Question - 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 pretax 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 . . . . . . . . . . . . . . . . . . . . . . . . BRL10,000
Expenses . . . . . . . . . . . . . . . . . . . . . 9,500
Pretax 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$3,000
Expenses . . . . . . . . . . . . . . . . . . . . . 3,300
Pretax income (loss) . . . . . . . . . . . . . US$ (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.