Foreign Currency Translation and Remeasurement

You have been recently hired as a staff accountant at Global Design, Inc., a small chain of retail home furnishing stores. You report directly to the Chief Financial Officer (CFO). The company specializes in home products with high-quality European design, but reasonable prices. Most of their products are manufactured in foreign countries but purchased from domestic wholesalers; these transactions are therefore denominated in U.S. dollars. However, the companys president is entertaining the idea of acquiring subsidiaries in several foreign countries to ensure a reliable supply chain. He also believes that the exchange rates of some foreign currencies will rise about 10% in the next year and he is keen on reporting again in Global Designs income statement when it does.

The president has asked you to prepare a memo outlining the effects of his plan, including

1) the financial reporting effects of acquiring a foreign subsidiary;

2) how changes in the foreign currency exchange rate will affect Global Designs financial statements; and

3) under what circumstances Global Design could record again from a foreign subsidiary. The president has also asked you to make a clear recommendation on whether he should proceed with his plan.

Note: The company president has never taken an accounting class and does not understand journal entries, so please do not include any in your memo.