Reading 24: Multinational Operations LOS d ～ Q27-28 country, foreign, white, style

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Q27. The Precision Screen Printers (PSP) Company has a foreign subsidiary, the Acer Tool & Die Company, located in the country

      of Rolivia. The currency of Rolivia is the Chad. The balance sheet and income statement of Acer Tool & Die Company for the

     year-ended December 31, 2005, is shown below. The balance sheet has been restated using the U.S. dollar as the functional

     currency.

Acer Tool & Die Company Balance Sheet As of December 31, 2005
	Chad (millions)		Exchange Rate (Chad/US$)				U.S. $ (millions)
Cash	20		0.25				$80
Accounts receivable	30		0.25				120
Inventory	100		0.3125				320
Fixed assets (net)	500		0.3333				1,500
Total assets	650						$2,020
Accounts payable	50		0.25				$200
Capital stock	380		0.3333				1,140
Retained earnings	220		--				680
Total liabilities and equity	650						$2,020
Acer Tool & Die Company Income Statement For year ending December 31, 2005 (Amounts in millions of Chad)
Revenues				1,000
Cost of sales				700
Depreciation expense				50
Selling expense				30
Translation gain (or loss)
Net income				220

Acer has determined that the exchange rate exposure at the beginning of 2005 is −260 Chad.

The exchange rate at the beginning of 2005 was 0.3333 Chad/US$. The exchange rate at the end of 2005 was 0.25 Chad/US$. The average rate for 2005 is 0.3125 Chad/US$. Beginning inventory is 90 Chad. Acer Tool & Die uses FIFO inventory valuation and depreciates fixed assets using the straight-line method.

What is Acer Tool & Die's cost of sales in U.S. dollars using the temporal method?

A)   $2,242.

B)   $2,240.

C)   $2,222.

Q28. What is the translation gain or loss for the period using the temporal method?

A)   $52 loss.

B)   $50 gain.

C)   $32 loss.

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