Description Answer the following problems thoroughly and in complete sentences.  What factors ...

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Description Answer the following problems thoroughly and in complete sentences.  What factors create a balance sheet (or translation) exposure to foreign exchange risk? Why might a company want to hedge its balance sheet exposure? What is the paradox associated with hedging balance sheet exposure? Simga Company’s Turkish subsidiary reported the following amounts in Turkish lira (TL) on its December 31, Year 4, balance sheet: Additional information related to the equipment is as follows: U.S.-dollar exchange rates for the Turkish lira for Year 4 are as follows: Assume that Turkey is a highly inflationary economy. Determine the amounts at which the Turkish subsidiary’s equipment and accumulated depreciation should be reported on Simga Company’s December 31, Year 4, consolidated balance sheet in accordance with U.S. GAAP. Determine the net book value for equipment. Now assume that Turkey is not a highly inflationary economy and that the Turkish subsidiary primarily uses Turkish lira in conducting its operations. Determine the amounts at which the Turkish subsidiary’s equipment and accumulated depreciation should be reported on Simga Company’s December 31, Year 4, consolidated balance sheet in accordance with U.S. GAAP. Determine the net book value for equipment. 4. Gramado Company was created as a wholly owned subsidiary of Porto Alegre Corporation (a U.S.-based company) on January 1, Year 1. On that date, Porto Alegre invested $42,000 in Gramado’s capital stock. Given the exchange rate on that date of $0.84 per cruzeiro, the initial investment of $42,000 was converted into 50,000 cruzeiros (Cz). Other than the capital investment on January 1, there were no transactions involving stockholders’ equity in Year 1. Gramado’s cruzeiro-denominated financial statements for Year 2 are as follows: The cruzeiro is the primary currency that Gramado uses in its day-to-day operations. The cruzeiro has steadily fallen in value against the dollar since Porto Alegre made the investment in Gramado on January 1, Year 1. Relevant U.S. dollar ($) exchange rates for the cruzeiro for Years 1 and 2 are as follows: Translate Gramado Company’s Year 2 financial statements into U.S. dollars. Compute the translation adjustment for Year 1 and for Year 2 and reconcile these amounts to the cumulative translation adjustment reported on the translated balance sheet at December 31, Year 2.