The financial statements need to be translated from euros to US dollars. I need to advise management on the appropriate currency designation and its relative financial statement effects.

Cases adopted from International Accounting, 6ed, by Frederick D S Choi and Gary K eek, published by Pearson International Edition. Case 6-1: Regents Corporation Regents Corporation is a recently acquired U.S. manufacturing subsidiary located on the outskirts of London. Its products are marketed principally in the United Kingdom, with sales invoiced in pounds and prices determined by local competitive conditions. Expenses (labor, materials, and other production costs) are mostly local, although a significant quantity of components is now imported from the U.S. parent. Financing is primarily in U.S. dollars provided by the parent. Headquarters management must decide on the functional currency for its London operation: Should it be the U.S. dollar or the British pound? You are asked to advise management on the appropriate currency designation and its relative financial statement effects. Prepare a report that supports your recommendations and identify any policy issues your analysis uncovers. Exhibit 6-14 presents comparative balance sheets for Regents Corporation at December 31, 20X7 and 20X8, and a statement of income for the year ended December 31, 20X8. The statements conform with U.S. generally accepted accounting principles prior to translation to dollars. Exhibit 6-14: Regents Corporation Financial Statements Balance Sheet Assets Cash Accounts receivable Inventory (FIFO) Fixed Assets Accumulated depreciation Intangible assets (patents) Total Liabilities and Stockholders' Equity Accounts payable Due to parent Long-term debt Deferred taxes Common Stock Retained earnings Total Income Statement Year Ended 12/31/X8 Sales 1|Page 12/31/X7 12/31/X8 1,060 2,890 3,040 4,400 (420) 10,970 1,150 3,100 3,430 4,900 (720) 70 11,930 1,610 1,800 4,500 80 1,500 1,480 10,970 1,385 1,310 4,000 120 1,500 3,615 11,930 16,700 Cases adopted from International Accounting, 6ed, by Frederick D S Choi and Gary K eek, published by Pearson International Edition. Expenses Cost of Sales General and administrative Depreciation Interest Operating Income Transaction gain (loss) Income before taxes Income taxes Current Deferred Net income Retained earnings at 12/31/X7 (residual) 11,300 1,600 300 480 670 40 Dividends Retained earnings at 12/31/X8 Exchange rate information and additional data: 13,680 3,020 125 3,145 710 2,435 1,480 3,915 300 3,615 1. Exchange rates: December 31, 20X7 $ 1.50 = 1 December 31, 20X8 $ 1.60 = 1 Average during 20X8 $ 1.56 = 1 Average during the fourth quarter 20X7 $ 1.48 = 1 Average during the fourth quarter 20X8 $ 1.56 = 1 2. Common stock was acquired, long-term debt issued, and original fixed assets purchased when the exchange rate was $ 1.40 = 1. 3. Due to parent account is denominated in U.S. dollars 4. Exchange rate prevailing when the intangible asset (patent) was acquired and additional fixed assets purchased was $ 1.52 = 1. 5. Purchases and dividends occurred evenly during 20X8. 6. Of the 300 depreciation expense for 20X8, 20 relates to fixed assets purchased during 20X8. 7. Deferred taxes are translated at the current rate. 8. Inventory represents approximately 3 months of production. 2|Page Cases adopted from International Accounting, 6ed, by Frederick D S Choi and Gary K eek, published by Pearson International Edition. 3|Page