Question Description
Cooper Grant is the president of Acme Brush of Brazil, the wholly owned
Brazilian subsidiary of U.S.-based Acme Brush Inc. Cooper Grant's compensation
package consists of a combination of salary and bonus. His annual bonus is
calculated as a predetermined percentage of the pre-tax annual income earned by
Acme Brush of Brazil. A condensed income statement for Acme Brush of Brazil for
the most recent year is as follows ( amounts in thousands of Brazilian reals [BRL ]):
Sales . . … . . …. . ..BRL 10000.. . … .
Expenses …………….. .9500
Pre-tax income …… .. BRL 500… . . .
After translating the Brazilian real income statement into U.S. dollars, the condensed
income statement for Acme Brush of Brazil appears as follows (amounts
in thousands of U.S. dollars [US$]):
Sales …… . ….. . …. . ….US$3000 . .
Expenses ……………….. .3300
Pre-tax income (loss) .. .. . US$(300). . . .. . .
Required:
a. Explain how Acme Brush of Brazil's pretax income (in BRL) became a U.S.dollar
pretax loss.
b. Discuss whether Cooper Grant should be paid a bonus or not.
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