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Cooper Grant is the president of Acme Brush of Brazil the wholly owned Bra- zilian subsidiary of U.S.-based Acme Brush Inc. Cooper Grants compensation package
Cooper Grant is the president of Acme Brush of Brazil the wholly owned Bra- zilian subsidiary of U.S.-based Acme Brush Inc. Cooper Grants compensation package consists of a combination of salary and bonus. His annual bonus is calculated as a predetermined percentage of the pretax annual income earned by Acme Brush of Brazil. A condensed income statement for Acme Brush of Brazil for the most recent year is as follows (amounts in thousands of Brazilian reals [BRL]): Sales . . . . . . . . . . . . . . . . . . . . . . . . BRL10,000 Expenses . . . . . . . . . . . . . . . . . . . . . 9,500 Pretax income . . . . . . . . . . . . . . . . . BRL 500 After translating the Brazilian real income statement into U.S. dollars, the con- densed income statement for Acme Brush of Brazil appears as follows (amounts in thousands of U.S. dollars [US$]): Sales . . . . . . . . . . . . . . . . . . . . . . . . US$3,000 Expenses . . . . . . . . . . . . . . . . . . . . . 3,300 Pretax income (loss) . . . . . . . . . . . . . US$ (300) Required: a. Explain how Acme Brush of Brazils pretax income (in BRL) became a U.S.- dollar pretax loss. b. Discuss whether Cooper Grant should be paid a bonus or not
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