Question 1

Certain balance sheet accounts of a foreign subsidiary of the Tulip Co. had been stated in U.S. dollars as follows:$\begin{array}{llrrr}&\text { Stated at }\
&\text { Current } & \text { Historical } \
&\text { Rates } & \text { Rates }\
\text { Accounts receivable }  \text { - current } & \$ 280,000 &  \$ 308,000 \
\text { Accounts receivable }  \text { - long-term } & 140,000 & 154,000 \
\text { Prepaid insurance } & 70,000 & 77,000 \
\text { Goodwill } &  112,000 & 119,000 \
\text { Totals } & \$ 602,000 &  \$ 658,000
\end{array}$
-If the U.S.dollar is the functional currency of this subsidiary,what total amount should be included in Tulip's balance sheet in U.S.dollars?
A)$609,000.
B)$658,000.
C)$602,000.
D)$630,000.
E)$616,000.

Accepted Answer

E

Question 2

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

A

Question 3

Certain balance sheet accounts of a foreign subsidiary of the Tulip Co. had been stated in U.S. dollars as follows:$\begin{array}{llrrr}&\text { Stated at }\
&\text { Current } & \text { Historical } \
&\text { Rates } & \text { Rates }\
\text { Accounts receivable }  \text { - current } & \$ 280,000 &  \$ 308,000 \
\text { Accounts receivable }  \text { - long-term } & 140,000 & 154,000 \
\text { Prepaid insurance } & 70,000 & 77,000 \
\text { Goodwill } &  112,000 & 119,000 \
\text { Totals } & \$ 602,000 &  \$ 658,000
\end{array}$
-If the subsidiary's local currency is its functional currency,what total amount should be included in Tulip's balance sheet in U.S.dollars?
A)$609,000.
B)$658,000.
C)$602,000.
D)$630,000.
E)$616,000.

Accepted Answer

C

Question 4

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 liabilities.
E)All noncurrent assets and liabilities.

Accepted Answer

The answer of Which accounts are remeasured using current exchange...

Question 5

A subsidiary of Porter Inc., a U.S. company, was located in a foreign country. The functional currency of this subsidiary was the stickle (§), the local currency where the subsidiary is located. The subsidiary acquired inventory on credit on November 1, 2010, for §120,000 that was sold on January 17, 2011 for §156,000. The subsidiary paid for the inventory on January 31, 2011. Currency exchange rates between the dollar and the stickle were as follows:$\begin{array}{ll}
\text { November } 1,2010 & \$ .19=\$ 1 \
\text { December } 31,2010 & \$ .20=\$ 1 \
\text { January } 1,2011 & \$ .22=\$ 1 \
\text { January } 31,2011 & \$ .23=\$ 1 \
\text { Average for } 2011 & \$ .24=\$ 1
\end{array}$
-What amount would have been reported for this inventory in Porter's consolidated balance sheet at December 31,2010?
A)$24,000.
B)$26,400.
C)$22,800.
D)$27,600.
E)$28,800.

Accepted Answer

The answer of  A subsidiary of Porter Inc., a...

Question 6

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 is a component of accumulated other comprehensive income (AOCI) under stockholders' equity in the consolidated balance sheet.

Question 7

Westmore, Ltd. is a British subsidiary of a U.S. company. Westmore's functional currency is the pound sterling. The following exchange rates were in effect during 2011:$\begin{array}{lrl}
\text { Jan. }  1 & £ .1=\$ 1.60 \
\text { June }  30 & £ .1=\$ 1.64 \
\text { Dec. }  31 & £ .1=\$ 1.61\
\text { Weighted average rate for the year }& £ .1=\$ 1.59\
\end{array}$
-On December 31,2011,Westmore had accounts receivable of £280,000.What amount (rounded)would have been included for this subsidiary in calculating consolidated accounts receivable?
A)$173,913.
B)$176,100.
C)$445,200.
D)$448,000.
E)$450,800.

Accepted Answer

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

Question 8

A subsidiary of Porter Inc., a U.S. company, was located in a foreign country. The functional currency of this subsidiary was the stickle (§), the local currency where the subsidiary is located. The subsidiary acquired inventory on credit on November 1, 2010, for §120,000 that was sold on January 17, 2011 for §156,000. The subsidiary paid for the inventory on January 31, 2011. Currency exchange rates between the dollar and the stickle were as follows:$\begin{array}{ll}
\text { November } 1,2010 & \$ .19=\$ 1 \
\text { December } 31,2010 & \$ .20=\$ 1 \
\text { January } 1,2011 & \$ .22=\$ 1 \
\text { January } 31,2011 & \$ .23=\$ 1 \
\text { Average for } 2011 & \$ .24=\$ 1
\end{array}$
-What amount would have been reported for cost of goods sold on Porter's consolidated income statement at December 31,2011?
A)$24,000.
B)$26,400.
C)$22,800.
D)$27,600.
E)$28,800.

Accepted Answer

The answer of  A subsidiary of Porter Inc., a...

Question 9

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 them,then remeasure them.
B)First remeasure them,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

The answer of  Dilty Corp. owned a subsidiary in...

Question 10

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

The answer of  Dilty Corp. owned a subsidiary in...

Question 11

Darron Co. was formed on January 1, 2011 as a wholly owned foreign subsidiary of a U.S. corporation. Darron's functional currency was the stickle (§). The following transactions and events occurred during 2011:$\begin{array}{ll}
\text { Jan } 1 & \text { Darron issued common stock for } \S 1,000,000 \
\text { June 30 } & \text { Darron paid dividends of } \S 20,000 \
\text { Dec. 31 } & \text { Darron reported net income of } \S 80,000 \text { for the year. }
\end{array}$

$\begin{array}{l}
\text { Exchange rates for } 2011 \text { were: }\
\text { Jan. } 1 & \$ 1=\S .48 \
\text { June } 30 & \$ 1=\S .46 \
\text { Dec. 31 } & \$ 1=\S .42 \
\text { Weighted average rate for the year } & \$ 1=\S .44
\end{array}$
-What was the amount of the translation adjustment for 2011?
A)$293,479 increase in relative value of net assets.
B)$302,137 increase in relative value of net assets.
C)$300,160 increase in relative value of net assets.
D)$187,418 increase in relative value of net assets.
E)$270,800 increase in relative value of net assets.

Accepted Answer

The answer of  Darron Co. was formed on January...

Question 12

In translating a foreign subsidiary's financial statements,which exchange rate does the current 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 method requires the use of the exchange rate in effect as of the balance sheet date to translate the subsidiary's assets and liabilities. This ensures that the financial statements reflect the value of the subsidiary's assets and liabilities at the end of the reporting period.

Question 13

Sinkal Co.was formed on January 1,2011 as a wholly owned foreign subsidiary of a U.S.corporation.Sinkal's functional currency was the stickle (§).The following transactions and events occurred during 2011: $\begin{array}{ll}
\text { Jan } 1 & \text { Darron issued common stock for } \S 1,000,000 \
\text { June 30 } & \text { Darron paid dividends of } \S 20,000 \
\text { Dec. 31 } & \text { Darron reported net income of } \S 80,000 \text { for the year. }
\end{array}$

$\begin{array}{l}
\text { Exchange rates for } 2011 \text { were: }\
\text { Jan. } 1 & \$ 1=\S .48 \
\text { June } 30 & \$ 1=\S .46 \
\text { Dec. 31 } & \$ 1=\S .42 \
\text { Weighted average rate for the year } & \$ 1=\S .44
\end{array}$What was the amount of the translation adjustment for 2011?
A)$52,000 decrease in relative value of net assets.
B)$60,800 decrease in relative value of net assets.
C)$61,200 decrease in relative value of net assets.
D)$466,400 increase in relative value of net assets.
E)$26,000 increase in relative value of net assets.

Accepted Answer

The answer of Sinkal Co.was formed on January 1,2011 as...

Question 14

Darron Co. was formed on January 1, 2011 as a wholly owned foreign subsidiary of a U.S. corporation. Darron's functional currency was the stickle (§). The following transactions and events occurred during 2011:$\begin{array}{ll}
\text { Jan } 1 & \text { Darron issued common stock for } \S 1,000,000 \
\text { June 30 } & \text { Darron paid dividends of } \S 20,000 \
\text { Dec. 31 } & \text { Darron reported net income of } \S 80,000 \text { for the year. }
\end{array}$

$\begin{array}{l}
\text { Exchange rates for } 2011 \text { were: }\
\text { Jan. } 1 & \$ 1=\S .48 \
\text { June } 30 & \$ 1=\S .46 \
\text { Dec. 31 } & \$ 1=\S .42 \
\text { Weighted average rate for the year } & \$ 1=\S .44
\end{array}$
-What exchange rate should have been used in translating Darron's revenues and expenses for 2011?
A)$1 = §.48.
B)$1 = §.44.
C)$1 = §.46.
D)$1 = §.42.
E)$1 = §.45.

Accepted Answer

The answer of  Darron Co. was formed on January...

Question 15

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 answer of For a foreign subsidiary that uses the...

Question 16

According to U.S.GAAP for a local currency perspective,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

The current rate method is typically required for translating a foreign subsidiary's financial statements into the parent's reporting currency according to U.S. GAAP. This method uses the current exchange rate for all balance sheet accounts, except for equity accounts which are translated at historical rates, and all income statement accounts are translated at the average exchange rate for the period.

Question 17

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 liabilities.
E)All noncurrent assets and liabilities.

Accepted Answer

All assets and liabilities are translated using current exchange rates.

Question 18

Westmore, Ltd. is a British subsidiary of a U.S. company. Westmore's functional currency is the pound sterling. The following exchange rates were in effect during 2011:$\begin{array}{lrl}
\text { Jan. }  1 & £ .1=\$ 1.60 \
\text { June }  30 & £ .1=\$ 1.64 \
\text { Dec. }  31 & £ .1=\$ 1.61\
\text { Weighted average rate for the year }& £ .1=\$ 1.59\
\end{array}$
-Westmore reported sales of £1,500,000 during 2011.What amount (rounded)would have been included for this subsidiary in calculating consolidated sales?
A)$2,415,000.
B)$2,400,000.
C)$2,385,000.
D)$943,396.
E)$931,677.

Accepted Answer

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

Question 19

Gunther Co.established a subsidiary in Mexico on January 1,2011.The subsidiary engaged in the following transactions during 2011:$\begin{array}{llr}
  \text { Jan. 1 } & \text {  Sold common stock to Gunther for $ 5,000,000 $ pesos. Purchased } \
& \text {  inventory throughout the year, $ 8,000,000 $ pesos $ (1 / 4 $ remained at year  } \
& \text { end). } \
\end{array}$
$\begin{array}{l}
&\text { Sales for the year totaled } 12,000,000 \text { pesos. } \
\text { Dec. } 31& \text { Purchased equipment for } 1,000,000 \text { pesos. }
\end{array}$

Gunther concluded that the subsidiary's functional currency was the dollar. Exchange rates for 2011 were

$\begin{array}{ll}
\text { Jan. } 1& 1 \text { peso }=\$ .20 \
\quad\quad 31 & 1 \text { peso }=\$ .19 \
 \text { Dec. } 31 & 1 \text { peso }=\$ .16 \
\text { Weighted average rate for the year } &1 \text { peso }=\$ .18
\end{array}$
 What amount of foreign exchange gain or loss would have been recognized in Gunther's consolidated income statement for 2011?
A)$800,000 gain.
B)$760,000 gain.
C)$320,000 loss.
D)$280,000 loss.
E)$440,000 loss.

Accepted Answer

The answer of Gunther Co.established a subsidiary in Mexico on...

Question 20

In accounting,the term translation refers to
A)the calculation of gains or losses from hedging transactions.
B)the calculation of exchange rate gains or losses on individual transactions in foreign currencies.
C)the procedure required to identify a company's functional currency.
D)the calculation of gains or losses from all transactions for the year.
E)a procedure to prepare a foreign subsidiary's financial statements for consolidation.

Accepted Answer

The answer of In accounting,the term translation refers to
A)the calculation...

Quiz 8: Translation of Foreign Currency Financial Statements

What is a company's functional currency?

Which accounts are remeasured using current exchange rates?

The translation adjustment from translating a foreign subsidiary's financial statements should be shown as

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?

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?

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

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?

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

Which accounts are translated using current exchange rates?

In accounting,the term translation refers to