Question 1

If a subsidiary is operating in a highly inflationary economy, how are the financial statements to be restated?
A) Historical rate.
B) Working capital rate.
C) Translation.
D) Temporal method.
E) Current rate.

Accepted Answer

The temporal method is used to restate the financial statements of a subsidiary operating in a highly inflationary economy. This method adjusts the monetary assets and liabilities at the current rate, while non-monetary assets and liabilities are adjusted at historical rates. The income statement is also adjusted at the weighted average rate.

Question 2

If the current rate used to restate these amounts is $.95, what was the average historical rate used to arrive at the total amount for historical rates?
A) $0.9000.
B) $1.0000.
C) $0.9500.
D) $0.9474.
E) $1.0556.

Accepted Answer

The answer of If the current rate used to restate...

Question 3

Under the current rate method, how would cost of goods sold be translated?
A) Beginning of the year rate.
B) Average rate.
C) Current rate.
D) Historical rate.
E) Composite amount.

Accepted Answer

The answer of Under the current rate method, how would...

Question 4

Assuming the functional currency of the subsidiary is the local currency, what total should be included in Parker's consolidated balance sheet at December 31, 2018, for the above items?
A) $407,500.
B) $418,000.
C) $396,000.
D) $403,500.
E) $398,500.

Accepted Answer

The consolidated balance sheet will include the assets and liabilities of the subsidiary translated at the exchange rate as of December 31, 2018. 
- Beginning Inventory: $120,000 x 1.25 (exchange rate) = $150,000 
- Purchases: $300,000 x 1.35 (average exchange rate) = $405,000 
- Ending Inventory: $130,000 x 1.30 (exchange rate) = $169,000 
- Accounts Payable: $70,000 x 1.30 (exchange rate) = $91,000 
Therefore, total should be $150,000 + $405,000 + $169,000 - $91,000 = $418,000.

Question 5

Compute the December 31, 2018, inventory balance using the lower of cost or net realizable value method under the temporal method.
A) $321,000.
B) $457,600.
C) $596,400.
D) $454,400.
E) $419,000.

Accepted Answer

The answer of Compute the December 31, 2018, inventory balance...

Question 6

When preparing a consolidation worksheet for a parent and its foreign subsidiary accounted for under the equity method, which of the following statements is false?
A) The cumulative translation adjustment included in the Investment in Subsidiary account is eliminated.
B) The excess of fair value over book value since the date of acquisition is revalued for the change in exchange rate.
C) The amount of equity income recognized by the parent in the current year is eliminated.
D) The allocations of excess of fair value over book value at the date of acquisition are eliminated.
E) The subsidiary's stockholders' equity accounts as of the beginning of the year are eliminated.

Accepted Answer

The answer of When preparing a consolidation worksheet for a...

Question 7

The financial statements for Perez are translated by its U.S.parent.What amount of gain or loss would be reported in its translated income statement?
A) $1,530.
B) $1,575.
C) $1,590.
D) $1,090.
E) $1,650.

Accepted Answer

To calculate the gain or loss from translating Perez's financial statements, we need to use the following formula:

Translation gain or loss = (Ending rate - Beginning rate) x Net assets

In this case, the rate at the beginning of the year was $1.05 per euro, and the rate at the end of the year was $1.10 per euro. Therefore, the gain or loss would be:

(1.10 - 1.05) x €300,000 = €1,500

To convert this amount to U.S. dollars, we need to divide by the exchange rate at the end of the year:

€1,500 ÷ 1.10 = $1,590

Therefore, the answer is C: $1,590.

Question 8

Assuming the functional currency of the subsidiary is the U.S.dollar, what total should be included in Parker's consolidated balance sheet at December 31, 2018, for the above items?
A) $407,500.
B) $418,000.
C) $396,000.
D) $403,500.
E) $398,500.

Accepted Answer

The answer of Assuming the functional currency of the subsidiary...

Question 9

Compute ending inventory for 2018 under the current rate method.
A) $13,950.
B) $14,100.
C) $14,400.
D) $14,850.
E) $15,150.

Accepted Answer

The answer of Compute ending inventory for 2018 under the...

Question 10

When consolidating a foreign subsidiary, which of the following statements is true?
A) Parent reports a cumulative translation adjustment from adjusting its investment account under the equity method.
B) Parent reports a gain or loss in net income from adjusting its investment account under the equity method.
C) Subsidiary's cumulative translation adjustment is carried forward to the consolidated balance sheet.
D) Subsidiary's income/loss is carried forward to the consolidated balance sheet.
E) All foreign currency gains/losses are eliminated in the consolidated income statement and balance sheet.

Accepted Answer

The answer of When consolidating a foreign subsidiary, which of...

Question 11

Compute the cost of goods sold for 2018 in U.S.dollars using the temporal method.
A) $376,650.
B) $387,750.
C) $388,800.
D) $400,950.
E) $409,050.

Accepted Answer

To compute the cost of goods sold under the temporal method, we need to use historical exchange rates. The cost of goods sold for 2018 can be calculated as follows:

Beginning inventory (at historical rate) = $125,000 ÷ 0.75 = €166,667 
Purchases (at historical rate) = $235,000 ÷ 0.80 = €293,750 
Ending inventory (at historical rate) = $105,000 ÷ 0.85 = €123,529

Cost of goods sold (at historical rate) = (Beginning inventory + Purchases - Ending inventory) = (€166,667 + €293,750 - €123,529) = €336,888

Now, we need to translate the euro amount into U.S. dollars using the exchange rate at the balance sheet date (€1 = $1.10):

Cost of goods sold (in U.S. dollars) = €336,888 × 1.10 = $370,576

Therefore, the closest option is B) $387,750.

Question 12

When preparing a consolidated statement of cash flows, which of the following statements is false?
A) All operating activity items are translated at an average exchange rate for the period.
B) A change in accounts receivable is translated using the current rate.
C) A change in long-term debt is translated using the historical rate at the date of the change.
D) Dividends paid are translated using the historical rate at the date of the payment.
E) All items follow translation rates used for the balance sheet and the income statement.

Accepted Answer

A change in accounts receivable is actually translated using the historical rate at the date of the transaction. All the other statements in the options are true when preparing a consolidated statement of cash flows.

Question 13

Compute the December 31, 2018, inventory balance using the current rate method.
A) $454,400.
B) $457,600.
C) $596,400.
D) $419,000.
E) $321,000.

Accepted Answer

The answer of Compute the December 31, 2018, inventory balance...

Question 14

Where is the translation adjustment reported in the parent company's financial statements?
A) Net loss in the income statement.
B) Cumulative translation adjustment as a deferred asset.
C) Cumulative translation adjustment as a deferred liability.
D) Accumulated other comprehensive income.
E) Retained earnings.

Accepted Answer

Translation adjustments are reported in the parent company's financial statements as a component of accumulated other comprehensive income. This is because translation adjustments are considered to be an unrealized gain or loss until the foreign subsidiary is sold, liquidated or dissolved, at which point they become realized gains or losses.

Question 15

Compute the cost of goods sold for 2018 in U.S.dollars using the current rate method.
A) $376,550.
B) $387,750.
C) $388,800.
D) $400,950.
E) $409,050.

Accepted Answer

The answer of Compute the cost of goods sold for...

Question 16

A highly inflationary economy is defined as
A) Cumulative 5-year inflation in excess of 100%.
B) Cumulative 3-year inflation in excess of 100%.
C) Cumulative 5-year inflation in excess of 90%.
D) Cumulative 3-year inflation in excess of 90%.
E) Any country designated as a company operating in a third-world economy.

Accepted Answer

The answer of A highly inflationary economy is defined as
A)...

Question 17

The financial statements for Perez are remeasured by its U.S.parent.What amount of gain or loss would be reported in its translated income statement?
A) $1,530.
B) $1,575.
C) $1,590.
D) $1,090.
E) $1,650.

Accepted Answer

The answer of The financial statements for Perez are remeasured...

Question 18

Under the temporal method, how would cost of goods sold be remeasured?
A) Beginning of the year rate.
B) Average rate.
C) Current rate.
D) A single historical rate.
E) Historical rates.

Accepted Answer

The answer of Under the temporal method, how would cost...

Question 19

Compute ending inventory for 2018 under the temporal method.
A) $13,950.
B) $14,100.
C) $14,400.
D) $14,850.
E) $15,150.

Accepted Answer

The answer of Compute ending inventory for 2018 under the...

Question 20

Where is the remeasurement gain or loss reported in the parent company's financial statements?
A) Net income/loss in the income statement.
B) Cumulative translation adjustment as a deferred asset.
C) Cumulative translation adjustment as a deferred liability.
D) Other comprehensive income.
E) Retained earnings.

Accepted Answer

The answer of Where is the remeasurement gain or loss...

Quiz 10: A: Translation of Foreign Currency Financial Statements

If a subsidiary is operating in a highly inflationary economy, how are the financial statements to be restated?

If the current rate used to restate these amounts is $.95, what was the average historical rate used to arrive at the total amount for historical rates?

Under the current rate method, how would cost of goods sold be translated?

Assuming the functional currency of the subsidiary is the local currency, what total should be included in Parker's consolidated balance sheet at December 31, 2018, for the above items?

Compute the December 31, 2018, inventory balance using the lower of cost or net realizable value method under the temporal method.

When preparing a consolidation worksheet for a parent and its foreign subsidiary accounted for under the equity method, which of the following statements is false?

The financial statements for Perez are translated by its U.S.parent.What amount of gain or loss would be reported in its translated income statement?

Assuming the functional currency of the subsidiary is the U.S.dollar, what total should be included in Parker's consolidated balance sheet at December 31, 2018, for the above items?

Compute ending inventory for 2018 under the current rate method.

When consolidating a foreign subsidiary, which of the following statements is true?

Compute the cost of goods sold for 2018 in U.S.dollars using the temporal method.

When preparing a consolidated statement of cash flows, which of the following statements is false?

Compute the December 31, 2018, inventory balance using the current rate method.

Where is the translation adjustment reported in the parent company's financial statements?

Compute the cost of goods sold for 2018 in U.S.dollars using the current rate method.

A highly inflationary economy is defined as

The financial statements for Perez are remeasured by its U.S.parent.What amount of gain or loss would be reported in its translated income statement?

Under the temporal method, how would cost of goods sold be remeasured?

Compute ending inventory for 2018 under the temporal method.

Where is the remeasurement gain or loss reported in the parent company's financial statements?