3. Huskie Inc. maintains a branch office in Great Britain. The branch office is fairly au- tonomous because it must find its own financing, set its own local marketing policies, and control its own costs. The branch receives weekly shipments from Huskie Inc., which it then conveys to its customers. The pound sterling is used to pay the subsidi- ary's employees and to pay for the weekly shipments. Question 6 (11 marks) (a) Following are descriptions of several independent situations. (1.5*4=6 marks) 1. Rockford Company has a subsidiary in Argentina. The subsidiary does not have much debt because of the high interest costs resulting from the average annual inflation rate exceeding 100 percent. Most of its sales and expense transactions are denomi- nated in Argentinean pesos, and the subsidiary attempts to minimize its receivables and payables. Although the subsidiary owns a warehouse, the primary asset is inven- tory that it receives from Rockford. The Argentinean government requires all compa- nies located in Argentina to provide the central government with a financial report using the Argentinean system of accounts and government-mandated forms for fi- nancial statements. 4. Hola Company has a foreign subsidiary located in a rural area of Switzerland, right next to the Swiss-French border. The subsidiary hires virtually all its employees from France and makes most of its sales to companies in France. The majority of its cash transactions are maintained in the European euro. However, it is required to pay local property taxes and sales taxes in Swiss francs and to provide annual financial state- ments to the Swiss government. Required For each of these independent cases, determine I. The foreign entity's recording currency in which its books and records are main- tained. 2. JRB International, located in Dallas, Texas, is the world's largest manufacturer of elec- tronic stirrups. The company acquires the raw materials for its products from around the world and begins the assembly process in Dallas. It then sends the partially com- pleted units to its subsidiary in Mexico for assembly completion. Mexico has been able to hold its inflation rate under 100 percent over the last three years. The subsid- iary is required to pay its employees and local vendors in Mexican pesos. The parent company provides all financing for the Mexican subsidiary, and the subsidiary sends all of its production back to the warehouse in Dallas, from which it is shipped as or- ders are received. The subsidiary provides the Mexican government with financial statements. II. The foreign entity's functional currency. III. The process to be used to restate the foreign entity's financial statements into the reporting currency of the U.S.-based parent company. (b) Wahl Company's 20x5 consolidated financial statements include two wholly owned sub- sidiaries, Wahl Company of Australia (Wahl A) and Wahl Company of France (Wahl F). Functional currencies are the U.S. dollar for Wahl A and the European euro for Wahl F. (5 marks) Required I. What are the objectives of translating a foreign subsidiary's financial statements? (1 mark) How are gains and losses arising from the translation or remeasurement of each subsidiary's financial statements measured and reported in Wahl's consolidated fi- nancial statements? (2 marks) III. What exchange rate is used to incorporate each subsidiary's equipment cost, accu- mulated depreciation, and depreciation expense in Wahl's consolidated financial statements? (2 marks)