Reading 24: Multinational Operations LOS d ～ Q64 percent, black, white

mayanfang1

Q64. The Herlitzka Company, a U.S. multinational firm, has a 100 percent stake in a Swiss subsidiary. The U.S. dollar

     (USD) has been determined to be the functional currency. All the common stock of the subsidiary was issued at

     the beginning of the year and the subsidiary uses the weighted-average inventory cost-flow assumption. In

     addition, the value of the SF is as follows:

Beginning of year	$0.5902
Average throughout the year	$0.6002
End of year	$0.6150

The SF-based balance sheet and income statement data for the Swiss subsidiary are as follows:

Accounts receivable	= 3,000
Inventory	= 4,000
Fixed assets	= 12,000
Accounts payable	= 2,000
Long-term debt	= 5,000
Common stock	= 10,000
Retained earnings	= 2,000
Net income	= 2,000

The remeasured value of accounts receivable and inventory respectively are closest to:

A)   $1,845 and $2,401.

B)   $1,845 and $2,361.

C)   $1,771 and $2,361.

mayanfang1

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.
Since the USD is the functional currency, use the temporal method. Under the temporal method, inventory is remeasured using the historical rate. However, our best guess of the historical rate under the weighted average inventory cost-flow assumption is the average rate through the period. Hence, A/R = $0.615 × 3,000 = $1,845 and Inventory = $0.6002 × 4,000 = $2,401.

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