Management compensation is often based on reported profits. What profit measurement is appropriate for top management to use in judging the performance of a U.S. company’s international subsidiary? Consider a Finnish subsidiary that reported the following results in euros for 2015 and 2014. Average exchange rate: $1.35/€ for 2015, $1.45/€ for 2014. Composite historical rates relating to cost of sales and other operating expenses (including depreciation): $1.37/€ for 2015, $1.48/€ for 2014. Required a. Prepare a schedule showing the Finnish subsidiary’s income statement for 2014 and 2015 in euros and in dollars, assuming the subsidiary’s functional currency is the euro. Compute the percentage change in income in each case. b. Repeat the requirements of a. assuming the subsidiary’s functional currency is the dollar. c. Comment on the comparability of the income statements in a. and b., focusing on the impact of the change in dollar value of the euro. How could you adjust the translated and remeasured statements to enhance comparability? Show computations and comment on the results. View Solution:
Management compensation is often based on reported profits What profit

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