Answer Happy

Ganado Europe (D). Using facts in the chapter for Ganado Europe, assume that the exchange rate on January 2 2016, in Exhibit 11.6 appreciated from $1.2000/€ to $1.5000/€ Calculate Ganado Europe's translated balance sheet for January 2, 2016, with the new exchange rate using the temporal rate method as shown in the popup window, a. What is the amount of translation gain or loss? b. Where should it appear in the financial statements?

EXHIBIT 11.6 Ganado Europe's Translation Loss After Depreciation of the Euro: Temporal Method December 31, 2015 Assets Cash Accounts receivable Inventory Net plant and equipment Total Liabilities and Net Worth Accounts payable Short-term bank debt Long-term debt Common stock Retained earnings Translation gain (loss) In Euros (€) 1,600,000 3,200,000 2,400,000 4,800,000 12,000,000 800,000 1,600,000 1,600,000 1,800,000 6,200,000 Exchange Rate (US$/euro) 1.2000 1.2000 1.2180 1.2760 1.2000 1.2000 1.2000 1.2760 12437 (a) Translated Accounts (USS) $1,920,000 3,840,000 2,923,200 6,124,800 $14,808,000 $960,000 1,920,000 1,920,000 2,296,800 7,711,200 January 2, 2016 Exchange Rate (US$/euro) 1.5000 1.5000 1.2180 1.2760 1,5000 1.5000 1.5000 1.2760 1.2437 (b) (c) Translated Accounts (USS) $2,400,000 4,800,000 2,923,200 6,124,800 $16,248,000 $1,200,000 2,400,000 2,400,000 2,296,800 7,711,200 2 Total 12,000,000 $14,808,000 $16,248,000 (a) Dollar retained earnings before depreciation are the cumulative sum of additions to retained earnings of all prior years, translated to exchange rates in each year. (b) Translated into dollars at the same rate as before depreciation of the euro. (c) Under the temporal method, the translation loss would be closed into retained earnings through the income statement rather than left as a separate line item as shown here.