Asiamart, Inc. was a U.S. company that operated shopping centers in Hong Kong. The shopping centers offered

Question:

Asiamart, Inc. was a U.S. company that operated shopping centers in Hong Kong. The shopping centers offered discounted international brands, to Chinese tourists brought to the shopping centers by travel companies and tour operators. Asiamart had five wholly-owned subsidiaries in Hong Kong. Asiamart's 2008 annual report includes the following excerpt from the Consolidated Statement of Changes in Shareholders' Equity.

Required
a. Is the Hong Kong dollar or the U.S. dollar the functional currency of Asiamart's subsidiaries? Explain your answer.
b. For each of the years 2006, 2007, and 2008, on average was the U.S. dollar strengthening or weakening with respect to the Hong Kong dollar? How do you know?
c. Prior to 2006, on average was the U.S. dollar strengthening or weakening with respect to the Hong Kong dollar? How do you know?
d. If Asiamart had used the alternative approach allowed under U.S. GAAP to report the operations of its Hong Kong subsidiaries, would Asiamart's 2008 net income have been higher or lower than income reported in Hong Kong dollars? Clearly state your reasoning and any assumptions made.

GAAP
Generally Accepted Accounting Principles (GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. GAAP to the International Financial Reporting Standards (IFRS), the...