Calculate the Cumulative Translation Adjustment for This U

question 15

Essay

Calculate the cumulative translation adjustment for this U.S.MNC translating the balance sheet and income statement of a French subsidiary,which keeps its books in euro,but that is translated into U.S.dollars using the current rate method,the reporting currency of the U.S.MNC.The subsidiary is at the end of its first year of operation.The historical exchange rate is $1.60/€1.00 and the most recent exchange rate is $1.50/€.
$\begin{array}{lccccc}&\text { Local Currency }&\text { Culyent Rate}\\\text { Balance Sheet }\\\text { Cash } & € 2,100 & \$ 3,150 \\\text { Inventory (Current Value }=€ 1,800) & € 1,500 & \$ 2,250 \\\text { Net fixed assets } & € 3,000 & \$ 4,500 \\\text { Total Assets } & €6,600 & \$ 9,900\\\text { Current liabilities } & € 1,200& \$ 1,800 \\\text { Long-term debt } & €1,800& \$ 2,700\\\text { Common stock } & €2,700 & \$ 4,320 \\\text { Retained earnings } & € 900 & \$ 1,394 \\\text { CTA } & & & & \\\text { Total L\&E } & €6,600 & \$ 9,900\\\text { Income Statement }\\\text { Sales Revenue } & €10,000 & \$ 15,484 \\\text { COGS } & € 7,500& \$11,613 \\\text { Depreciation } & €1,000& \$ 1,548 \\\text { NOI } & € 1,500&\$ 2,323 \\\operatorname{Tax}(40 \%) & € 600 & \$929\\\text { Profit after tax }&€900 & \$ 1,394\\\text { Foreign Exchange gain (loss) }\\\text { Net income } & € 900&\$1394 \\\text { Dividends } & €0 & \$0\\\text { Addition to Retained Earnings }& € 900 & € 1394\end{array}$

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