Case 8-1 Columbia Corporation

d" tm-=·~an.7cornpaTe-mereia1ve magnifiRe o

aJUS ents between thetwo companies.

c.Determ.ine whethereachcompanyhedgesthe neti.nvestment m·fo

operations.Ifso, determinethetype(s) of hedginginstrument(s) used.

d.Prepare. a brief reportcomparing and contrasting the foreign currency

translation andforeign currencyhedging policiesof these two companies.

Case 8-1

Columbia Corporation

ColumbiaCorporation, a U.S.-based company,acquired a 100 percentinterestin

Swoboda Company in Lodz,Poland,onJanuary1,Year1, when the exchangerate

fur the Polishzloty (PLN) was $0.25. The financial statements of Swobodaas of

December 31,Year 2, two yearslater, are as follows:

J

BalanceSheet

oecembe,. 31,Year2________ _

Assets

c1 ..h

Accounts recip.vable {netJ

lnvMtOry

Equ.pmeot

less. Accumulatedd()prec.1at:on

Building,

""ll?SS Accumulateddeprec1~t1on

l.dnd

Totalassets

liabilities andStockholders'Equity

Accounts P<tyable

Long·term debt

"~Common stock.

Additronal pa1d-1n capital

Retained earnings

Total llabr11t1es andstockholders'equity

PLN1,000,000

1,650,000

4,250,000

12,500,000

(4,250,000)

36,000,000

(15,150,000)

3,000,000

PLN 39,000,000

PLN 1,250,000

25,000,000

2,500,000

7,500,000

2,750,000

PLN~

Statement of IncomeandRetained Earnings

For the Year Ending December 31. Year 2

sales

C os1 of goods sold

<..Depreoahon expense-equipment

Depreoatmn expense--bwld1n9

Research and development expense

Otherexpenses (1ndudingtaxes)

Netmcome

Plus· Retainedearnings, 1/1/Y2

Less:01v1dends, Year 2.

Retained earnings, 12/31/Y2

---------

PLN12,500,000

(6,000,000)

(1,250,000)

(900,000)

(600,000)

(500,000)

PLN 3,250,000

250,000

(750,000)

PLN2,750,000