On December 31, Year 8, U.S. Dental Supplies (USDS) created a wholly owned foreign subsidiary, Funi, Inc.

Question:

On December 31, Year 8, U.S. Dental Supplies (USDS) created a wholly owned foreign subsidiary, Funi, Inc. (FI), located in the country of Lumbaria. The condensed balance sheet of Funi as of December 31, Year 8, reported in local currency (the pont), follows:

Funi initially adopted the U.S. dollar as its functional currency and translated its Year 9 balance sheet and income statement in accordance with U.S. accounting practice. These statements are reproduced here:

USDS subsequently instructed Funi to change its functional currency to the pont. The following exchange rates (pont per U.S. dollar) are applicable:
January 1, Year 9 3.0 Average for Year 9 3.5 December 31, Year 9 4.0

Required:
a. Prepare a pro forma balance sheet as of December 31, Year 9, and an income statement for the year ending December 31, Year 9, for Funi. Both statements should be prepared in U.S. dollars, using the pont as the functional currency for Funi.
b. Analyze and describe the comparative effects of selecting the dollar versus the pont as the functional currency for Funi:
(1) U.S. dollar balance sheet as of December 31, Year 10.
(2) U.S. dollar income statement for year ended December 31, Year 10.
(3) U.S. dollar financial ratios for Year10.

Financial Ratios
The term is enough to curl one's hair, conjuring up those complex problems we encountered in high school math that left many of us babbling and frustrated. But when it comes to investing, that need not be the case. In fact, there are ratios that,...