Romulus Corp. is a US-based company that prepares its fi nancial statements in accordancewith US GAAP. Romulus Corp. has two European subsidiaries: Julius and Augustus. AnthonyMarks, CFA, is an analyst trying to forecast Romulus’s 20X2 results. Marks has prepared separate forecasts for both Julius and Augustus, as well as for Romulus’s other operations (priorto consolidating the results.) He is now considering the impact of currency translation on theresults of both the subsidiaries and the parent company’s consolidated fi nancials. His researchhas provided the following insights:• Th e results for Julius will be translated into US dollars using the current rate method.• Th e results for Augustus will be translated into US dollars using the temporal method.• Both Julius and Augustus use the FIFO method to account for inventory • Julius had year-end 20X1 inventory of €340 million. Marks believes Julius will report €2,300in sales and €1,400 in cost of sales in 20X2.Marks also forecasts the 20X2 year-end balance sheet for Julius (Exhibit 1). Data andforecasts related to euro/dollar exchange rates are presented in Exhibit 2.EXHIBIT 1 Forecasted Balance Sheet Data for Julius,31 December 20X2 (€ millions)Cash 50Accounts receivable 100Inventory 700Fixed assets 1,450Total assets 2,300Liabilities 700Common stock 1,500Retained earnings 100Total liabilities and shareholder equity 2,300EXHIBIT 2 Exchange Rates ($/€)31 December 20X1 1.4731 December 20X2 1.6120X2 average 1.54Rate when fi xed assets were acquired 1.25Rate when 20X1 inventory was acquired 1.39Rate when 20X2 inventory was acquired 1.4913 . Based on the translation method being used for Julius, the subsidiary is most likely:A . a sales outlet for Romulus’s products.B . a self-contained, independent operating entity.C . using the US dollar as its functional currency
Romulus Corp. is a US-based company that prepares its fi nancial statements in accordance
with US GAAP. Romulus Corp. has two European subsidiaries: Julius and Augustus. Anthony
Marks, CFA, is an analyst trying to
to consolidating the results.) He is now considering the impact of currency translation on the
results of both the subsidiaries and the parent company’s consolidated fi nancials. His research
has provided the following insights:
• Th e results for Julius will be translated into US dollars using the current rate method.
• Th e results for Augustus will be translated into US dollars using the temporal method.
• Both Julius and Augustus use the FIFO method to account for inventory • Julius had year-end 20X1 inventory of €340 million. Marks believes Julius will report €2,300
in sales and €1,400 in cost of sales in 20X2.
Marks also forecasts the 20X2 year-end balance sheet for Julius (Exhibit 1). Data and
forecasts related to euro/dollar exchange rates are presented in Exhibit 2.
EXHIBIT 1 Forecasted Balance Sheet Data for Julius,
31 December 20X2 (€ millions)
Cash 50
Accounts receivable 100
Inventory 700
Fixed assets 1,450
Total assets 2,300
Liabilities 700
Common stock 1,500
Total liabilities and shareholder equity 2,300
EXHIBIT 2 Exchange Rates ($/€)
31 December 20X1 1.47
31 December 20X2 1.61
20X2 average 1.54
Rate when fi xed assets were acquired 1.25
Rate when 20X1 inventory was acquired 1.39
Rate when 20X2 inventory was acquired 1.49
13 . Based on the translation method being used for Julius, the subsidiary is most likely:
A . a sales outlet for Romulus’s products.
B . a self-contained, independent operating entity.
C . using the US dollar as its functional currency
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