Translate the balance sheet of the Brazilian subsidiary of Wrangler Corporation, a U.S. company, into dollars. When Wrangler acquired this subsidiary, the exchange rate of the Brazilian currency, the real, was $0.40. The average exchange rate applicable to retained earnings is $0.41. The real’s current exchange rate is $0.43. Before performing the translation, predict whether the translation adjustment will be positive or negative. Does this situation generate a foreign currency translation gain or loss? Give your reasons.
|
Reals |
|
|
Assets |
900,000 |
|
Liabilities |
600,000 |
|
Stockholders’ equity: |
|
|
Common stock |
30,000 |
|
Retained earnings |
270,000 |
|
900,000 |