Question #26 - Reading 10 Multinational Operations

Reading: Reading 10 Multinational Operations

PDF File: Reading 10 Multinational Operations.pdf

Page: 14

Status: Correct

Correct Answer: A

Shared Context

- On APJ's 2005 balance sheet, the level of common stock (not including retained earnings) in U.S. dollars would be: A) $360. B) $288. C) $240.

Question

Which one of the following statements correctly describes the effect on Dell's financial statements if the U.S. dollar had been chosen as the functional currency?

Answer Choices:

A. The current rate method would apply

B. The translation adjustment would appear as a line item on Dell's income statement

C. The translation adjustment would appear as a line item on Dell's balance sheet

Explanation

If the U.S. dollar had been chosen as the functional currency, then the provisions of the temporal method would apply. Under the temporal method, the translation adjustment would appear as a line item on Dell's income statement and not as an element of equity. Hence, earnings may become more volatile as a result.

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