Steps for For an exchange effects on sales true or false multinational company reports that a large amount of its sales is generated in foreign currencies that have strengthened the US dollar consolidate revenues are likely lower than would have been reported in the absence of such shift exchange rates
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In preparing their financial statements, U.S. firms with sales in foreign currencies have to engage in "foreign currency translations"; that is, they have to convert foreign currency values into U.S. dollars. In its 2014 Annual Report, IBM made the following statement: "As with all companies with a similar global business profile, with the dollar strengthening, the company also expects that currency will have a significant translation impact on its profit growth." a. What does the report mean by "the dollar strengthening"? b. As a U.S.-based company, doesn't IBM benefit when the U.S. dollar is stronger? Briefly explain.
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P7.2 Existing Subsidiary - Remeasurement Pennymarkets Corporation, a U.S. firm, acquired SuperValu on January 1, 2016. SuperValu is a Swedish company that has been in existence for several years, and its functional currency is the U.S. dollar. Comparative account balances for January 1 and December 31, 2016, appear below, measured in krona (kr), the Swedish currency. Account Balances January 1 December 31 Cash kr 175,000 kr 240,000 Accounts Receivable, net kr 400,000 kr 360,000 Plant & Equipment, net kr 2,320,000 kr 2,000,000 Accounts Payable (kr 535,000) (kr 200,000) Notes Payable (kr 800,000) (kr 600,000) Capital Stock (kr 400,000) (kr 400,000) Retained Earnings (kr 1,160,000) (kr 1,160,000) Sales ---- (kr 1,200,000) Depreciation Expense ---- kr 320,000 Other Expenses ---- kr 640,000 Totals kr 0 kr 0 Exchange rates in 2016 were as follows: Date $/kr January 1, 2016 $0.13 Average for 2016 $0.14 December 31, 2016 $0.16 Remeasure SuperValu's 2016 ending trial balance into U.S. dollars. Include a schedule calculating the 2016 remeasurement gain or loss, appearing in 2016 income.
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A UK-based exporter sells goods to the United States. The agreed-upon price for the goods is $500,000. If the exchange rate between the British pound (GBP) and the US dollar (USD) changes from 1 GBP = 1.40 USD to 1 GBP = 1.30 USD at the time of payment, what impact would this exchange rate movement have on the exporter's revenue in GBP terms? No impact on revenue Decrease in revenue Increase in revenue
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