Question 1

The __________is the functional currency of a foreign subsidiary with operations that are relatively self-contained and integrated within the country in which it is located.In such cases, the__________ method of translation would be used to translate the accounts into dollars.

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Question 2

This type of executive stock option is often referred to as "spring-loading." Do you think this practice should be allowed? Does it provide in-formation about the integrity of the firm or is this just good business practice?

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Question 3

What is the objective of the temporal method of translation?

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Question 4

Under the current rate method, how are assets and liabilities that are stated in a foreign currency translated?

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Question 5

Pike Corporation, a U.S.Company, formed a subsidiary with a new company in London on January 1, 2014, by investing 500,000 British pounds in exchange for all of the subsidiary's common stock.The subsidiary purchased land for 100,000 pounds and a building for 300,000 pounds on July 1, 2014.The building is being depreciated over a 40-year life by the straight-line method.The inventory is valued on an average cost basis.The British pound is the subsidiary's functional currency and its reporting currency and has not experienced any abnormal inflation.Exchange rates for the pound on various dates were: $\begin{array}{ll}
\text { January } 1,2014 & 1 \text { pound }=1.81 \
\text { July } 1,2014 & 1 \text { pound }=1.86 \
\text { December } 31,2014 & 1 \text { pound }=1.83 \
2014 \text { average rate } & 1 \text { pound }=1.82
\end{array}$ 
The subsidiary's adjusted trial balance is presented below for the year ended December 31, 2014.  
Required: Prepare the subsidiary's:
A.Translated workpapers (round to the nearest dollar)
B.Translated income statement
C.Translated balance sheet

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Question 6

A translation adjustment results from the process of translating financial statements of a foreign subsidiary from its functional currency into dollars.Where is the translation adjustment reported in the financial statements if the current rate method is used to translate the accounts?
Business Ethics Question from the Textbook
The Shady Tree Company is preparing to announce their quarterly earnings numbers.The company expects to beat the analysts' forecast of earnings by at least5cents a share.In anticipation of the increase in stock value and before the release of the earnings numbers, the company issued stock options to the top executives in the firm, with the option price equal to today's market price.

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Question 7

The __________is the functional currency of a foreign subsidiary that is a direct and integral component or extension of a U.S.parent company.In such cases, the __________method of translation is used to translate (remeasure) the accounts into dollars.

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Question 8

Dakota, Inc.owns a company that operates in France.Account balances in francs for the subsidiary are shown below:  
Revenues were earned and operating expenses, except for depreciation and supplies used, were incurred evenly throughout the year.No purchases of supplies or plant assets were made during the year.
Required:
A.Prepare a schedule to compute the translation adjustment for the year, assuming the subsidiary's functional currency is the franc.
B.Prepare a schedule to compute the translation gain or loss, assuming the subsidiary's functional currency is the U.S.dollar.

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Question 9

Under the current rate method, describe how the various balance sheet accounts are translated (including the equity accounts) and how this translation affects the computation of various ratios (such as debt to equity or the current ratio).In particular, discuss whether or not the ratios will change when computed in local currencies and compared to their calculations (after translation) using the parent's currency.

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Question 10

The translation process can be done using either the current rate method or the temporal method.Explain under what circumstances each of the methods is appropriate.
 Questions from the Textbook

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Question 11

Which method of translation is used to convert the financial statements when a foreign subsidiary operates in a highly inflationary economy?

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Question 12

Assuming that the temporal method is used, how are revenue and expense items in foreign currency financial statements converted?

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Question 13

January 1, 2014, Roswell Systems, a U.S.-based company, purchased a controlling interest in Bern Management Consultants located in Bern, Switzerland.The acquisition was treated as a purchase transaction.The 2014 financial statements stated in Swiss francs are given below.  
Required:
A.Translate the year-end balance sheet and income statement of the foreign subsidiary using the current rate method of translation.
B.Prepare a schedule to verify the translation adjustment.

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Question 14

Using the information provided in Problem use the temporal method instead of the current rate method.
Required: Prepare the subsidiary's:
A.Translated workpapers (round to the nearest dollar)
B.Translated income statement
C.Translated balance sheet

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Question 15

Define remeasurement.

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Question 16

Use the information below to (a) translate the year-end financial statements of Perfect Company, the foreign subsidiary, using the temporal method, and (b) prepare a schedule to compute the translation gain or loss for Perfect Company.Round numbers to the nearest dollar.
On January 2, 2014, Design Inc., a U.S.parent company, purchased a 100% interest in Perfect Company, a subdivision located in Switzerland.The purchase method of accounting was used to account for the acquisition.The 2014 financial statements for Perfect Company, the subsidiary, in Swiss francs were as follows:

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Question 17

What requirements must be satisfied if a foreign subsidiary is to be consolidated?

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Question 18

To accomplish the objectives of translation, two translation methods are used depending on the functional currency of the foreign entity.Describe the two translation methods.

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Quiz 13: The Translation of Financial Statements of Foreign Affiliates

The is the functional currency of a foreign subsidiary with operations that are relatively self-contained and integrated within the country in which it is located.In such cases, the method of translation would be used to translate the accounts into dollars.