Question #1
Reading: Reading 10 Multinational Operations
PDF File: Reading 10 Multinational Operations.pdf
Page: 1
Status: Correct
Correct Answer: A
Question
The Herlitzka Company, a U.S. multinational firm, has a 100 percent stake in a Swiss subsidiary. The U.S. dollar (US
Answer Choices:
A. $1,845 and $2,401
B. $1,771 and $2,361
C. $1,845 and $2,361
Explanation
The basis for using the current rate method is when Functional Currency is NOT the same
as Parent's Presentation (reporting) Currency. The basis for using the temporal method is
when Functional Currency = Parent's Presentation Currency.
Since the USD is the functional currency, use the temporal method. Under the temporal
method, inventory is remeasured using the historical rate. However, our best guess of the
historical rate under the weighted average inventory cost-flow assumption is the average
rate through the period. Hence, A/R = $0.615 × 3,000 = $1,845 and Inventory = $0.6002 ×
4,000 = $2,401.