Redline’s consolidated gross profit margin for 2007 would be highest if Acceletron accounted for inventory using:

A. FIFO, and its functional currency were the US dollar.

B. LIFO, and its functional currency were the US dollar.

C. FIFO, and its functional currency were the Singapore dollar.

Redline Products, Inc. is a US-based multinational with subsidiaries around the world. One such subsidiary, Acceletron, operates in Singapore, which has seen mild but not excessive rates of inflation. Acceletron was acquired in 2000 and has never paid a dividend. It records inventory using the FIFO method.

Chief Financial Officer Margot Villiers was asked by Redline’s board of directors to explain how the functional currency selection and other accounting choices affect Redline’s consolidated financial statements. Villiers gathers Acceletron’s financial statements denominated in Singapore dollars (SGD) in Exhibit 1 and the US dollar/Singapore dollar exchange rates in Exhibit 2. She does not intend to identify the functional currency actually in use but rather to use Acceletron as an example of how the choice of functional currency affects the consolidated statements.

Transcribed Image Text:

EXHIBIT 1 Selected Financial Data for Acceletron, 31 December 2007 (SGD millions) Cash Accounts receivable Inventory Fixed assets Accumulated depreciation Total assets Accounts payable Long-term debt Common stock Retained earnings Total liabilities and equity Total revenues Net income SGD125 230 500 1,640 (205) SGD2,290 185 200 620 1,285 2,290 SGD4,800 SGD450