The president of Modular Office of Brazil $($MOB$),$ the wholly owned Brazilian subsid$-$

iary of U$.$S$.-$based Modular Office Corporation receives a compensation package that

consists of a combination of salary and bonus. The annual bonus is calculated as a pre$-$

determined percentage of the pre$-$tax income earned by MOB. Brazil's national currency

is the Brazilian real $($BRL$),$ which has been falling in value against the U$.$S$.$ dollar. A

condensed income statement for MOB for the most recent year is as follows $($amounts in

thousands of BRL$)$:

Sales $$ BRL $10,000$

Expenses$9,500$

Pre$-$tax income $500$

MOB's production is highly automated and depreciation on machinery is the com$-$

pany's major expense. After translating the BRL income statement into U$.$S$.$ dollars

$($USD$),$ the condensed income statement for MOB appears as follows $($amounts in thou$-$

sands of USD$)$:

Sales$$ USD$2,500$

Expenses$2,850$

Pre$-$tax income $($loss$)$ USD $(350)$

Required:

a$.$ Speculate as to how MOB's BRL pre$-$tax income became a USD pre$-$tax loss.

b$.$ Discuss whether the president of MOB should be paid a bonus or not.