Q5. 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 c orresponding 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/dollars. Yen / Dollar Exchange Rate | December 31, 2005 | 150 | December 31, 2004 | 130 |
| 2005 Average | 140 | 2004 Average | 120 |
| Exchange rate on date that 2005 dividends were paid to Wasson Brothers | 145 | Exchange rate on date of stock issue and acquisition of fixed assets | 100 |
Ashley 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. Financial Statements for Year Ending December 31, 2005 (in thousands of yen) | Statement of Income and Retained Earnings |
| Sales | 700,000 |
| Expenses |
|
| Cost of goods sold (COGS) | 280,000 |
| Depreciation | 126,000 |
| SG&A | 77,000 |
|
| Total Expenses | 483,000 |
| Earnings before taxes (EBT) | 217,000 | Income Tax Expense | 98,000 | Net Income | 119,000 | Retained Earnings: December 31, 2004 | 250,000 |
| 369,000 | Dividends | 58,000 | Retained Earnings: December 31, 2005* | 311,000 |
| *Retained earnings on 12/31/2005 were US $2 million | | | | |
Balance Sheet |
| Assets |
| Cash and receivables | 60,000 |
| Inventory | 180,000 |
| Land | 200,000 |
| Fixed assets | 346,000 |
|
| Total assets | 786,000 |
| Liabilities and stockholder's equity |
| Liabilities | 300,000 |
| Capital stock | 175,000 |
| Retained earnings | 311,000 |
|
| Total liabilities and stockholder's equity | 786,000 |
Before Jameson can perform any financial statement analysis she needs to determine which method WB uses to translate Kasamatsu's earnings into U.S. dollars (USD). Which of the following is the most accurate method and reasoning? A) Current method because the local currency is the USD. B) Current method because the functional currency is the yen. C) Temporal method because the local currency differs from the functional currency.
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发表于 2009-1-17 14:56
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