Use the Following Information to Answer Bellow Questions
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Use the following information to answer bellow Questions
A U.S. company acquired a Turkish subsidiary at the beginning of the current year. The subsidiary's trial balances for January 1 and December 31 are presented bellow, in Turkish lira.
$\begin{array}{|l|c|c|}\hline & \begin{array}{c}\text { January } 1 \\\text { Dr (Cr) }\end{array} & \begin{array}{c}\text { December } 31 \\\text { Dr (Cr) } \\\end{array} \\\hline \text { Cash, receivables } & \text { ? } 40,000 & \text { ? } 20,000 \\ \hline \text { Plant \& equipment, net } & 400,000 & 435,000 \\\hline \text { Liabilities } & \{175,000\} & \{170,000\} \\\hline \text { Capital stock } & \{115,000\} & \{115,000\} \\\hline \text { Retained earnings, January } 1 & \{150,000\} & \{150,000\} \\\hline \text { Dividends } & & 15,000 \\\hline \text { Sales revenue } & & \{800,000\} \\\hline \text { Operating expenses } & & 765,000 \\\hline \text { Total } &\underline{ ? \quad0} &\underline{ ? \quad0} \\ \hline\end{array}$
New plant & equipment of ?100,000 was acquired during the year. Operating expenses include ?65,000 of depreciation on plant & equipment, of which ?10,000 is related to plant & equipment purchased during the year. Exchange rates (U.S.$/?) are as follows:
$$\begin{array} { l r } \text { January 1 } & \$ 0.24 \\\text { Average for year } & 0.25 \\\text { Plant \& equipment acquired } & 0.26 \\\text { Dividends declared } & 0.27 \\\text { December 31 } & 0.30\end{array}$$
-A U.S. parent has a subsidiary in Hong Kong. The Hong Kong dollar has strengthened against the U.S. dollar ($/HK$ rate has increased) . Which statement is true concerning conversion of an international subsidiary's statement of cash flows to its parent's currency?

A) If the subsidiary's functional currency is the U.S. dollar, the effect of rate changes on cash is a higher loss than if the subsidiary's functional currency is the Hong Kong dollar.
B) If the subsidiary's functional currency is the Hong Kong dollar, the effect of rate changes on cash is a higher gain than if the subsidiary's functional currency is the U.S. dollar.
C) If the subsidiary's functional currency is the U.S. dollar, the effect of rate changes on cash is a higher gain than if the subsidiary's functional currency is the Hong Kong dollar.
D) The effect of rate changes on cash is the same whether the subsidiary's accounts are remeasured or translated.