In 1995, Ajax Manufacturing\'s German subsidiary has the following balance sheet

Question

In 1995, Ajax Manufacturing's German subsidiary has the following balance sheet: Cash, marketable securities Accounts receivable Inventory (at market. Fixed Assets Total assets DM 250,000 1,000,000 2,700,000 5,100,000 ----------------- DM 9,050,000 Current liabilities Long-term debt Equity Total liabilities plus equity DM 750,000 3,400,000 4,900,000 --------------- DM 9,050,000

Suppose the DM appreciates from $0.70 to $0.76 during the period.

Under the current rate method, what is Ajax's translation gain (loss).?

a) a gain of $294,000

b) a gain of $192,000

c) a loss of $174,000

d) a loss of $12,000

Answer:a

Please show work. Thanks,

Explanation / Answer

Gain := Increase in rate *equity value

            = (.76 -.70 ) * 4,900,000

             = .06 *4,900,000

              = 294,000

correct option is "A"

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