

Tristan Narvaja, S.A. (C). Tristan Narvaja, S.A., is the Uruguayan subsidiary of a U.S. manufacturing company. Its balance sheet for January 1 is shown in the popup window, B. The January 1 exchange rate between the U.S. dollar and the peso Uruguayo ($U) is $U22/$. A. Determine Tristan Narvaja's contribution to the translation exposure of its parent on January 1, using the current rate method. B. Calculate Tristan Narvaja's contribution to its parent's translation gain or loss if the exchange rate on December 31st is $U15/$. Assume all peso Uruguayo accounts remain as they were at the beginning of the year. Balance Sheet (thousands of pesos Uruguayo, $U) Assets Liabilities and Net Worth Cash $U60,000 Current liabilities $U30,000 Accounts receivable 110,000 Long-term debt 50,000 Inventory 150,000 Capital stock 270,000 Net plant & equipment 240,000 Retained earnings 210,000 $U560,000 $U560,000

Answer 1

To determine Tristan Narvaja's contribution to the translation exposure of its parent on January 1, we need to convert its balance sheet values from pesos Uruguayo to U.S. dollars using the exchange rate of $U22/$. By calculating the net assets in U.S. dollars, we find that Tristan Narvaja, S.A. has a negative contribution of -$229,090.92 to the translation exposure of its parent on January 1.

Step-by-step explanation:

Translation exposure refers to the risk that a company faces when its financial statements are converted from one currency to another, resulting in potential gains or losses due to exchange rate fluctuations. In this case, Tristan Narvaja, S.A. is the Uruguayan subsidiary of a U.S. manufacturing company. To determine its contribution to the translation exposure of its parent on January 1 using the current rate method, we need to calculate the net assets of Tristan Narvaja, S.A. in U.S. dollars at the January 1 exchange rate.

To convert the balance sheet values from pesos Uruguayo ($U) to U.S. dollars, we use the exchange rate of $U22/$. Starting with the assets, the total value of cash in pesos Uruguayo is $U60,000. When converted to U.S. dollars, it is $60,000 / $U22 = $2,727.27. Similarly, the value of accounts receivable in U.S. dollars is $110,000 / $U22 = $5,000, and the value of inventory in U.S. dollars is $150,000 / $U22 = $6,818.18. The net plant & equipment value of $240,000 remains the same since it is not impacted by the exchange rate.

Next, we calculate the value of liabilities and net worth in U.S. dollars. The total value of current liabilities in pesos Uruguayo is $U30,000. When converted to U.S. dollars, it is $30,000 / $U22 = $1,363.64. The value of long-term debt in U.S. dollars is $50,000 / $U22 = $2,272.73. The capital stock value of $270,000 remains the same, and so does the retained earnings value of $210,000.

Finally, we calculate the net assets (assets - liabilities and net worth) in U.S. dollars for Tristan Narvaja, S.A. The total assets value in U.S. dollars is $2,727.27 + $5,000 + $6,818.18 + $240,000 = $254,545.45. The total liabilities and net worth value in U.S. dollars is $1,363.64 + $2,272.73 + $270,000 + $210,000 = $483,636.37. Therefore, Tristan Narvaja, S.A.'s contribution to the translation exposure of its parent on January 1 using the current rate method is $254,545.45 - $483,636.37 = -$229,090.92.

Answer 2

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Step-by-step explanation:

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