Question

Colper Grant is the president of Acme Brush of Brazil, the whole owned Braziliain Subsidiary of US based Acme Brush Inc. Cooper Grant's compensation package consists of a combination of salary and bonus. His annual bonus is calculated as a predetermined percentage of the pre-tax annual income earned by Acme Brush of Brazil. A condensed income statement for Acme Brush of Brazil for the most recent year is as follows (amounts in thousands of Brazilian reals (BRL)): BRL Sales 10,000 Expenses 9,500 Pre-tax income 500 After translating the Brazilian real income statement to the US dollars, the condensed income statement for Acme Brush of Brazil appears as follows (amounts in thousand of US Dollars (USD): Sales 3,000 Expenses 3,300 Pre-tax loss -300 A. Explain how Acme Brush of Brazil's pre-tax income in BRL becamea US dollar pretax loss. In order to receive the full credit, you are required to show all steps in calculation. B. Discuss whether Cooper Grant should be paid a bonus or not...... please dont forget to clearly show the steps.. thanks:)

Answer 1

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AS FOR GIVEN DATA..

Colper Grant is the president of Acme Brush of Brazil, the whole owned Braziliain Subsidiary of US based Acme Brush Inc. Cooper Grant's compensation package consists of a combination of salary and bonus. His annual bonus is calculated as a predetermined percentage of the pre-tax annual income earned by Acme Brush of Brazil. A condensed income statement for Acme Brush of Brazil for the most recent year is as follows (amounts in thousands of Brazilian reals (BRL)): BRL Sales 10,000 Expenses 9,500 Pre-tax income 500 After translating the Brazilian real income statement to the US dollars, the condensed income statement for Acme Brush of Brazil appears as follows (amounts in thousand of US Dollars (USD): Sales 3,000 Expenses 3,300 Pre-tax loss -300

EXPLANATION ::-

A. Explain how Acme Brush of Brazil's pre-tax income in BRL becamea US dollar pretax loss. In order to receive the full credit, you are required to show all steps in calculation.

sol ::-

The Acme Brush of Brazil pre-tax income (in BRL) turns to be a U.S dollar pre-tax loss because the dollar has higher value compared to BRL when the sales and expenses are translated at different rates of exchange. The sales been translated at an exchange rate computed as USD 0.30/BRL (= Sales US$3,000 / Sales BRL 10,000) and expenses been translated at an exchange rate computed as USD 0.347368/BRL (= Expenses 3,300 / Expenses 9,500)

B. Discuss whether Cooper Grant should be paid a bonus or

sol ::-

Cooper Grant should be paid a bonus. The reason is that the Brazilian subsidiary of the U.S based Acme Brush need to be treated in the similar approach as its parent’s operates

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