Grupo Comercial Chedraui is a food retailer headquartered in Mexico. While it has several subsidiaries, only one is located outside of Mexico. Bodega Latina Co. is a chain of self-service stores located in the U.S. Chedraui's consolidated accounts are reported in Mexican pesos (Mex\($).\) Chedraui's statements of comprehensive income for 2011, 2012, and 2013 include the following line:

The cumulative balance for the foreign currency translation gain component of accumulated other comprehensive income, at the beginning of 2011, was a gain of Mex\($16,849\) thousand.

Required

a. Is the Mexican peso or the U.S. dollar the functional currency of Chedraui’s U.S. subsidiary? Explain your answer.

b. For each of the years 2011, 2012, and 2013, on average was the Mexican peso strengthening or weakening with respect to the U.S. dollar? How do you know?

c. Prior to 2011, on average was the Mexican peso strengthening or weakening with respect to the U.S. dollar? How do you know?

d. If Bodega Latina’s functional currency had been the Mexican peso, would Chedraui’s 2013 net income have been higher or lower? Clearly state your reasoning and any assumptions made.

Transcribed Image Text:

(thousands of pesos) 2013 2012 2011 Foreign currency translation gain (loss). Mex$3,373 Mex$(43,551) Mex$71,811