Q34. Wasson Brothers (WB) is a large U.S. based conglomerate with many subsidiaries in both the U.S. and abroad.

     One of WB's wholly-owned foreign subsidiaries, Kasamatsu Industries, is based in Japan and manufactures a

     hugely successful line of trading cards, toys, and other related products. All of Kasamatsu's operations and sales  

   take place in Japan, and the corresponding transactions are denominated in Japanese yen. Additionally,

   Kasamatsu's books and records are all maintained in yen. WB reports its earnings in U.S. dollars. The history of the

exchange rate between the dollar and the yen over the last two years is presented in the following table. Figures

are presented in yen/$.

Shelly Jameson is an analyst with Henderson-Wells, an investment banking firm in New York, and is the chief analyst covering WB. She believes that the enormous success of the trading cards has contributed greatly to WB's bottom line. However, she believes that this effect may be misstated in the company's financial statements because of the recent volatility in exchange rates. Many analysts at other major investment banking firms have been raising their ratings on WB because of the recent earnings growth. Jameson, however, wants to be absolutely certain that these results are accurate and fully attributable to Kasamatsu's hot new product and not a result of an exchange rate fluctuation. The following are the financial statements of Kasamatsu, stated in thousands of yen.

Jameson has finally completed translating all the necessary figures into dollars and now wants to compute how much WB's reported sales in dollars will change due to Kasamatsu's sales. Which of the following is closest to Jameson's answer (in thousands of dollars)?

A)   $5,000.

B)   $4,828.

C)   $4,667.

答案和详解如下：

Correct answer is A)

The basis for using the all current method is when Functional Currency is NOT the same as Parent's Presentation (reporting) Currency. The basis for using the temporal method is when Functional Currency = Parent's Presentation Currency.
Because sales is an income statement item, the 2002 average exchange rate of 140, JPY/USD must be used to calculate sales in the reporting currency. Kasamatsu's sales were JPY 700,000. The calculation is:

WB will report $5,000 of sales as a result of Kasamatsu's operations. Both remaining answers use incorrect exchange rates.

thx