Why might a company want to hedge its balance sheet exposure? What is the paradox associated with hedging balance sheet exposure? Companies find it necessary to hedge the balance sheet exposure to avoid negative translation adjustments due to restrictive debt covenants. There is a paradox in hedging the balance sheet exposure; companies may incur realized foreign exchange loss to avoid an unrealized negative translation adjustment.
What causes balance sheet (or translation) exposure to foreign exchange risk? How does balance sheet exposure compare with transaction exposure? When a balance in foreign currency is translated at the current exchange rate, the balance sheet exposure arises because the foreign currency is being revalued in dollars in the consolidated statements. The revaluation causes either a net asset or net liability depending on the rate during revaluation. Translation exposure generates the foreign exchange gains and losses.
9. A translation adjustment must be calculated and disclosed when financial statements of a foreign subsidiary are translated into the parent’s reporting currency. How is this figure computed, and where is the amount reported in the financial statements? The figure is computed in a cumulative translation adjustment resulting it in other comprehensive income. This way the gain or loss is defer to the R/E until it is realized. In the balance sheet account, the cumulative adj. is not closed, allowing it fluctuate in amount over its life.
A commitment is best described as: a. an agreement to commit the firm to a set of fixed conditions in the future that depends on current market conditions. b. an agreement to commit the firm to a...
During 2012, Simms Company redeemed $2,000,000 of bonds payable for $1,880,000 cash. Indicate how this transaction would be reported on a statement of cash flows, if at all.
Accountants are not commonly responsible for generating revenue for an organization . However, they do play critical roles for an organization. What specific value does an accounting professional pr...