A US Company Has a Subsidiary Located in Great Britain

A U.S. company has a subsidiary located in Great Britain. Information for the subsidiary for the year ended December 31, 2006, is as follows:
$\begin{array}{ll}&\text { British pound }\\\text { Gross profit margin } & 40 \% \\\text { Inventory } & 2,000\\\\&\text { Exchange Rate }\\\text { Balance sheet date } & 1 \text { pound }=\$ 1.6 \\\text { Average exchange rate } & 1 \text { pound }=\$ 1.5 \\\text { Historical rate } & 1 \text { pound }=\$ 1.4\end{array}$

-After converting to U.S. dollars using the appropriate method, gross profit margin is 40%. What method is being used to record British subsidiaries financial statements?

A) The current rate method
B) The temporal method
C) The conversion method
D) Not determinable from information given

Correct Answer:

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