Question #44 - Reading 10 Multinational Operations

Reading: Reading 10 Multinational Operations

PDF File: Reading 10 Multinational Operations.pdf

Page: 24

Status: Correct

Correct Answer: B

Shared Context

- The value of common stock on the 2013 balance sheet should be closest to: A) $1,000. B) $1,100. C) $1,050.

Question

For Scud Co. under the temporal method, the monetary exposures and the foreign currency movements resulted in a:

Answer Choices:

A. cumulative translation adjustment gain on the balance sheet

B. remeasurement loss on the income statement

C. remeasurement gain on the income statement

Explanation

The net monetary exposure is the value of Cash & accounts receivables (A/R) minus Accounts payable (A/P) and Long-term debt. This is Sf.600,000 – (Sf.200,000 +Sf.100,000) = Sf.300,000. As the Swiss franc appreciates from 0.77 $/SF to 0.85 $/SF, there is a remeasurement gain that is recorded as part of net income on the income statement. Exposure Foreign Currency Temporal method: Appreciating Depreciating Net monetary assets Gain Loss Net monetary liabilities Loss Gain

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