Hippocrates’ balance sheet consolidation (B). Referring to information provided in the preceding problem:

a. Prepare a consolidated balance sheet for Hippocrates Inc. using current exchange rates.

b. Assuming that the Mexican peso will depreciate by 15 percent in 2013, what would be the translation gains or losses to Hippocrates? Where would they appear on the consolidated statements? (Assume that for pro forma purposes both the Mexican and French affiliates’ balance sheets remain unchanged at the end of 2014.)

c. Assuming that the US$ is the functional currency of Hippocrates’ Mexican operation, prepare revised consolidated statements. What would be the impact of a 15 percent peso devaluation on the consolidated statements, and where would it appear? (Assume again that for pro forma purposes both the Mexican and French affiliates’ balance sheets remain unchanged at the end of 2014.)

Data from preceding problem

Hippocrates hedges its translation exposures (A). Hippocrates Inc. is a leading U.S.-based manufacturer of medical imaging systems such as MRI machines with headquarters offices and manufacturing facilities in St. Paul, Minnesota.

Its Mexican manufacturing and assembling affiliate, domiciled in Mexico City, services the entire Latin American market. The French affiliate is domiciled in Paris and services the entire euro-zone area. The two affiliates’ balance sheets are prepared in Mexican pesos (MXN) and euros (€), respectively (see Exhibit 17. 9).

Current exchange rates are MXN 12. 5 = US$1 = €0.80.