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Detailed Example of a US/EURO Currency Translation

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P18-2

Translation of financial statements A U.S.-based MNC has a subsidiary in France (local currency, euro, ;). The balance sheet and income statement of the subsidiary follow. On 12/31/09, the exchange rate is US$1.20/;. Assume that the local (euro) figures for the statements remain the same on 12/31/10. Calculate the U.S. dollar translated figures for the two ending time periods, assuming that between 12/31/09 and 12/31/10 the euro has appreciated against the U.S. dollar by 6%.

Translation of Income Statement
12/31/09 12/31/10
Euro US$ US$
Sales 30,000.00
Cost of goods sold 29,750.00
Operating profits 250.00

Translation of Balance Sheet
12/31/09 12/31/10
Assets Euro US$ US$
Cash 40.00
Inventory 300.00
Plant and equipment (net) 160.00
Total 500.00

Liabilities and Stockholder's Equity
Debt 240.00
Paid-in capital 200.00
Retained earnings 60.00
Total 500.00

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Solution Summary

Translation of financial statements A U.S.-based MNC has a subsidiary in France (local currency, euro, ;). The balance sheet and income statement of the subsidiary follow. On 12/31/09, the exchange rate is US$1.20/;. Assume that the local (euro) figures for the statements remain the same on 12/31/10. Calculate the U.S. dollar translated figures for the two ending time periods, assuming that between 12/31/09 and 12/31/10 the euro has appreciated against the U.S. dollar by 6%.

$2.19