A Foreign Subsidiary Operates in a Highly Inflationary Economy Relevant Exchange Rates Are as Follows:
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question 79

Essay

A foreign subsidiary operates in a highly inflationary economy.The company's December 31, 2017, trial balance includes the following:
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$\begin{array}{ll}\text { Equipment:}\\\text { Acquired on June 1,2016 } & 800,000\quad \mathrm{FC} \\\text { Acquired on October } 1,2017 & 600,000 \quad\mathrm{FC}\\\text { Inventory: }\\\text {Valued at lower cost or market}\\\text {Market Value}&182,000 \quad \mathrm{FC}\\ \text {A cost of \( 184,000 \mathrm{FC} \) represents \( 84,000 \mathrm{FC} \) acquired}\\\text {on December 1,2017 , and \( 100,000\quad \mathrm{FC} \) acquired on}\\\text {October 1,2017.}\\\text {Gain on sale of land:}\\\text {This represents a gain from selling land that was}\\\text {acquired on June 1,2016 , at a cost of \( 50,000 \mathrm{FC} \),}\\\text {on October 1,2017}&100,000\quad \mathrm{FC}\end{array}$

Relevant exchange rates are as follows:
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$$\begin{array} { l r } \text { Date } & \text { Rate } \\\text { June } 1,2016 & \$ 0.69 \\\text { July } 1,2016 & \$ 0.68 \\\text { October } 1,2017 & \$ 0.71 \\\text { December } 1,2017 & \$ 0.72 \\\text { December } 31,2017 & \$ 0.74 \\\text { 2017 average } & \$ 0.70\end{array}$$ Required:
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a.Discuss the criteria that must be satisfied in order to qualify as a highly inflationary economy.?
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b.Discuss how the re-measurere-measurement of statements of companies operating in such economies affects net income.?
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c.Calculate the dollar value of the trial balance accounts as of December 31, 2017.?
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Definitions:

Social Stratification

The arrangement of individuals into hierarchical layers based on wealth, power, prestige, or other valued resources within a society.

Class Analysis

An examination of societies based on the hierarchical categorization of individuals into classes, typically determined by wealth, occupation, and social status.

Functionalist Analysis

A sociological approach that interprets each part of society in terms of how it contributes to the stability of the whole society.

Stratification

The arrangement or classification of something into different groups, levels, or ranks, often used to describe social hierarchies.