Multinational investing

USA Industries sells bourbon to Europe. It prices the bourbon in Euros and it can take up to 90 days for the European customers to pay. On the last day of the year the Euro crashed.

21. How will this event impact USAs income statement for the year?

1. Lowered revenue from Europe
2. Increased revenue from Europe
3. No material change to revenue.

22. How will this event impact USAs balance sheet?

1. Lower accounts receivable.
2. Increase accounts receivable.
3. No material change to accounts receivable.

23. What kind of foreign currency gain/(loss) is USA likely to report?

1. Translational loss
2. Transactional loss
3. Cumulative Translation Adjustment

24. Under the current rate method revenues are converted at what rate?

1. Average Rate
2. Current Rate
3. Historical Rate

25. Which method translates accounts receivable at the current rate?

1. the current rate method
2. both methods
3. the temporal method

26. A subsidiary operates in a hyperinflationary economy, the functional currency should be the:

a. Subsidiary's local currency if IFRS.

b. Parent's currency if U.S. GAAP.

c. Local currency if either U.S. GAAP or IFRS.

27. In a hyperinflationary environment, why is the current rate method permitted under IFRS but not allowed for U.S. GAAP?

a. because IFRS translates accounts at the historical fx rates.

b. because IFRS allows for a fair market valuation of non-monetary assets.

c. because U.S. GAAP rules tend to be more specific and rigid.

28. Texas Industries owns a subsidiary in Japan. The subsidiary uses the Yen (Japanese currency = ) as the local currency. A long time ago the subsidiary bought a factory. At that time, the exchange rate was $.005/. Currently the exchange rate is .01/.

What would Texas Industries select as the functional currency if they want to maximize the translated value of their Japanese factory - as reported to investors?

1. U.S. Dollars
2. Japanese Yen
3. Canadian Loonies

Use for 29 30

JCI has factories on every continent. They have 17 factories in Canada that report under the JCI-CanFact subsidiary. Their head office is in Mexico. They report to their investors in U.S. dollars but do not file with the SEC. Most of their investors are Canadians. They translate JCI-CanFacts balance sheet on to the parents balance sheet at the end of every quarter.

29. What is the local currency for JCI-CanFact?

1. Mexican Pesos
2. U.S. Greenbacks
3. Canadian Loonies

30. What is the presentation currency for JCI?

1. Mexican Pesos
2. U.S. Greenbacks
3. Canadian Loonies