Don’t know why Im gettin this wrong and not understanding: Fronttalk Company is a U.S. multinational firm with operations in several foreign countries. It has a 100% stake in a German subsidiary. The foreign subsidiary’s local currency has depreciated against the U.S. dollar over the latest financial statement reporting period. In addition, the German firm accounts for inventories using the last in, first out (LIFO) inventory cost-flow assumption and all purchases were made toward the end of the year. The gross profit margin as computed under the temporal method would most likely be: A) higher than the same ratio computed under the current rate method. B) equal to the same ratio computed under the current rate method. C) lower than the same ratio computed under the current rate method.
A) higher than the same ratio computed under the current rate method. temporal = historic rate, current = average rate. local currency depreciated => LIFO COGS is lower in USD => higher gross margin
LIFO --> COGS will be the most recent rates under temporal method. If the currency is depreciating, then the COGS will be remeasured at a lower exchange rate GPM = (Sales - COGS)/Sales COGS goes down, then GPM goes up. Under current rate method, COGS is average rate which will have a higher currency exchange rate. GPM = (Sales - COGS)/Sales COGS is a larger subtraction from sales relative to the temporal method. Answer A By the way, where have you been?
Thanks. forgot Current method uses average rate. Thanks guys. Hey ali, I don’t like coming on here until I have a little bit of a grasp on all the topics and I think I finally am doing alright. Have been getting mid 80’s on qbank but I think its not a very good gauge for level 2 so I’m startin to work on the practise tests. How are your studies goin? still doin your work at the u of c?