Question #5

of 126 Which of the following currency translation methods is most appropriate in a hyperinflationary economy under US GAAP? The: A) current rate method since the translation gain or loss is shown on the income statement. B) current/non-current method since current assets and liabilities are translated at the current exchange rate. C) temporal method because all non-monetary accounts are translated at the historical rate. Scud Co. is a Swiss subsidiary of the U.S. firm Patriot, Inc. On December 31, 20X7 the $/SF exchange rate was 0.77. Assume that this is the historical rate, except as noted below. One year later the Swiss Franc had appreciated to 0.85 $/SF. Scud Co. pays no dividends. The average exchange rate for the year was 0.80 $/SF. Scud pays no taxes. Assume that Scud uses a periodic inventory system and that inventory is accounted for using the LIFO inventory assumption, was bought and sold evenly throughout the year. Scud Co. Int'l Balance Sheet (in SF thousands) Dec. 31, 20X7 Dec. 31, 20X8 Cash & A/R 400 600 Inventory 500 500 Net Fixed Assets 700 600 Total Assets 1,600 1,700 A/P 100 200 Long-term debt 200 100 Common Stock 1,300 1,300 Retained Earnings 0 100 Total Liabilities 1,600 1,700 Income Statement (in SF thousands) December 31, 20X8 In SF Sales 7,000 COGS (6,800) Depreciation (100) Remeasurement Gain/Loss -- Net Income 100 Assume that the functional currency is the U.S. dollar when answering the following questions.