Hicks Industries is a U.S. company with a subsidiary in a foreign country. Up until the current year, exchange rates between the subsidiary's functional currency and the U.S. dollar have been fairly stable. Based on this stability, selected projections in U.S. dollars for the subsidiary's results for the current year are shown below.
Net Sales $225,000
Net Income $18,900
Inventory $147,700
Common Stock $378,000
All sales and budget goals were met in the local currency. However, due to the steadily weakening exchange rate of the subsidiary's functional currency to the U.S. dollar, actual net sales for the year denominated in the U.S. dollar is $175,000. During the year, no additional common stock has been issued or retired. Based on this information, what would be the updated current year results for net income, inventory, and common stock.
ANSWER_ sales percentage decrease = ($175,030 - $225.000) - 225,000 = 22%. Net income as reported would be $18,900 x(1- 22%)= $14,742.
The Inventory is reported at current rate and hence as exchange rate has fallen the decline would be larger than 22%.Actual & decrease is ($10499- $147,700)/ $147,700 = 29%