Halon Norway, the Norwegian subsidiary of a U.S. company, Halon, Inc., has the following balance sheet:
|
Assets (NKr thousands)
|
Liabilities (NKr thousands)
|
|
Cash, marketable securities
|
7,000
|
Accounts payable
|
14,000
|
|
Accounts receivable
|
18,000
|
Short-term debt
|
8,000
|
|
Inventory
|
31,000
|
Long-term debt
|
45,000
|
|
Net fixed assets
|
63,000
|
Equity
|
52,000
|
|
NKr119,000
|
|
NKr119,000
|
a. At the current spot rate of $0.21/NKr, calculate Halon Norway's accounting exposure under the current/noncurrent, monetary/nonmonetary, temporal, and current rate methods.
b. Suppose the Norwegian krone depreciates to $0.17. Produce balance sheets for Halon Norway at the new exchange rate under each of the four alternative translation methods.
c. Relate these gains and losses to the exposure calculations performed in part (a) combined with the exchange rate change. Where would these translation gains or losses show up in the balance sheets prepared for part (b)?