ADVANCED ACCOUNTING
13th Edition
ISBN: 9781260773033
Author: Hoyle
Publisher: MCG
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Chapter 10, Problem 27P
To determine
Prepare a statement of cash flows in pounds for Company S foreign subsidiary and then translate amounts into US Dollar.
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Per US GAAP, receiving interest payments from a loan that a bank made to its customer would be included in the investing activity section of the bank statement of cash flows
TRUE
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Suppose that Salem Co, a U.S.-based MNC that both purchases supplies from Canada and sells exports in Canada, is seeking to measure the economic
exposure of its cash flows. Salem wishes to analyze how its cash flows might change under different exchange rates for the Canadian dollar (the only
foreign currency in which it deals).
Salem estimates it's cash flows from both the U.S., in dollars, and Canada, in Canadian dollars. These figures are summarized in the following table.
U.S. Canada
Sales
-Cost of materials
$315
C$5
$45
C$150
-Operating expenses
$55
-Interest expenses
$5
C$10
Cash flows
$210
-$C155
Salem believes that the value of the Canadian dollar will be $0.70, $0.75, or $0.80, and seeks to analyze its cash flows under each of these scenarios.
The following table shows Salem's cash flows under each of these exchange rates.
For each exchange rate scenario, fill in rows (2), (3), (5), (6), (9), and (10). Finally, fill in the last row for net cash flows in U.S. dollars for each…
(b) Kenduri Co is considering whether or not to manage the foreign exchange
exposure by using multilateral netting from the UK, with the Sterling Pound (£) as
the base currency. Multilateral netting is undertaken in order to show the cash flow
transaction. The following cash flows between Kenduri with three subsidiaries;
Lakama from United States, Jaia from Canada and Gochiso in Japan. Below are
the details of cash flow transactions:
Owed by
Kenduri
Owed to
Lakama
Jaia
Amount
US$ 4.5 million
CAD 1.1 million
Kenduri
Kenduri
Gochiso
JPY 180 million
Gochiso
Jaia
CAD 3.2 million
Gochiso
Lakama
US$ 1.4 million
Gochiso
Kenduri
GBP 25 million
Jaia
Lakama
US$ 1.5 million
Jaia
Kenduri
GBP 40 million
Jaia
Gochiso
JPY 115 million
Lakama
Gochiso
JPY 320 million
Lakama
GBP 2.1 million
Kenduri
Jaia
Lakama
CAD 2.5 million
Calculate the impact of undertaking multilateral netting by Kenduri Co and its
three subsidiary companies for the cash flows due in three months if the
exchange rate is $1.5938/£,…
Chapter 10 Solutions
ADVANCED ACCOUNTING
Ch. 10 - Prob. 1QCh. 10 - What causes balance sheet (or translation)...Ch. 10 - Prob. 3QCh. 10 - Prob. 4QCh. 10 - Prob. 5QCh. 10 - Prob. 6QCh. 10 - Prob. 7QCh. 10 - Prob. 8QCh. 10 - Prob. 9QCh. 10 - Prob. 10Q
Ch. 10 - Prob. 11QCh. 10 - Which translation method does U.S. GAAP require...Ch. 10 - Prob. 13QCh. 10 - Prob. 1PCh. 10 - Prob. 2PCh. 10 - Prob. 3PCh. 10 - Prob. 4PCh. 10 - Prob. 5PCh. 10 - Prob. 6PCh. 10 - Prob. 7PCh. 10 - Prob. 8PCh. 10 - What amount does Newberrys consolidated income...Ch. 10 - Prob. 10PCh. 10 - Prob. 11PCh. 10 - Prob. 12PCh. 10 - Prob. 13PCh. 10 - Prob. 14PCh. 10 - Prob. 15PCh. 10 - Prob. 16PCh. 10 - Prob. 17PCh. 10 - A foreign subsidiarys functional currency is its...Ch. 10 - Prob. 19PCh. 10 - Prob. 20PCh. 10 - Prob. 21PCh. 10 - Prob. 22PCh. 10 - The following accounts are denominated in rubles...Ch. 10 - Prob. 24PCh. 10 - Prob. 25PCh. 10 - Sullivans Island Company began operating a...Ch. 10 - Prob. 27PCh. 10 - Prob. 28PCh. 10 - Prob. 29PCh. 10 - Prob. 30PCh. 10 - Prob. 31PCh. 10 - Prob. 32PCh. 10 - Prob. 33PCh. 10 - The following account balances are for the Agee...Ch. 10 - Prob. 35PCh. 10 - Prob. 36PCh. 10 - Prob. 37PCh. 10 - Prob. 38PCh. 10 - Prob. 1DYSCh. 10 - RESEARCH CASE 2FOREIGN CURRENCY TRANSLATION...Ch. 10 - Prob. 3DYSCh. 10 - Prob. 4DYSCh. 10 - Prob. 5DYS
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Similar questions
- (b) Kenduri Co is considering whether or not to manage the foreign exchange exposure by using multilateral netting from the UK, with the Sterling Pound (£) as the base currency. Multilateral netting is undertaken in order to show the cash flow transaction. The following cash flows between Kenduri with three subsidiaries; Lakama from United States, Jaia from Canada and Gochiso in Japan. Below are the details of cash flow transactions: Owed by Kenduri Owed to Lakama Jaia Amount US$ 4.5 million CAD 1.1 million Kenduri Kenduri Gochiso JPY180 million Gochiso Jaia CAD 3.2 million Gochiso Lakama US$ 1.4 million Gochiso Kenduri GBP 25 million Jaia Lakama US$ 1.5 million Jaia Kenduri GBP 40 million Jaia Gochiso JPY 115 million Lakama Gochiso JPY 320 million Lakama GBP 2.1 million Kenduri Jaia Lakama CAD 2.5 million Calculate the impact of undertaking multilateral netting by Kenduri Co and its three subsidiary companies for the cash flows due in three months if the exchange rate is $1.5938/£,…arrow_forwardDiscuss two general functions involved in international cash management and explain how the MNC’s optimization of cash flow can distort the profits of a subsidiary that is based in North America.arrow_forwardUse the following information from Denmark Companys financial statements to determine operating net cash flows (indirect method).arrow_forward
- If you are the manager, you should understand which of the operations do not create benefit from depreciation of the firm's local currency. I. Borrowing in a foreign country and converting the funds to the local currency prior to the depreciation. II. Purchasing foreign supplies. III. Investing in foreign bank accounts denominated in foreign currencies prior to depreciation of the local currency. A. I, IV B. II, IV C. I, II D. II, IIIarrow_forwardA U.S.-based MNC has a subsidiary in Malaysia that generates substantial net cash inflows denominated in Ringgit Malaysia. Given this information, the MNC would ____ from a ____ of the Ringgit Malaysia. A. benefit; appreciation B. not benefit; depreciation C. benefit; depreciation D. not benefit; appreciationarrow_forwarda) In ordinary language, explain the meaning of Velocity of Money. b) State and explain the variables in the equation of exchange. c) Use the equation of exchange stated in (b) above to explain the relationship between changes in the money supply and the price level. State any assumptions made. d) Using the equation of exchange from part b) and information of the Bank of Ghana’s Quarterly Bulletin/Statistical Bulletin as well as quarterly GDP releases from the Ghana Statistical Service, calculate the Velocity of Money for the Ghanaian economy from the first quarter of 2020 to the second quarter of 2021. e) Based on your answer from (d) is it reasonable to assume that the Velocity of Money is constant in Ghana? Why or why not? f) The Bank of Ghana currently announces its monetary policy in terms of changes in the interest rates (i.e. Monetary Policy Rate). Based on the information in parts (d-e) do you think it should continue to implement this practice? If yes, explain why. If not,…arrow_forward
- Firms use a variety of methods to conduct business internationally. Consider the case of an MNC conducting international business via the use of international trade. When this method of conducting international business is used, cash inflows come from ? while cash outflows flow to ? .arrow_forwardWhat are the relevant cash flows for an international investment—the cash flowsproduced by the subsidiary in the country in which it operates or the cash flows indollars that it sends to its parent company? Explain.arrow_forwardWhat are the relevant cash flows for an international investment:the cash flow produced by the subsidiary in the country whereit operates, or the cash flows in dollars that it sends to its parentcompany?arrow_forward
- U.S. GAAP designates cash outflows for interest payments and cash inflows from interest and dividends receivedas operating cash flows. Dividends paid to shareholders are classified as financing cash flows. How are thesecash flows reported under IFRS?arrow_forward1.What is the transactional motive of holding cash? a. To keep a cash reserve for purchasing goods and services to balance outthe cash inflows and outflows.b. To keep the cash for all the transactions made during a periodic term.c. To keep the cash for transactions mandatory for day to day activities. d. To keep the transactions for foreign trading. 2. Below are all components of working capital except:a. Cashc. Marketable Securitiesb. Inventoriesd. Notes Payable 3. In what order will a company’s current assets appear on a classified balancesheet?a. Alphabetical orderc. From largest to smallest amountb. Company’s choiced. Order of Liquidity 4. Which of the following would not be important in examining the firm's buildup ofaccounts receivable, cash, and current assets:a. A brief cash budgetb. Cash receipts and cash payments schedulesc. Income Statementd. Sales forecastarrow_forwardA Canadian bank has operations in USA. 65% of their net cash flow is from Canadian operations and 35% is from the US. What are the 3 elements to be used to determine the value of this bank? With the Canadian dollar appreciating relative to the US dollar how will the valuation of this bank be affected?arrow_forward
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