Mark Values His Drum Set at $800 and Ella Values

question 110

Multiple Choice

Mark values his drum set at $800 and Ella values her guitar at $1,000. Suppose that Mark trades his drum set for Ella's guitar.

• A) This trade makes Ella worse off by $200.
• B) This trade makes Mark better off by $200.
• C) Mark must value Ella's guitar for at least $1,000, and Ella must value Mark's drum set for at least $800.
• D) This trade creates value by moving the guitar and drum set to people who value them more.

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Definitions:

Functional Currency

The currency of the primary economic environment in which an entity operates, typically used in its financial reporting.

Historical Cost

The original monetary value of an asset or investment at the time of its purchase, not adjusted for inflation or other factors over time.

Current Rate Method

In accounting, a method for converting the financial statements of a foreign subsidiary to the parent company's currency by applying the current exchange rate to all assets, liabilities, equity, income, and expenses.

Exposure

The extent to which a company is vulnerable to risks from external factors such as currency fluctuations, market volatility, or regulatory changes.