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Multico (a US-based company) forms a wholly-owned subsidiary in Italy (Italco) on January 1, 2009. On that date, Multico invests in Italco when the exchange rate was 1.00=1$. At December 31, the balance sheet and the income statement of Italco were as follows: Income Statement (6) Sales 8,000,000 Cost of goods sold 6,000,000 Gross profit 2,000,000 Selling and administrative expenses 825,000 Depreciation expense: Property Plant & 200,000 Equipment Depreciation expense: Building 20,000 Interest expense 180,000 Income before tax 775,000 Income tax expense 275,000 Net income 500,000 Balance Sheet (6) Cach 550,000 600,000 550.000 600,000 800,000 2,000,000 80,000 Balance Sheet (6) Cach Accounts receivable Inventory Property, plant & equipment Building Accumulated depreciation Property Plant & Equipment Accumulated depreciation: Building Total assets Accounts payable Long-term debt Total liabilities Capital stock Retained earnings (200,000) (20,000) 3,810,000 310,000 2,000,000 2,310,000 1,000,000 500,000 Total liabilities& capital 3,810,000 Relevant exchange rates were as follows: Sper 0.98 When property, plant & equipment were purchased 0.95 Average 0.90 December 31 0.91 0.97 When ending inventory was purchased When building was purchased Requirements: Translate the above statements into $ using a. Closing rate method (Current Method) b. Temporal method 1 A B 1 !!! INI P 22 Closing USD Temporal RATE USD RATE EURO Sales 8,000,000 6,000,000 2,000,000 Cost of goods sold Gross profit Selling and administrative expenses Depreciation expense: Property Plant & Equipment Depreciation expense: Building Interest expense Income before tax 825,000 200,000 20,000 180,000 775,000 275,000 Income tax expense 500,000 Net income Accounting Exposure Closing Temporal Income before tax 180,000 Income tax expense 775,000 275,000 Net income 500,000 Accounting Exposure Closing USD Temporal RATE EURO RATE USD Cach 550,000 Accounts receivable 600,000 800,000 2,000,000 Inventory Property, plant & equipment Building Accumulated depreciation: Property Plant & Equipment Accumulated depreciation: Building Total assets Accounts payable Long-term debt Total liabilities 80,000 (200,000) (20,000) 3,870,000 310,000 2,000,000 2,310,000 Finish attempt 180,000 775,000 275,000 500,000 Accounting Exposure Closing Temporal Accounting Exposure USD RATE EURO RATE USD 550,000 600,000 800,000 2,000,000 80,000 Plant & Equipment (200,000) (20,000) I 3,810,000 310,000 2,000,000 2,310,000 1,000,000