1.nn Company is a U.S. multinational firm with operations in several foreign countries. Hann has a 100% stake in a French subsidiary. The foreign subsidiary's local currency has appreciated against the U.S. dollar over the latest financial statement reporting period. In addition, the French firm accounts for inventories using the FIFO inventory cost-flow assumption. The gross profit margin as computed under the current rate method would most likely be:

A)   higher than the gross profit margin as computed under the temporal method.

B)   equal to the gross profit margin as computed under the temporal method.

C)lower than the gross profit margin as computed under the temporal method.

D)   a comparison of the ratio between the two methodologies is not possible.

2.ich of the following statements regarding the effects of translation on financial ratios is least accurate?

A)   Depreciation is distorted in the temporal method.

B)   Return ratios are affected because both the numerator and denominator are affected.

C)   Translation gains or losses from using the temporal method may distort income, and thereby affect any ratio involving net income.

D)   Fixed assets are higher under the temporal method if the local currency appreciates.

3．ann Company is a U.S. multinational firm with operations in several foreign countries. Hann has a 100 percent stake in a French subsidiary. The foreign subsidiary's local currency has appreciated against the U.S. dollar over the latest financial statement reporting period. In addition, the French firm accounts for inventories using the FIFO inventory cost-flow assumption. The net profit margin as computed under the current rate method would most likely be:

A)   either higher or lower than the same ratio computed under the temporal method.

B)   higher than the same ratio computed under the temporal method.

C)   lower than the same ratio computed under the temporal method.

D)   equal to the same ratio computed under the temporal method.

1.nn Company is a U.S. multinational firm with operations in several foreign countries. Hann has a 100% stake in a French subsidiary. The foreign subsidiary's local currency has appreciated against the U.S. dollar over the latest financial statement reporting period. In addition, the French firm accounts for inventories using the FIFO inventory cost-flow assumption. The gross profit margin as computed under the current rate method would most likely be:

A)   higher than the gross profit margin as computed under the temporal method.

B)   equal to the gross profit margin as computed under the temporal method.

C)lower than the gross profit margin as computed under the temporal method.

D)   a comparison of the ratio between the two methodologies is not possible.

The correct answer was C)

The average rate is used to convert sales under both the temporal method and the current rate method. Hence, the only difference between the two computations is on COGS. Since the firm uses FIFO, older materials are flowing into COGS and an older exchange rate applies. Since in the past the foreign currency bought fewer dollars, the gross profit under the temporal method will be higher than that of the current rate method.

2.ich of the following statements regarding the effects of translation on financial ratios is least accurate?

A)   Depreciation is distorted in the temporal method.

B)   Return ratios are affected because both the numerator and denominator are affected.

C)   Translation gains or losses from using the temporal method may distort income, and thereby affect any ratio involving net income.

D)   Fixed assets are higher under the temporal method if the local currency appreciates.

The correct answer was D)

Fixed assets are lower under the temporal method if the local currency appreciates.

3．ann Company is a U.S. multinational firm with operations in several foreign countries. Hann has a 100 percent stake in a French subsidiary. The foreign subsidiary's local currency has appreciated against the U.S. dollar over the latest financial statement reporting period. In addition, the French firm accounts for inventories using the FIFO inventory cost-flow assumption. The net profit margin as computed under the current rate method would most likely be:

A)   either higher or lower than the same ratio computed under the temporal method.

B)   higher than the same ratio computed under the temporal method.

C)   lower than the same ratio computed under the temporal method.

D)   equal to the same ratio computed under the temporal method.

The correct answer was A)

The foreign currency gain or loss appears on the income statement under the temporal method. Hence, to make any determinations regarding the movements of this ratio, we need more information regarding the net monetary asset or liability position as of both the beginning and ending balance sheet date.