Question 1

A subsidiary of Dunder Inc., a U.S. company, was located in a foreign country. The functional currency of this subsidiary was the Stickle (§) which is the local currency where the subsidiary is located. The subsidiary acquired inventory on credit on November 1, 2020, for §160,000 that was sold on January 17, 2021 for §207,000. The subsidiary paid for the inventory on January 31, 2021. Currency exchange rates between the dollar and the Stickle were as follows:  What amount would have been reported for cost of goods sold on Dunder's consolidated income statement at December 31, 2021?
A) $33,600.
B) $35,200.
C) $38,400.
D) $40,000.
E) $43,200.

Accepted Answer

E

Question 2

Under the temporal method, which accounts are remeasured using current exchange rates?
A) All revenues and expenses.
B) All assets and liabilities.
C) Cash, receivables, and most liabilities.
D) All current assets and deferred income.
E) All stockholders' equity.

Accepted Answer

Under the temporal method, monetary items such as cash, receivables, and most liabilities are remeasured using current exchange rates. Non-monetary items are remeasured at historical rates.

Question 3

Certain balance sheet accounts of a foreign subsidiary of the Crater Co. had been stated in U.S. dollars as follows:  If the subsidiary's local currency is its functional currency, what total amount should be included in Crater's balance sheet in U.S. dollars?
A) $688,000.
B) $687,000.
C) $665,000.
D) $679,000.
E) $696,000.

Accepted Answer

C

Question 4

What is a company's functional currency?
A) The currency of the primary economic environment in which it operates.
B) The currency of the country where it has its headquarters.
C) The currency in which it prepares its financial statements.
D) The reporting currency of its parent for a subsidiary.
E) The currency it chooses to designate as such.

Accepted Answer

The functional currency is defined as the currency of the primary economic environment in which the company operates, which is typically where it generates and expends cash.

Question 5

When using the current rate method, the translation adjustment from translating a foreign subsidiary's financial statements should be shown as
A) An asset or liability (depending on the balance) in the consolidated balance sheet.
B) A revenue or expense (depending on the balance) in the consolidated income statement.
C) A component of stockholders' equity in the consolidated balance sheet.
D) A component of cash flows from financing activities in the consolidated statement of cash flows.
E) An element of the notes which accompany the consolidated financial statements.

Accepted Answer

The translation adjustment from the current rate method is recorded as a component of stockholders' equity, specifically in the accumulated other comprehensive income section of the consolidated balance sheet.

Question 6

Gale Co. was formed on January 1, 2021 as a wholly owned foreign subsidiary of a U.S. corporation. Gale's functional currency was the stickle (§). The following transactions and events occurred during 2021:  Exchange rates for 2021 were:  What exchange rate should have been used in translating Gale's revenues and expenses for 2021?
A) $1 = §0.50.
B) $1 = §0.46.
C) $1 = §0.47.
D) $1 = §0.44.
E) $1 = §0.48.

Accepted Answer

The answer of Gale Co. was formed on January 1,...

Question 7

For a foreign subsidiary that uses the U.S. dollar as its functional currency, what method is required to ready the financial statements for consolidation?
A) Current/Noncurrent Method.
B) Monetary/Nonmonetary Method.
C) Current Rate Method.
D) Temporal Method.
E) Indirect Method.

Accepted Answer

The Temporal Method is used when the functional currency is the same as the parent company's currency, which in this case is the U.S. dollar. This method remeasures the subsidiary's financial statements into the parent company's currency.

Question 8

Gale Co. was formed on January 1, 2021 as a wholly owned foreign subsidiary of a U.S. corporation. Gale's functional currency was the stickle (§). The following transactions and events occurred during 2021:  Exchange rates for 2021 were:  What was the amount of the translation adjustment for 2021?
A) $121,500 increase in relative value of net assets.
B) $121,500 decrease in relative value of net assets.
C) $62,000 decrease in relative value of net assets.
D) $62,000 increase in relative value of net assets.
E) $58,500 increase in relative value of net assets.

Accepted Answer

The answer of Gale Co. was formed on January 1,...

Question 9

A subsidiary of Dunder Inc., a U.S. company, was located in a foreign country. The functional currency of this subsidiary was the Stickle (§) which is the local currency where the subsidiary is located. The subsidiary acquired inventory on credit on November 1, 2020, for §160,000 that was sold on January 17, 2021 for §207,000. The subsidiary paid for the inventory on January 31, 2021. Currency exchange rates between the dollar and the Stickle were as follows:  What amount would have been reported for this inventory in Dunder's consolidated balance sheet at December 31, 2020?
A) $35,200.
B) $33,600.
C) $38,400.
D) $40,000.
E) $43,200.

Accepted Answer

The answer of A subsidiary of Dunder Inc., a U.S....

Question 10

A U.S. company's foreign subsidiary had the following amounts in stickles (§) in 2021:  The average exchange rate during 2021 was §1 = $0.96. The beginning inventory was acquired when the exchange rate was §1 = $1.20. The ending inventory was acquired when the exchange rate was §1 = $0.90. The exchange rate at December 31, 2021 was §1 = $0.84. Assuming that the foreign country had a highly inflationary economy, at what amount should the foreign subsidiary's cost of goods sold have been reflected in the 2021 U.S. dollar income statement?
A) $11,253,600.
B) $11,577,600.
C) $11,649,600.
D) $11,613,600.
E) $11,523,600.

Accepted Answer

The answer of A U.S. company's foreign subsidiary had the...

Question 11

Levinson Co. established a subsidiary in Mexico on January 1, 2021. The subsidiary engaged in the following transactions during 2021:  Levinson concluded that the subsidiary's functional currency was the dollar. Exchange rates for 2021 were:  What amount of foreign exchange gain or loss would have been recognized in Levinson's consolidated income statement for 2021?
A) $825,000 gain.
B) $685,000 gain.
C) $270,000 loss.
D) $570,000 loss.
E) $315,000 loss.

Accepted Answer

The answer of Levinson Co. established a subsidiary in Mexico...

Question 12

Certain balance sheet accounts of a foreign subsidiary of the Crater Co. had been stated in U.S. dollars as follows:  If the U.S. dollar is the functional currency of this subsidiary, what total amount should be included in Crater's balance sheet in U.S. dollars?
A) $688,000.
B) $696,000.
C) $710,000.
D) $665,000.
E) $679,000.

Accepted Answer

The answer of Certain balance sheet accounts of a foreign...

Question 13

Marshall Co. was formed on January 1, 2021 as a wholly owned foreign subsidiary of a U.S. corporation. Marshall's functional currency was the stickle (§). The following transactions and events occurred during 2021:  Exchange rates for 2021 were:  What was the amount of the translation adjustment for 2021?
A) $119,000 decrease in relative value of net assets.
B) $121,000 decrease in relative value of net assets.
C) $81,000 increase in relative value of net assets.
D) $59,000 decrease in relative value of net assets.
E) $170,000 increase in relative value of net assets.

Accepted Answer

The answer of Marshall Co. was formed on January 1,...

Question 14

Dilty Corp. owned a subsidiary in France. Dilty concluded that the subsidiary's functional currency was the U.S. dollar.What must Dilty do to ready the subsidiary's financial statements for consolidation?
A) First translate, then remeasure them.
B) First remeasure, then translate them.
C) State all of the subsidiary's accounts in U.S. dollars using the exchange rate in effect at the balance sheet date.
D) Translate them.
E) Remeasure them.

Accepted Answer

When the functional currency is the U.S. dollar, the subsidiary's financial statements must be remeasured into the functional currency (U.S. dollar) from the local currency.

Question 15

In translating a foreign subsidiary's financial statements, which exchange rate does the current rate method require for the subsidiary's assets and liabilities?
A) The exchange rate in effect when each asset or liability was acquired.
B) The average exchange rate for the current year.
C) A calculated exchange rate based on market value.
D) The exchange rate in effect as of the balance sheet date.
E) The exchange rate in effect at the start of the current year.

Accepted Answer

The current rate method requires that assets and liabilities be translated at the exchange rate in effect as of the balance sheet date.

Question 16

Under the current rate method, which accounts are translated using current exchange rates?
A) All revenues and expenses.
B) All assets and liabilities.
C) Cash, receivables, and most liabilities.
D) All current assets and deferred income.
E) All stockholders' equity.

Accepted Answer

Under the current rate method, all assets and liabilities are translated using the current exchange rates at the balance sheet date.

Question 17

According to U.S. GAAP, when the local currency is the functional currency, which method is usually required for translating a foreign subsidiary's financial statements into the parent's reporting currency?
A) The temporal method.
B) The current rate method.
C) The current/noncurrent method.
D) The monetary/nonmonetary method.
E) The noncurrent rate method.

Accepted Answer

When the local currency is the functional currency, U.S. GAAP requires the use of the current rate method for translating a foreign subsidiary's financial statements into the parent's reporting currency.

Question 18

Oscar, Ltd. is a British subsidiary of a U.S. company. Oscar's functional currency is the pound sterling (£). The following exchange rates were in effect during 2021:  Oscar reported sales of £1,200,000 during 2021. What amount (rounded) would have been included for this subsidiary in calculating consolidated sales?
A) $1,896,000.
B) $1,956,000.
C) $1,872,000.
D) $769,231.
E) $750,000.

Accepted Answer

The answer of Oscar, Ltd. is a British subsidiary of...

Question 19

Dilty Corp. owned a subsidiary in France. Dilty concluded that the subsidiary's functional currency was the U.S. dollar.Which one of the following statements would justify this conclusion?
A) Most of the subsidiary's sales and purchases were with companies in the U.S.
B) Dilty's functional currency is the dollar and Dilty is the parent.
C) Dilty's other subsidiaries all had the dollar as their functional currency.
D) Generally accepted accounting principles require that the subsidiary's functional currency must be the dollar if consolidated financial statements are to be prepared.
E) Dilty is located in the U.S.

Accepted Answer

Most of the subsidiary's sales and purchases being with companies in the U.S. indicates that the economic environment influencing the subsidiary's operations is primarily the U.S. dollar, justifying it as the functional currency.

Question 20

Oscar, Ltd. is a British subsidiary of a U.S. company. Oscar's functional currency is the pound sterling (£). The following exchange rates were in effect during 2021:  On December 31, 2021, Oscar had accounts receivable of £300,000. What amount (rounded) would have been included for this subsidiary in calculating consolidated accounts receivable?
A) $187,500.
B) $192,308.
C) $474,000.
D) $468,000.
E) $480,000.

Accepted Answer

The answer of Oscar, Ltd. is a British subsidiary of...

Quiz 10: Translation of Foreign Currency Financial Statements

Under the temporal method, which accounts are remeasured using current exchange rates?

Certain balance sheet accounts of a foreign subsidiary of the Crater Co. had been stated in U.S. dollars as follows: If the subsidiary's local currency is its functional currency, what total amount should be included in Crater's balance sheet in U.S. dollars?

What is a company's functional currency?

When using the current rate method, the translation adjustment from translating a foreign subsidiary's financial statements should be shown as

For a foreign subsidiary that uses the U.S. dollar as its functional currency, what method is required to ready the financial statements for consolidation?

Gale Co. was formed on January 1, 2021 as a wholly owned foreign subsidiary of a U.S. corporation. Gale's functional currency was the stickle (§) . The following transactions and events occurred during 2021: Exchange rates for 2021 were: What was the amount of the translation adjustment for 2021?

Certain balance sheet accounts of a foreign subsidiary of the Crater Co. had been stated in U.S. dollars as follows: If the U.S. dollar is the functional currency of this subsidiary, what total amount should be included in Crater's balance sheet in U.S. dollars?

Dilty Corp. owned a subsidiary in France. Dilty concluded that the subsidiary's functional currency was the U.S. dollar.What must Dilty do to ready the subsidiary's financial statements for consolidation?

In translating a foreign subsidiary's financial statements, which exchange rate does the current rate method require for the subsidiary's assets and liabilities?

Under the current rate method, which accounts are translated using current exchange rates?

According to U.S. GAAP, when the local currency is the functional currency, which method is usually required for translating a foreign subsidiary's financial statements into the parent's reporting currency?

Dilty Corp. owned a subsidiary in France. Dilty concluded that the subsidiary's functional currency was the U.S. dollar.Which one of the following statements would justify this conclusion?