In: Accounting
1/ Imagine that you run a U.S. company based in New Jersey that lists only on the New York Stock exchange. Assume that the company has only one factory, located in New Jersey. All of the company’s workers are paid in U.S. dollars and the company buys all of its materials from U.S. suppliers (and pays in dollars). Also, all of the company’s other costs are paid for in U.S. dollars; however, assume that all of the country’s products are exported to Europe and that all of its sales are denominated in Euros. Further assume that all of these exports are sold by the company’ European sales office. This Office is a subsidiary of the U.S. Headquarters and consolidates its statements with the U.S. headquarters.
Questions: Assume that the dollar has been increasing in value against the Euro. For the U.S. company described above, what impact (if any) will the rising dollar have on the demand for the company’s products? If the U.S. company described above sells to European companies on credit contracts denominated in Euros, what impact will the rise in the dollar have on the U.S. company’s dollar valued Accounts Receivable? What is the reporting currency of the U.S. headquarters parent that lists on the NYSE. What is the functional current of the U.S. (headquarters) parent. What is the functional currency of the foreign (sales office) subsidiary?
2/ Imagine that you run a U.S. company based in New Jersey and lists only on the NYSE. Assume that the company’s main headquarters is in New Jersey, but that its only factory is in Germany. Thus, all of the company’s workers are paid in Euros and the company buys all of its materials from German firms (and pays Euros). Also, all of the company’s (i.e. factory’s) other costs are paid for in Euros. Also, assume that the company’s German factory operates as a separate foreign subsidiary that consolidates its financial statements with the U.S. headquarters that lists on the NYSE.
Question: Assume that the dollar has been rising in value against the Euro. For the U.S. company described above, what impact will the rising dollar have on the demand for the company’s products? If the U.S. company described above sells to German companies on credit contracts denominated in Euros, what impact will the increase in the dollar have on the U.S. company’s Accounts Receivable? ? What is the reporting currency of the U.S. headquarters parent that lists on the NYSE. What is the functional current of the U.S. (headquarters) parent. What is the functional currency of the foreign subsidiary?
1.
The U.S.company is based in New Jersey and it exports the products to Europe. The sales of the company denominated in Euros.
Now, if the dollar value increases against euro, it will increase the demand of the company's product.
Since the biling is done in european currency and increase in dollar value against euro will lead to reduction in the capability of the european people to buy any goods in U.S. dollar currency but here the billing is made in euros so it will create more demand for the U.S. products.
If the U.S. company sells to european company on credit denominated in euros then the rise in dollar value will lead to a fall in the value of U.S. companis dollar valued Accounts Receivable since the european currency is decreasing against dollar.
The reporting currency of the U.S. headquarter is Dollar because they made their financial statements in U.S. dollar. European sales office is the subsidiary of U.S. headquarter and they consolidate their financial statements so both the companies having dollars as reporting currency.
The functional currency of U.S. headquarter is dollar because it is U.S. based company and the question does not specifies about the operations of U.S. headquarter they only specified that it is the parent company of European sales office.
The functional currency of the European sales office is Euro because the U.S. company based in new jersey exports their products to europe through the European sales office and their sales are denominated in Euros. So the european sales office is having euro as their functional currency.
2.
The U.S.company is based in New Jersey and its factory is in Germany and they made all transactions in Euros.
Now, if the dollar value increases against euro, it will increase the demand of the company's product.
Since all the operations is done in european currency and increase in dollar value against euro will lead to increase in the capability of the european people to buy any goods in european currency. Then the demand of the products will increase.
If the U.S. company sells to German company on credit denominated in euros then the rise in dollar value will lead to a fall in the value of U.S. companis dollar valued Accounts Receivable since the european currency is decreasing against dollar.
The reporting currency of the U.S. headquarter is Dollar because they made their financial statements in U.S. dollar. Germany company is the subsidiary of U.S. headquarter and they consolidate their financial statements so both the companies having dollars as reporting currency.
The functional currency of U.S. headquarter is dollar because it is U.S. based company and the question does not specifies about the operations of U.S. headquarter they only specified that it is the parent company of Germany company.
The functional currency of the Germany company is Euro because the only factory of the U.S. based company is in Germany and their sales are denominated in Euros. So the european sales office is having euro as their functional currency.