Redline Products, Inc. is a U.S.-based multinational with subsidiaries around the world. One such subsidiary, Acceletron, operates in Singapore, which has seen mild but not excessive rates of inflation. Acceletron was acquired in 2000 and has never paid a dividend. It records inventory using the FIFO method.

Chief Financial Officer Margot Villiers was asked by Redline’s Board of Directors to explain how the functional currency selection and other accounting choices affect Redline’s consolidated financial statements. She gathers Acceletron’s financial statements denominated in Singapore dollars (SGD) in Exhibit 16-13 and the U.S. dollar/Singapore dollar exchange rates in Exhibit 16-14. She does not intend to identify the functional currency actually in use, but rather to use Acceletron as an example of how the choice of functional currency affects the consolidated statements.

EXHIBIT 16-13 Selected Financial Data for Acceletron, 31 December 2007 (SGD millions)

Cash

SGD

125

Accounts receivable

230

Inventory

500

Fixed assets

1,640

Accumulated depreciation

(205)

Total assets

SGD

2,290

Accounts payable

185

Long term debt

200

Common stock

620

Retained earnings

1,285

Total liabilities and equity

2,290

Total revenues

SGD

4,800

Net income

SGD

450

EXHIBIT 16-14 Exchange Rates Applicable to Acceletron

Exchange Rate in Effect at Specific Times

USD per SGD

Rate when first 1,000 of fixed assets were acquired

0.568

Rate when remaining 640 of Fixed assets were acquired

0.606

Rate when long-term debt was issued

0.588

31 December 2006

0.649

Weighted average rate when inventory was. acquired

0.654

Average rate in 2007

0.642

31 December 2007

0.671

If the current rate method is used to translate Acceletron’s financial statements into U.S. dollars, Redline’s consolidated financial statements will most likely include Acceletron’s

a. $3,178 in revenues.

b. $118 in long-term debt.

c. negative translation adjustment to shareholder equity.