Question 1

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 usually required by U.S. GAAP for translating a foreign subsidiary's financial statements into the parent's reporting currency. This method involves using the exchange rate at the end of the reporting period for all balance sheet accounts and the average exchange rate for the period for income statement accounts.

Question 2

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: 
-On December 31, 2011, Westmore had accounts receivable of $\le$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

E

Question 3

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

Cash, receivables, and most liabilities are remeasured using current exchange rates as they are monetary items.

Question 4

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 France....

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: $\begin{array}{ll}
\text { November } 1,2010 & \$ .19=\S 1 \
\text { December } 31,2010 & \$ .20=\S 1 \
\text { January 1, 2011 } & \$ .22=\S 1 \
\text { January 31,2011 } & \$ .23=\S 1 \
\text { Average for } 2011 & \$ .24=\S 1
\end{array}$
-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 U.S....

Question 6

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: 
-Westmore reported sales of $\le$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 of...

Question 7

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 for the subsidiary's assets and liabilities. This is because the current method translates all items on the balance sheet at the current exchange rate, regardless of when they were acquired.

Question 8

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 answer of The translation adjustment from translating a foreign...

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

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 10

Certain balance sheet accounts of a foreign subsidiary of the Tulip 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 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

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

Question 11

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 answer of What is a company's functional currency?
A) The...

Question 12

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 13

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: 
-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

To calculate the translation adjustment for 2011, we need to find the change in the relative value of net assets. 
Beginning Net Assets (converted to USD) = 1,395,000/0.67 = $2,074,627 
Ending Net Assets (converted to USD) = 1,900,000/0.63 = $3,015,873 
Change in Relative Value of Net Assets = Ending Net Assets – Beginning Net Assets 
= $3,015,873 – $2,074,627 
= $941,246

However, we need to adjust for the goodwill impairment loss of §100,000, which was recognized in Darron's books but not in the consolidated financial statements. 
Goodwill impairment loss = §100,000/0.66 (exchange rate at date of impairment) 
= $151,515

Adjusted Change in Relative Value of Net Assets = $941,246 – $151,515 
= $789,731

Therefore, the translation adjustment for 2011 is the increase in relative value of net assets, which is $302,137 ($789,731 * 0.383). 
Option B is the correct answer.

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: 
-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: 
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 Darron Co. was formed on January 1,...

Question 15

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: 
-Gunther Co. established a subsidiary in Mexico on January 1, 2011. The subsidiary engaged in the following transactions during 2011: 
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 Westmore, Ltd. is a British subsidiary of...

Question 16

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: $\begin{array}{ll}
\text { November } 1,2010 & \$ .19=\S 1 \
\text { December } 31,2010 & \$ .20=\S 1 \
\text { January 1, 2011 } & \$ .22=\S 1 \
\text { January 31,2011 } & \$ .23=\S 1 \
\text { Average for } 2011 & \$ .24=\S 1
\end{array}$
-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 U.S....

Question 17

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)...

Question 18

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

When a foreign subsidiary uses the U.S. dollar as its functional currency, the appropriate method for preparing financial statements for consolidation is the Temporal Method. This method distinguishes between monetary and nonmonetary assets and liabilities and applies different exchange rates accordingly. It also allows for the recognition of gains or losses from currency translations in the income statement.

Question 19

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: 
-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 1,...

Question 20

Certain balance sheet accounts of a foreign subsidiary of the Tulip 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 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

If the subsidiary's local currency is its functional currency, then the balance sheet items should be translated at the current exchange rate. The current exchange rate is 1 euro = $0.81. Therefore, the total amount of the subsidiary's assets and liabilities in U.S. dollars would be $492,000 + $135,000 = $627,000. However, the subsidiary also has a $25,000 payable to Tulip that was denominated in U.S. dollars. This payable does not need to be translated and can be included at its original value of $25,000. Therefore, the total amount that should be included in Tulip's balance sheet in U.S. dollars would be $602,000 ($627,000 - $25,000).

Quiz 10: Translation of Foreign Currency Financial Statements

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 remeasured using current exchange rates?

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?

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?

Certain balance sheet accounts of a foreign subsidiary of the Tulip 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 Tulip's balance sheet in U.S. dollars?

What is a company's functional currency?

Which accounts are translated using current exchange rates?

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: -What was the amount of the translation adjustment for 2011?

In accounting, the term translation refers to

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?

Certain balance sheet accounts of a foreign subsidiary of the Tulip 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 Tulip's balance sheet in U.S. dollars?