A U.S. parent has a subsidiary in Malaysia, and its accounts are measured in ringgits (RM). The subsidiary reports RM1,000,000 in operating expenses for the year, consisting of RM300,000 in selling expenses and RM700,000 in administrative expenses. Detail for each expense category is as follows:
$$\begin{array} { | l | r | r | }
\hline \text { Selling expense: } & & \
\hline \text { Amortization expense } & \text { RM 20,000 } & \
\hline \text { Depreciation expense } & 50,000 & \
\hline \text { Salary and utility expense } & \underline { 230,000 } & \text { RM 300,000 } \
\hline \text { Administrative expense: } & & \
\hline \text { Amortization expense } & 10,000 & \
\hline \text { Depreciation expense } & 200,000 & \
\hline \text { Sal ary and utility expense } & \underline { 490,000 } & \underline { 700,000 } \
\hline \text { Total o perating expenses } & & \text { RM } 1,000,000 \
\hline
\end{array}$$ Amortization expense is a write-off of identifiable intangibles recognized when the subsidiary was acquired; the exchange rate at that time was $0.15/RM. Depreciation expense is a write-off of plant assets, as follows:
$$\begin{array} { | l | r | }
\hline \text { Plant assets on hand when the subsidiary was acquired } & \text { RM200,000 } \
\hline \text { Plant assets acquired when the exchang e rate was \$0.20/RM } & 20,000 \
\hline \text { Plant assets acquired when the exchang e rate was \$0.23/RM } & \underline { 30,000 } \
\hline \text { Total depreciation expense } & \text { RM 250,000 } \
\hline
\end{array}$$ Total depreciation expense is divided between selling and administrative expenses in a 1:4 ratio. Salary and utility expense is incurred evenly throughout the year. The average rate for the year was $0.25/RM.
Required
a. Assume the subsidiary's functional currency is the ringgit. Calculate operating expenses for the year, in U.S. dollars.
b. Assume the subsidiary's functional currency is the U.S. dollar. Calculate operating expenses for the year, in U.S. dollars.

Question

A U.S. parent has a subsidiary in Malaysia, and its accounts are measured in ringgits (RM). The subsidiary reports RM1,000,000 in operating expenses for the year, consisting of RM300,000 in selling expenses and RM700,000 in administrative expenses. Detail for each expense category is as follows:
 $$\begin{array} { | l | r | r | } 
\hline \text { Selling expense: } & & \
\hline \text { Amortization expense } & \text { RM 20,000 } & \
\hline \text { Depreciation expense } & 50,000 & \
\hline \text { Salary and utility expense } & \underline { 230,000 } & \text { RM 300,000 } \
\hline \text { Administrative expense: } & & \
\hline \text { Amortization expense } & 10,000 & \
\hline \text { Depreciation expense } & 200,000 & \
\hline \text { Sal ary and utility expense } & \underline { 490,000 } & \underline { 700,000 } \
\hline \text { Total o perating expenses } & & \text { RM } 1,000,000 \
\hline
\end{array}$$ Amortization expense is a write-off of identifiable intangibles recognized when the subsidiary was acquired; the exchange rate at that time was $0.15/RM. Depreciation expense is a write-off of plant assets, as follows:
 $$\begin{array} { | l | r | } 
\hline \text { Plant assets on hand when the subsidiary was acquired } & \text { RM200,000 } \
\hline \text { Plant assets acquired when the exchang e rate was \$0.20/RM } & 20,000 \
\hline \text { Plant assets acquired when the exchang e rate was \$0.23/RM } & \underline { 30,000 } \
\hline \text { Total depreciation expense } & \text { RM 250,000 } \
\hline
\end{array}$$ Total depreciation expense is divided between selling and administrative expenses in a 1:4 ratio. Salary and utility expense is incurred evenly throughout the year. The average rate for the year was $0.25/RM.
Required
a. Assume the subsidiary's functional currency is the ringgit. Calculate operating expenses for the year, in U.S. dollars.
b. Assume the subsidiary's functional currency is the U.S. dollar. Calculate operating expenses for the year, in U.S. dollars.

Quizplus · Accepted Answer

The Answer of A U.S. parent has a subsidiary in Malaysia, and its accounts are measured in ringgits (RM). The subsidiary reports RM1,000,000 in operating expenses for the year, consisting of RM300,000 in selling expenses and RM700,000 in administrative expenses. Detail for each expense category is as follows:
 $$\begin{array} { | l | r | r | } 
\hline \text { Selling expense: } & & \
\hline \text { Amortization expense } & \text { RM 20,000 } & \
\hline \text { Depreciation expense } & 50,000 & \
\hline \text { Salary and utility expense } & \underline { 230,000 } & \text { RM 300,000 } \
\hline \text { Administrative expense: } & & \
\hline \text { Amortization expense } & 10,000 & \
\hline \text { Depreciation expense } & 200,000 & \
\hline \text { Sal ary and utility expense } & \underline { 490,000 } & \underline { 700,000 } \
\hline \text { Total o perating expenses } & & \text { RM } 1,000,000 \
\hline
\end{array}$$ Amortization expense is a write-off of identifiable intangibles recognized when the subsidiary was acquired; the exchange rate at that time was $0.15/RM. Depreciation expense is a write-off of plant assets, as follows:
 $$\begin{array} { | l | r | } 
\hline \text { Plant assets on hand when the subsidiary was acquired } & \text { RM200,000 } \
\hline \text { Plant assets acquired when the exchang e rate was \$0.20/RM } & 20,000 \
\hline \text { Plant assets acquired when the exchang e rate was \$0.23/RM } & \underline { 30,000 } \
\hline \text { Total depreciation expense } & \text { RM 250,000 } \
\hline
\end{array}$$ Total depreciation expense is divided between selling and administrative expenses in a 1:4 ratio. Salary and utility expense is incurred evenly throughout the year. The average rate for the year was $0.25/RM.
Required
a. Assume the subsidiary's functional currency is the ringgit. Calculate operating expenses for the year, in U.S. dollars.
b. Assume the subsidiary's functional currency is the U.S. dollar. Calculate operating expenses for the year, in U.S. dollars.

A US Parent Has a Subsidiary in Malaysia, and Its Accounts