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Problem 11.5 Tristan Narvaja, S.A. (A) ...

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Accounting

Problem 11.5 Tristan Narvaja, S.A. (A)

Tristan Narvaja, S.A., is the Uruguayan subsidiary of a U.S. manufacturing company. Its balance sheet for January 1 follows. The January 1st exchange rate between the U.S. dollar and the peso Uruguayo ($U) is $U20/$.

a. Determine Tristan Narvajas contribution to the translation exposure of its parent on January 1, using the current rate method.
b. Calculate Tristan Narvaja, S.A.'s contribution to its parent's translation loss if the exchange rate on December 31st is $U20/US$. Assume all peso Uruguayo accounts remain as they were at the beginning of the year.
Balance Sheet (thousands of pesos Uruguayo, $U)
Exchange Rate
Assets January 1st
Cash 60,000
Accounts receivable 120,000
Inventory 120,000
Net plant & equipment 240,000
540,000
Liabilities & Net Worth
Current liabilities 30,000
Long-term debt 90,000
Capital stock 300,000
Retained earnings 120,000
540,000

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