Question 1

A foreign subsidiary operates in a highly inflationary economy.The company's December 31, 2017, trial balance includes the following:
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 $\begin{array}{ll}
\text { Equipment:}\
\text { Acquired on June 1,2016 } & 800,000\quad \mathrm{FC} \
\text { Acquired on October } 1,2017 & 600,000 \quad\mathrm{FC}\
\text { Inventory: }\
\text {Valued at lower cost or market}\
\text {Market Value}&182,000 \quad \mathrm{FC}\ 
\text {A cost of $ 184,000  \mathrm{FC} $ represents $ 84,000 \mathrm{FC} $ acquired}\
\text {on December 1,2017 , and $ 100,000\quad \mathrm{FC} $ acquired on}\
\text {October 1,2017.}\
\text {Gain on sale of land:}\
\text {This represents a gain from selling land that was}\
\text {acquired on June 1,2016 , at a cost of $ 50,000 \mathrm{FC} $,}\
\text {on October 1,2017}&100,000\quad \mathrm{FC}
\end{array}$

Relevant exchange rates are as follows:
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 $$\begin{array} { l r } 
\text { Date } & \text { Rate } \
\text { June } 1,2016 & \$ 0.69 \
\text { July } 1,2016 & \$ 0.68 \
\text { October } 1,2017 & \$ 0.71 \
\text { December } 1,2017 & \$ 0.72 \
\text { December } 31,2017 & \$ 0.74 \
\text { 2017 average } & \$ 0.70
\end{array}$$ Required:
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a.Discuss the criteria that must be satisfied in order to qualify as a highly inflationary economy.?
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b.Discuss how the re-measurere-measurement of statements of companies operating in such economies affects net income.?
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c.Calculate the dollar value of the trial balance accounts as of December 31, 2017.?
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Accepted Answer

The answer of A foreign subsidiary operates in a highly...

Question 2

Assume Champ Company will be translating the accounts of its foreign subsidiary, Collier, Ltd.for inclusion in the consolidated financial statements.
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1) What are the steps to be taken?
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2) Assuming the functional currency is the currency of the country in which Collier is located, what rates should be used/
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3) Where should the adjustment, resulting from the translation process, be recognized?

Accepted Answer

The answer of Assume Champ Company will be translating the...

Question 3

A French subsidiary of a U.S.firm keeps accounting records in euros.The U.S.dollar is considered the subsidiary's functional currency.Assume the following exchange rates:
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 $$\begin{array} { l r } 
\text { Date } & \text { 1 euro equal to } \
\text { January } 1,2018 & \$ 1.05 \
\text { July } 1,2018 & \$ 1.07 \
\text { Dec. } 31,2018 & \$ 1.09 \
\text { Average } 2018 & \$ 1.08 \
\text { January } 1,2019 & \$ 1.09 \
\text { July } 1,2019 & \$ 1.07 \
\text { Dec. } 31,2019 & \$ 1.06 \
\text { Average } 2019 & \$ 1.08
\end{array}$$ Required:
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Re-measure the following items from the December 31, 2019 trial balance of the subsidiary:
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a.Sales made evenly throughout 2019 = 100,000 euros
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b.Cost of goods sold = 30,000 euros
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5,000 euros purchased July 1, 2018
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25,000 euros purchased July 1, 2019
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c.Salary expense for 2019 = 40,000 euros
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d.Land = 1,000,000 euros
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200,000 euros purchased January 1, 2018
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800,000 euros purchased July 1, 2019

Accepted Answer

The answer of A French subsidiary of a U.S.firm keeps...

Question 4

A Kuwaiti subsidiary of Hiawatha Corp.(a U.S.firm) has certain balance sheet accounts on December 31, 2017.The functional currency is the U.S.dollar and currency of record is the dinar and the parent's books are kept in U.S.dollars.
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Information relating to these account in U.S.dollars is as follows:
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 $\begin{array}{lrr}
&\text { Translated at}\
&\text { Current Rate}&\text { Historical Rate}\
\text { Cash } & \$ 150,000 & \$ 150,000 \
\text { Accounts Receivable } & 115,000 & 110,000 \
\text { Inventories } & 285,000 & 255,000 \
\text { Prepaid Insurance } & 12,000 & 10,000 \
\text { Land } & 90,000 & 180,000 \
\text { Buildings } & 500,000 & 800,000
\end{array}$ Required:
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From the above information, prepare the asset portion of the subsidiary's trial balance.
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Accepted Answer

The answer of A Kuwaiti subsidiary of Hiawatha Corp.(a U.S.firm)...

Question 5

Discuss the factors that may be considered in determining if a Mexican subsidiary of a U.S.firm has the peso or the dollar as its functional currency.The subsidiary only manufactures component parts that are shipped to the U.S.firm's final production plant in Detroit.

Accepted Answer

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Question 6

An American firm owns 100% of a German firm that had the following transactions occur relative to their equipment account:
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 $$\begin{array} { l l } 
\text { January } 1,2018 & \text { Purchased equipment for } 50,000 \text { euros } \
\text { July 1,2018 } & \text { Purchased equipment for 30,000 euros } \
\text { January 1,2019 } & \text { Purchased equipment for } 75,000 \text { euros } \
\text { July 1,2019 } & \text { Sold equipment purchased on January 1, 2018 for 48,000 euros }
\end{array}$$ The following exchange rates could be relevant:
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 $\begin{array}{lll}
\text { Date }&\text { euro/ \$}&  \text { Date } & \text { euro/\$ }\ 
\text { January 1,2018 } & \$ 0.50 & \text { January 1,2019 } & \$ 0.53 \
\text { July 1,2018 } & \$ 0.52 & \text { July 1, 2019 } & \$ 0.50 \
\text { December 31,2018 } & \$ 0.53 & \text { December 31, 2019 } & \$ 0.49 \
\text { Average 2018 } & \$ 0.515 & \text { Average 2019 } & \$ 0.51
\end{array}$
  Required:
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Assuming that the U.S.dollar is the functional currency and that the German firm uses straight-line depreciation over a 5-year period with a 10% salvage value, determine the following for re-measurere-measurement purposes:
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a.The value of the equipment account on December 31, 2019.?
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b.The value of the depreciation expense for 2019.?
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c.The amount of the gain or loss resulting from the July 1, 2019, sale.

Accepted Answer

The answer of An American firm owns 100% of a...

Question 7

On January 1, 2017, U.S.A.Inc.created an Algerian subsidiary, Niko, Inc.The books are kept in Algerian dinars, but the functional currency is the U.S.dollar.Dividends are paid on December 31, and income is earned evenly throughout the year.The earnings and dividends of Niko in dinars are as follows:
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 $$\begin{array} { r r r } 
& \text { Net Income } & \text { Dividends } \
2017 & 100,000 & 50,000 \
2016 & 200,000 & 80,000 \
2017 & 325,000 & 105,000
\end{array}$$ Exchange rates are given below.
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 $$\begin{array} { r r r } 
& \text { Yearly Average } & \text { Dec. 31 Spot } \
2017 & .0175 & .0185 \
2016 & .0188 & .022 \
2017 & .019 & .025
\end{array}$$ Required:
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Calculate the balance in retained earnings for Niko in dollars as of December 31, 2017.

Accepted Answer

The answer of On January 1, 2017, U.S.A.Inc.created an Algerian...

Question 8

Company A, an American company, owns Company B, a Canadian subsidiary.Company A borrowed 1,000,000 Canadian dollars as a hedge on its net investment in Company B.For 2016, Company A recorded an exchange gain of $40,000 due to exchange rate changes.The 2016 translation adjustment for Company B was a debit of $42,000.
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Required:
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Describe the accounting treatment required for the hedge on Company A's books.

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The answer of Company A, an American company, owns Company...

Question 9

Assume a foreign subsidiary is formed on January 1, Year 1 when the rate of exchange is 1 foreign currency (FC) = $1.00.On June 30, Year 1, the rate of exchange was 1 FC = $1.25 and on December 31, the rate of exchange was 1 FC = $1.35.The first year resulted in the following transactions:
January 1: The foreign subsidiary received $500,000 equity investment in dollars from the parent company in exchange for common stock.
January 1: The foreign subsidiary purchased machinery for $300,000 and inventory $200,000 for cash.
June 30: The foreign subsidiary sold 50% of the inventory on account for $150,000.
December 31: The receivable from the sale of inventory was fully collected.
Instructions: Make the necessary journal entries to record for the U.S.parent company in U.S.dollars.

Accepted Answer

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Question 10

For each of the following account balances, identify the exchange rate used to translate or re-measure.The choices are current exchange rate, historical rate, weighted average, other (specify).
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$$\begin{array} { l l |l } 
& { \text { Current Method } } &{ \text { Re-measureRe-measurement } } \
&& \text { Method } \
\hline\text { Accounts Receivable } & & \
\text { Prepaid Assets } & & \
\text { Accounts Payable } & & \
\text { Common Stock } & \
\text { Land } & \
\text { Goodwill } & \
\text { Sales Revenue } & \
\text { Depreciation Expense } &
\end{array}$$ ?

Accepted Answer

The answer of For each of the following account balances,...

Question 11

Assume a foreign subsidiary is formed on January 1, Year 1 when the rate of exchange is 1 foreign currency (FC) = $1.00.On June 30, Year 1, the rate of exchange was 1 FC = $1.25 and on December 31, the rate of exchange was 1 FC = $1.35.The first year resulted in the following transactions:
January 1: The foreign subsidiary received $500,000 equity investment in dollars from the parent company in exchange for common stock.
January 1: The foreign subsidiary purchased machinery for $300,000 and inventory $200,000 for cash.
June 30: The foreign subsidiary sold 50% of the inventory on account for $150,000.
December 31: The receivable from the sale of inventory was fully collected.
Instructions: Make the necessary journal entries to record for the foreign subsidiary as measured in FC.

Accepted Answer

The answer of Assume a foreign subsidiary is formed on...

Question 12

On January 1, 2016, Rapid Corporation purchased 25% of a foreign firm when its stockholders' equity section totaled 240,000 FCs.Rapid Corporation paid 75,000 FCs, with the excess over book value being attributed to equipment with a 5-year useful life.The foreign firm reported net income of 80,000 FCs for 2016.Relevant exchange rates were as follows:
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 $\begin{array}{lr}
\text { Date } & 1 \text { FC equal to } \
\text { January } 1,2016 & \$ 0.30 \
\text { December 31,2016 } & \$ 0.35 \
\text { Average 2016 } & \$ 0.33
\end{array}$ 
Required:
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Prepare the journal entries necessary to record the events concerning Rapid's investment in the foreign firm.

Accepted Answer

The answer of On January 1, 2016, Rapid Corporation purchased...

Question 13

On January 1, 2023, Cayane Inc.purchased 90% of a German firm, Brosch Manufacturing when Brosch's equity consisted of the following:
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 $$\begin{array} { l l } 
\text { Common stock } & 500,000 \text { euros } \
\text { Paid-in capital in excess of par } & 100,000 \
\text { Retained eamings } & 150,000 \
& \underline { 750,000 } \text { euros }
\end{array}$$ Cayane paid 810,000 euros for its 90% interest in Brosch.The excess over book value was attributed to a building with a 20-year useful life.Brosch reported net income for 2023 of 150,000 euros.The year-end cumulative translation adjustment is $10,000 credit.Relevant exchange rates are as follows:
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 $\begin{array}{lr}
\text { January } 1,2023 & 1 \text { euro }=\$ .65 \
\text { December } 31,2023 & 1 \text { euro }=.68 \
2023 \text { average } & 1 \text { euro }=.66
\end{array}$ Required:
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Prepare all the journal entries related to Cayane's investment in Brosch and all the necessary eliminating and adjusting entries for consolidation of Brosch, assuming the use of the simple equity method.

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Question 14

Complete the following table:
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Accepted Answer

The answer of Complete the following table:
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...

Question 15

Kerry Manufacturing Company is a German subsidiary of a U.S.company.Kerry records its operations and prepares financial statements in euros.However, its functional currency is the British pound.Kerry was organized and acquired by the U.S.company on June 1, 2017.The cumulative translation adjustment as of December 31, 2019, was $79,860.The value of the subsidiary's retained earnings expressed in British pounds and U.S.dollars as of December 31, 2022, was 365,000 pounds and $618,000, respectively.On March 1, 2022, Kerry declared a dividend of 120,000 euros.The trial balance of Kerry in euros as of December 31, 2022, is as follows:
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 $\begin{array}{lrr}
&\text { Debit }& \text { Credit }\
\text { Cash } & 240,000 & \
\text { Accounts Receivable (net) } & 2,760,000 & \
\text { Inventory (at cost) } & 3,720,000 & \
\text { Marketable Securities (at cost) } & 2,040,000 & \
\text { Prepaid Insurance } & 210,000 & \
\text { Depreciable Assets } & 8,730,000 & \
\text { Accumulated Depreciation } & & 1,417,000 \
\text { Cost of Goods Sold } & 17,697,000 &\
\text { Administrative Expense } \
\text { Admenta, and } & 4,762,000 & \
 \text { Sales Revenue } & & 26,430,000 \
 \text { Investment Income } & & 180,000 \
 \text { Accounts Payable } & & 2,120,000 \
 \text { Unearned Sales Revenue } & & 960,000 \
\text { Loans and Mortgage Payable } & & 5,872,000 \
 \text { Common Stock } & & 1,500,000 \
\text { Paid-in Capital in Excess of Par } & & 210,000 \
 \text { Retained Earnings } & & \underline{1,470,000} \
 \text { Total } & \underline{40,159,000} & \underline{40,159,000} \

\end{array}$ The marketable securities were acquired on November 1, 2019, and the prepaid insurance was acquired on December 1, 2022.The cost of goods sold and the ending inventory are calculated by the weighted-average method.The underlying costs have been incurred uniformly throughout the year.On June 1, 2017, 60% of the depreciable assets existed, and the balance was acquired on March 1, 2019.The depreciable assets are amortized over a 10-year period by the straight-line method.Of the total depreciation expense, 80% is traceable to the cost of goods sold and the balance is in general expenses.On November 1, 2019, Kerry received a customer prepayment valued at 3,000,000 euros.On February 1, 2022, 2,040,000 euros of the prepayment was earned.The balance remains unearned as of December 31, 2022.
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Relevant exchange rates are as follows:
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 $$\begin{array} { l r r } 
& \text { Pounds/Euro } & \$ \text { /Pound } \
\text { June } 1,2017 & 0.310 & \$ 1.600 \
\text { March } 1,2019 & 0.300 & \$ 1.640 \
\text { November } 1,2019 & 0.305 & \$ 1.650 \
\text { December } 31,2019 & 0.310 & \$ 1.680 \
\text { February } 1,2022 & 0.302 & \$ 1.670 \
\text { March } 1,2022 & 0.300 & \$ 1.660 \
\text { December } 1,2022 & 0.290 & \$ 1.640 \
\text { December } 31,2022 & 0.288 & \$ 1.640 \
\text { 2022 average } & 0.297 & \$ 1.660
\end{array}$$ Required:
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Prepare a re-measurere-measured and translated trial balance of the Kerry Manufacturing Company as of December 31, 2022.Provide supporting schedules.

Accepted Answer

The answer of Kerry Manufacturing Company is a German subsidiary...

Question 16

List the two primary objectives of translating foreign financial statements according to the FASB #52, which emphasizes the concept of the functional currency.?

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Question 17

Foreign firms operating in highly inflationary economies received special treatment under generally accepted accounting principles (GAAP) relative to translating their financial statements.
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Required:
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a.How does the FASB define a highly inflationary economy?
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b.Why is the method typically used for translating foreign entities not permitted for these firms?
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c.What method is used for re-measuring or translating the statements of these firms?
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Accepted Answer

The answer of Foreign firms operating in highly inflationary economies...

Question 18

Renta USA, Inc.formed a foreign subsidiary on January 1, 2016; the subsidiary issued 15,000 of its no-par 10FC stock to Renta.The subsidiary's books are kept in their functional currency.Income earned in 2016 and 2017 totaled 100,000 FC and 120,000 FC, respectively.Dividends of 40,000 FC have been paid on December 31 of each year.In addition, 1,000 shares of common stock (no par) were issued on July 1, 2017 for 20 FC each.
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Exchange rates relating this foreign currency to U.S.dollars are as follows:
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$$\begin{array} { l l } 
\text { January } 1,2016 & 1.00 \
\text { December } 31,2016 & 1.04 \
\text { Average } 2016 & 1.02 \
\text { July } 1,2017 & 1.05 \
\text { December } 31,2017 & 1.10 \
\text { Average } 2017 & 1.08
\end{array}$$

Required:
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Calculate the owners' equity of the subsidiary on December 31, 2017.

Accepted Answer

The answer of Renta USA, Inc.formed a foreign subsidiary on...

Question 19

Hylie, a U.S.corporation, owns 100% of Frosan, a French firm.Assume that the dollar is the functional currency, although the books are kept in euros.
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Required:
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What currency exchange rate would be used to re-measure Frosan's balance sheet into U.S.dollars? Choose from current, simple average, weighted average, or historical.
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a.Cash
b.Accounts Receivable
c.Inventory, carried at cost
d.Equipment
e.Accumulated Depreciation
f.Bonds Payable
g.Common Stock 
h.Sales

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The answer of Hylie, a U.S.corporation, owns 100% of Frosan,...

Quiz 11: Translation of Foreign Financial Statements

Discuss the factors that may be considered in determining if a Mexican subsidiary of a U.S.firm has the peso or the dollar as its functional currency.The subsidiary only manufactures component parts that are shipped to the U.S.firm's final production plant in Detroit.

Complete the following table: ?

List the two primary objectives of translating foreign financial statements according to the FASB #52, which emphasizes the concept of the functional currency.?