Assume that your Italian affiliate reports sales revenue of 2,500,000 euros. If your spot rate is $1=€0.7084 and the end of year rate is $1=€0.7080 and the average rate is $1=€0.7082.

The parent company in the US uses the US$ for its reports. If 100% of the Italian affiliate is owned by the US parent company, you are given the following accounts extracted from the trial balance of the Italian affiliate.

1. Translate the revenue and indicate why you opted for a particular exchange rate.
2. Indicate which exchange rate would be used assuming that the foreign currency is the functional currency?
3. Indicate which exchange rate would use if the parent currency were the functional currency?

_____________________________________________________________________________________Trial Balance Accounts                                        in€(000)

Cash 10,000

Inventory (market) 5,000

Equipment 30,000

Purchases 105,000

Retained earnings 90,000

Answer rating: 100% (QA)

To translate the sales revenue of the Italian affiliate into US dollars we need to use the appropria... View the full answer