Question #103 - Reading 10 Multinational Operations

Reading: Reading 10 Multinational Operations

PDF File: Reading 10 Multinational Operations.pdf

Page: 58

Status: Unattempted

Correct Answer: A

Shared Context

- If Jameson wishes to convert any of the figures on Kasamatsu's Income Statement from yen to dollars, she should most appropriately use which of the following exchange rates (yen/$)? A) 140. B) 145. C) 150.

Question

Before Jameson can perform any financial statement analysis, she wants to determine which method WB uses to translate Kasamatsu's earnings into U.S. dollars (USD). Which of the following is the most accurate translation method and reasoning? WB should translate Kasamatsu's earnings using the:

Answer Choices:

A. current rate method because the local currency is the USD

B. temporal method because the local currency differs from the functional currency

C. current rate method because the functional currency is the yen

Explanation

The current rate method is used when the functional currency is NOT the same as parent's presentation (reporting) currency. The temporal method is used when Functional Currency = Parent's Presentation Currency. Under US GAAP the current rate method must be used to translate Kasamatsu's yen financial statements into USD, the reporting currency. Had Kasamatsu been operating in a highly inflationary environment or had the local and functional currency not been the same, then WB would be required to use the temporal method.

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