Reading 25: Multinational Operations-LOS e 习题精选 div, class, affect, company, current

土豆妮

Session 6: Financial Reporting and Analysis: Intercorporate Investments, Post-Employment and Share-Based Compensation, and Multinational Operations
Reading 25: Multinational Operations

LOS e: Analyze how using the temporal method versus the current rate method will affect the parent company's financial ratios.

 

 

Which of the following ratios is unaffected by the choice between the current rate method and the temporal method?

A) Net profit margin.

B) Accounts receivable turnover.

C) Debt/Assets.

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Both accounts receivable and sales are converted at the same rate so the ratio is the same under each method.

土豆妮

Fronttalk Company is a U.S. multinational firm with a 100% stake in a foreign subsidiary. The foreign subsidiary's local currency has depreciated against the U.S. dollar over the latest financial statement reporting period. In addition, the subsidiary accounts for inventories using the last in, first out (LIFO) inventory cost-flow assumption and all purchases were made toward the end of the year. The gross profit margin as computed under the temporal method would most likely be:

A) equal to the same ratio computed under the current rate method.

B) lower than the same ratio computed under the current rate method.

C) higher than the same ratio computed under the current rate method.

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The foreign company uses LIFO so new purchases are flowing to cost of goods sold (COGS) and most purchases occurred toward the end of the year, so the current rate of exchange is our best guess for the COGS account. Since the local currency is depreciating, it is taking more foreign currency units to buy a dollar in the more recent periods and as a result, COGS as measured in U.S. dollars is lower and the gross profit margin is higher under the temporal method.