Assume that a Malaysian subsidiary of a US company has the following: (1) cash =

M\($1,000;\) (2) accounts receivable = M\($1,500;\) (3) inventory = M\($2,000;\) (4) fixed assets

= M\($2,500;\) (5) current liabilities = M\($1,000;\) (6) long-term debt = M\($3,000;\) (7) net worth

= M\($3,000;\) and (8) net income before translation gain or loss = M\($225.\) Let us further assume that the historical exchange rate is \($0.25\) per ringgit, the current exchange rate is

\($0.20\) per ringgit, the average exchange rate is \($0.225\) per ringgit, and inventory is carried at cost.

(a) Prepare the balance sheet of the US subsidiary in Malaysia.

(b) Determine the dollar net income without the translation gain or loss.

(c) Determine the translation gain or loss under FASBs 8 and 52.

(d) If the functional currency is determined to be the US dollar, which translation method should be used? What kind of impact would it have on the company’s net income?

(e) Compute the Malaysian ringgit debt ratio, the return on investment, and the longterm debt-to-equity ratio. Compare these ratios with the ratios in dollars under FASBs 8 and 52.