Translations and Reporting Issues
Response to the following problem:
Complete the following assignment. Submit your responses in MSWord as one document. Label each section clearly. If you choose to use an Excel spreadsheet for question 2, please copy and paste your spreadsheet into your Word document. For written answers, please make sure your responses are well written, conforming to APA formatting, and have proper citations, if needed.
1) What is the concept of current rate method of translation and temporal method of translation? How does balance sheet exposure differ under these two methods?
2) The 2010 financial statement of Child Co. Inc (Mexico), a subsidiary of Parent Co. Inc (United States), reveals the following information:
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Beginning Inventory
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Peso 100,000
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Purchases
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Peso 500,000
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Ending Inventory
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Peso 150,000
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COGS
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Peso 450,000
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US dollar exchange rate for 1 Peso:
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January 1, 2010
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$0.45
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Average, 2010
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$0.42
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December 31, 2010
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$0.38
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The beginning inventory was acquired when the exchange rate was $0.50 last quarter of 2009; ending inventory was acquired when the exchange rate was $0.40 last quarter of 2010.
Report amounts of ending inventory and cost of goods sold to be included in the consolidated financial statements under (1) Current rate method and (2) Temporal method.