Question #107

Reading: Reading 10 Multinational Operations

PDF File: Reading 10 Multinational Operations.pdf

Page: 60

Status: Unattempted

Correct Answer: A

Part of Context Group: Q107-108 First in Group
Shared Context
- With respect to the Japanese subsidiary, what method should be used to value its accounts receivable, what is the appropriate exchange rate, and what is the translated value (in USD)? A) Temporal method, current rate, USD 11.5 million. B) Current method, current rate, USD 11.5 million. C) Current method, average rate, USD 12.3 million.
Question
With respect to the European HQ subsidiary, what method should be used to value its SG&A expenses, what is the appropriate exchange rate, and what is the translated value (USD)?
Answer Choices:
A. Current method, current rate, USD 216.7 million
B. Temporal method, average rate, USD 206.4 million
C. Current method, average rate, USD 206.4 million
Explanation
Self-contained, independent subsidiaries reporting their results in the local currency that is also the functional currency use the current method. Expenses under the current method are translated using the average rate. Hence, 200 × 1.0318 = USD 206.4 million.
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