I guess you can deduce that it is a debit since LC has been appreciating thus creating a positive CTA. Like one poster said, its wierd to see debits and credits in CFAI cirriculum.
Just because there are 4 years worth of data for exchange rates doesn’t mean that the subsidiary was there for all those 4 years.
Also, isn’t the LC depreciating? The exchange rates are written in LC/$US. I think I am totally lost at this point. Whats the answer?
Either way you need at least 1 year prior information. If you could assume that they have only been in business 1 year, your anaysis would be correct using the retained earnings as that years income. Still, the question is whack
Also, isn’t the LC depreciating? The exchange rates are written in LC/$US. I think I am totally lost at this point. Whats the answer? -Your right, I didnt see that, the LC is depreciating.
Yea, I’m kinda losing interest in this. On to the next thread.
Before this thread dies, the OP didn’t provide enough info for everyone to have a chance. This is question #21 of PE 1 AM in Book 6. First, the question says “…assuming International Oilfield is a relatively self-contained and independent operation of Continental Supply” this means we use all current method (so a CTA on the B/S makes sense). Second, in the vig, it states RE is actually $525 at the end of 2007 (first sentence below B/S items). This gives us part of the “plug” figure that equity is for the current method since RE was 622 LCU on the B/S. Here’s Schweser’s explanation straight from the website: [(120 million cash and receivables + 360 million inventory + 1,092 million equipment – 600 million liabilities) / 1.50] – $350 million capital stock – $525 retained earnings = –$227 million. Since the CTA is negative, it would have a debit balance. (Study Session 6, LOS 26.d) So it looks like they translated the net asset amount (A-L or E) at the 2007 year end rate from LCU to USD then subtracted the translated parts of equity (RE which is a plug/given at $525 and capital stock is translated at the historical rate - the vig says CS was issued in 2004 when the FX rate was 1 to 1) to get -$227, which is a debit balance for an equity account. So that gets us to the answer but leaves us with two more questions: 1. from an accounting standpoint does this make sense? 2. how many people would get this question right WITHOUT guessing?
Forgot to mention that this question really pissed me off too…
psn0706 I think this is PExam1 Morning Session Q#21 in Vol. TWO of the PExams
Sorry about that…
PLEASE NOTE IF YOU ARE POSTING QUESTIONS FROM EXAMS. Some of us haven’t taken them yet.
here is the answer,which does not make sense to me: (120+360+1092-600)/1.5-350-525=-227 question from vol2 1am Q21