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Adamantine Architectonics consists of a U
Adamantine Architectonics consists of a U.S. parent and wholly owned subsidiaries in Malaysia (A-Malaysia) and Mexico (A-Mexico). Selected portions of their non-consolidated balance sheets. translated into U.S. dollars. are shown in the popup window. What are the debt and equity proportions in Adamantine's consolidated balance sheet?
Data Table
A-Malaysia (in ringgits) A-Mexico (in pesos)
Long-term debt RM12,300,000 Long-term debt Ps17,250,000 Shareholders' equity RM18,040,000 Shareholders' equity Ps72,450,000 Adamantine Architectonics (non-consolidated)
Investment in subsidiaries (US dollars): Parent long-term debt $12,000,000
in A-Malaysia $4,400,000 Common stock $4,000,000
in A-Mexico $6,300,000 Retained earnings $15,000,000
Current exchange rates
Malaysian ringgit per dollar RM4.10/$
Mexican pesos per dollar Ps11.50/$
Expert Solution
Computation of the debt and equity portions:-
Convert debt of subsidiaries into holding company currency.
A-Malaysia debt = 12,300,000 / 4.10
= $3,000,000
A-Mexico debt = 17,250,000 / 11.50
= $1,500,000
Total debt = A-Malaysia debt + A-Mexico debt + Parent long term debt
= $3,000,000 + $1,500,000 + $12,000,000
= $16,500,000
Total equity = Common stock + Retained earnings
= $4,000,000 + $15,000,000
= $19,000,000
Total capital =Total debt + Total equity
= $16,500,000 + $19,000,000
= $35,500,000
Debt portion = Total debt / Total capital
= $16,500,000 / $35,500,000
= 46.48%
Equity portion = Total equity / Total capital
= $19,000,000 / $35,500,000
= 53.52%
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