Question

The 2016 annual report of Leahy Enterprises included the following disclosure: During fiscal 2016, the U.S. dollar strengthened relative to the other principal currencies in which we transact business with the exception of the Indian rupee. What effect did these currency fluctuations have on Leahy Enterprises’ 2016 consolidated income statement? A. Net profit of the Indian subsidiary will be higher B. Net profit of the Indian subsidiary will be lower C. Net assets of the subsidiaries that report in the other principal currencies will be higher D. Net assets of the subsidiaries that report in the other principal currencies will be lower E. Both A and D

Answer 1

B. Net profit of the Indian subsidiary will be higher

Step-by-step explanation:

Net Income is the actual income of a company. It is determined by calculating the difference between total revenue and total cost. To find out what your company's net income is then you need to deduct all kinds of administrative, financial, production, currency fluctuations, etc. If your company has total revenue of $ 1,000, for example, and spends $ 200 for business maintenance, product manufacturing, and bills to pay, your net income is $ 800.

In the case shown in the above question, we learn that due to currency fluctuations within the financial world, Leahy Enterprises, in its 2016 report, indicated that the US dollar strengthened against the other major currencies in which the company operates, except the Indian rupee. With this, we can see that the Indian subsidiary will have a higher expense with the total cost of its production, since the US dollar is appreciated. This means that the Indian subsidiary's net profit will be higher.