What is Zapata’s FASB-52 peso translation exposure on January 1?

What is Zapata’s FASB-52 peso translation exposure on January 1?

Zapata Auto Parts, the Mexican affiliate of American Diversified, Inc., had the following balance sheet on January 1:

Assets (Mex$ Millions)

Liabilities (Mex$ Millions)

Cash, marketable securities

Mex$1,000

Current liabilities

Mex$47,000

Accounts receivable

50,000

Long-term debt

12,000

Inventory

32,000

Equity

135,000

Net fixed assets

111,000

Total assets

Mex$194,000

Liabilities plus equity

Mex$194,000

The exchange rate on January 1 was Mex $8,000 = $1.

a. What is Zapata’s FASB-52 peso translation exposure on January 1?

b. Suppose the exchange rate on December 31 is Mex$12,000. What will be Zapata’s translation loss for the year?

c. Zapata can borrow an additional Mex$15,000 (in millions). What will happen to its translation exposure if it uses the funds to pay a dividend to its parent? If it uses the funds to increase its cash position?

Place Your Order Here!

Leave a Comment

Your email address will not be published. Required fields are marked *