Deck 10: Translation of Foreign Currency Financial Statements

Question 1

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.

Answer 1

A

Question 2

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.

Answer 2

E

Question 3

According to SFAS 52,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.

Answer 3

B

Question 4

REFERENCE: Ref.10_01
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 2008:
On December 31,Westmore had accounts receivable of £280,000.What amount (rounded)would have been included for this subsidiary in calculating consolidated accounts receivable?

A)$444,444.
B)$451,613.
C)$142,600.
D)$176,400.
E)$452,830.

Question 5

REFERENCE: Ref.10_04
Certain balance sheet accounts of a foreign subsidiary of the Tulip Co.had been stated in U.S.dollars as follows:
If a foreign currency is the functional currency of this subsidiary,what total should have been included in Tulip's balance sheet for the preceding items?

A)$609,000.
B)$658,000.
C)$602,000.
D)$630,000.
E)$616,000.

Question 6

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

A U.S.company's foreign subsidiary had the following amounts in stickles (§)in 2009:
The average exchange rate during 2009 was §1 = $.96.The beginning inventory was acquired when the exchange rate was §1 = $1.20.The ending inventory was acquired when the exchange rate was §1 = $.90.The exchange rate at December 31,2009 was §1 = $.84.Assuming that the foreign country had a highly inflationary economy,at what amount should the foreign subsidiary's cost of goods sold have been reflected in the 2009 U.S.dollar income statement?

A)$11,253,600.
B)$11,577,600.
C)$11,649,600.
D)$11,613,600.
E)$11,523,600.

Question 7

REFERENCE: Ref.10_02
Darron Co.was formed on January 1,2009 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 2007:
SHAPE \* MERGEFORMAT

For a foreign subsidiary that uses the US dollar as its functional currency,what translation method is required?

A)Current/Noncurrent Method.
B)Monetary/Nonmonetary Method.
C)Current Rate Method.
D)Temporal Method.
E)Indirect Method.

Question 8

REFERENCE: Ref.10_01
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 2008:
Gunther Co.established a subsidiary in Mexico on January 1,2008.The subsidiary engaged in the following transactions during 2008:

What amount of foreign exchange gain or loss would have been recognized on Gunther's consolidated income statement for 2008?

A)$200,400 loss.
B)$90,000 loss.
C)$226,000 loss.
D)$235,600 loss.
E)$250,000 loss.

Question 9

REFERENCE: Ref.10_02
Darron Co.was formed on January 1,2009 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 2007:
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What exchange rate should have been used in translating Darron's revenues and expenses for 2009?

A)$1 = §.48.
B)$1 = §.44.
C)$1 = §.46.
D)$1 = §.42.
E)$1 = §.45.

Question 10

REFERENCE: Ref.10_04
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 should have been included in Tulip's balance sheet for the items above?

A)$609,000.
B)$658,000.
C)$602,000.
D)$630,000.
E)$616,000.

Question 11

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

What figure would have been reported for cost of goods sold on Porter's consolidated income statement at December 31,2009?

A)$24,000.
B)$26,400.
C)$22,800.
D)$27,600.
E)$28,800.

Question 12

REFERENCE: Ref.10_03
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.

Question 13

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

A)an asset or liability (depending on the balance)on the consolidated balance sheet.
B)a revenue or expense (depending on the balance)on the consolidated income statement.
C)a component of stockholders' equity on the consolidated balance sheet.
D)a component of cash flows from financing activities on the consolidated statement of cash flows.
E)an element of the notes which accompany the consolidated financial statements.

Question 14

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

What figure would have been reported for this inventory on Porter's consolidated balance sheet at December 31,2008?

A)$24,000.
B)$26,400.
C)$22,800.
D)$27,600.
E)$28,800.

Question 15

REFERENCE: Ref.10_02
Darron Co.was formed on January 1,2009 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 2007:
SHAPE \* MERGEFORMAT

Which of the following translation methods was originally mandated by SFAS No.8?

A)Current/Noncurrent Method.
B)Monetary/Nonmonetary Method.
C)Current Rate Method.
D)Temporal Method.
E)Indirect Method.

Question 16

REFERENCE: Ref.10_03
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.

Question 17

REFERENCE: Ref.10_01
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 2008:
Westmore reported sales of £1,500,000 during 2008.What amount (rounded)would have been included for this subsidiary in calculating consolidated sales?

A)$2,380,952.
B)$2,400,000.
C)$2,429,150.
D)$2,419,355.
E)$2,425,876.

Question 18

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.

Question 19

REFERENCE: Ref.10_02
Darron Co.was formed on January 1,2009 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 2007:
SHAPE \* MERGEFORMAT

Which accounts are remeasured using current exchange rates?

A)all revenues and expenses.
B)all assets and liabilities.
C)all monetary assets and liabilities.
D)all current assets and liabilities.
E)all noncurrent assets and liabilities.

Question 20

REFERENCE: Ref.10_02
Darron Co.was formed on January 1,2009 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 2007:
SHAPE \* MERGEFORMAT

What was the amount of the translation adjustment for 2009?

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.

Question 21

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

Under the temporal method,retained earnings would be restated at what rate?

A)Beginning of the year rate.
B)Average rate.
C)Current rate.
D)Historical rate.
E)Composite amount.

Question 22

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

A net liability balance sheet exposure exists and the foreign currency appreciates.Which of the following statements is true?

A)There is no translation adjustment.
B)There is a transaction loss.
C)There is a transaction gain.
D)There is a negative translation adjustment.
E)There is a positive translation adjustment.

Question 23

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

A net asset balance sheet exposure exists and the foreign currency depreciates.Which of the following statements is true?

A)There is no translation adjustment.
B)There is a transaction loss.
C)There is a transaction gain.
D)There is a negative translation adjustment.
E)There is a positive translation adjustment.

Question 24

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

Under the temporal method,common stock would be restated at what rate?

A)Beginning of the year rate.
B)Average rate.
C)Current rate.
D)Historical rate.
E)Composite amount.

Question 25

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

A net liability balance sheet exposure exists and the foreign currency depreciates.Which of the following statements is true?

A)There is no translation adjustment.
B)There is a transaction loss.
C)There is a transaction gain.
D)There is a negative translation adjustment.
E)There is a positive translation adjustment.

Question 26

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

Under the temporal method,depreciation expense would be restated at what rate?

A)Beginning of the year rate.
B)Average rate.
C)Current rate.
D)Historical rate.
E)Composite amount.

Question 27

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

Under the temporal method,inventory at market would be restated at what rate?

A)Beginning of the year rate.
B)Average rate.
C)Current rate.
D)Historical rate.
E)Composite amount.

Question 28

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

Under the current rate method,common stock would be restated at what rate?

A)Beginning of the year rate.
B)Average rate.
C)Current rate.
D)Historical rate.
E)Composite amount.

Question 29

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

Under the temporal method,property,plant & equipment would be restated at what rate?

A)Beginning of the year rate.
B)Average rate.
C)Current rate.
D)Historical rate.
E)Composite amount.

Question 30

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

Under the current rate method,retained earnings would be restated at what rate?

A)Beginning of the year rate.
B)Average rate.
C)Current rate.
D)Historical rate.
E)Composite amount.

Question 31

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

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

A)Beginning of the year rate.
B)Average rate.
C)Current rate.
D)Historical rate.
E)Composite amount.

Question 32

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

Which method of remeasuring a foreign subsidiary's financial statements is correct?

A)Historical rate method.
B)Working capital method.
C)Current rate method.
D)Translation.
E)Temporal method.

Question 33

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

Under the current rate method,property,plant & equipment would be restated at what rate?

A)Beginning of the year rate.
B)Average rate.
C)Current rate.
D)Historical rate.
E)Composite amount.

Question 34

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

How is the disposition of the translated gain or loss reported on the parent company's financial statements?

A)Net income/loss on 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.

Question 35

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

Which method of translating a foreign subsidiary's financial statements is correct?

A)Historical rate method.
B)Working capital method.
C)Current rate method.
D)Remeasurement.
E)Temporal method.

Question 36

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

Under the current rate method,inventory at market would be restated at what rate?

A)Beginning of the year rate.
B)Average rate.
C)Current rate.
D)Historical rate.
E)Composite amount.

Question 37

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

Under the current rate method,depreciation expense would be restated at what rate?

A)Beginning of the year rate.
B)Average rate.
C)Current rate.
D)Historical rate.
E)Composite amount.

Question 38

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

A net asset balance sheet exposure exists and the foreign currency appreciates.Which of the following statements is true?

A)There is no translation adjustment.
B)There is a transaction loss.
C)There is a transaction gain.
D)There is a negative translation adjustment.
E)There is a positive translation adjustment.

Question 39

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

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

A)Beginning of the year rate.
B)Average rate.
C)Current rate.
D)Historical rate.
E)Composite amount.

Question 40

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

A historical exchange rate for a foreign subsidiary is best described as

A)The rate at date of acquisition for a purchase transaction.
B)The rate when the common stock was originally issued for a purchase transaction.
C)The average rate from date of acquisition to the date of balance sheet.
D)The rate from the prior year's balances.
E)The January 1 exchange rate.

Question 41

REFERENCE: Ref.10_07
The following inventory balances for 2008 in local currency units (LCU)are given:
SHAPE \* MERGEFORMAT

Compute the December 31,2008,inventory balance using the current rate method.

A)$454,400.
B)$457,600.
C)$596,000.
D)$568,000.
E)$473,600.

Question 42

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

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)Remeasurement.
E)Current rate.

Question 43

REFERENCE: Ref.10_10
Kennedy Company acquired all of the outstanding common stock of Hastie Company of Canada for US$350,000 on January 1,2009,when the exchange rate for the Canadian dollar was US$.70.The fair value of the net assets of Hastie was equal to their book value of C$450,000 (Canadian dollars)on the date of acquisition.Any excess cost over fair value was attributed to an unrecorded patent with a remaining life of five years.The functional currency of Hastie is the Canadian dollar.
For the year ended December 31,2009,Hastie's translated net income was $25,000.The average exchange rate for the Canadian dollar during 2009 was US$.68,and the 2009 year-end exchange rate was US$.65.
Amortization of the patent,translated,for 2009 would be

A)$7,000.
B)$10,000.
C)$6,800.
D)$9,000.
E)$6,500.

Question 44

REFERENCE: Ref.10_10
Kennedy Company acquired all of the outstanding common stock of Hastie Company of Canada for US$350,000 on January 1,2009,when the exchange rate for the Canadian dollar was US$.70.The fair value of the net assets of Hastie was equal to their book value of C$450,000 (Canadian dollars)on the date of acquisition.Any excess cost over fair value was attributed to an unrecorded patent with a remaining life of five years.The functional currency of Hastie is the Canadian dollar.
For the year ended December 31,2009,Hastie's translated net income was $25,000.The average exchange rate for the Canadian dollar during 2009 was US$.68,and the 2009 year-end exchange rate was US$.65.
Calculate the US$ amount allocated to the patent at January 1,2009.

A)$50,000.
B)$35,000.
C)$34,000.
D)$32,500.
E)$28,200.

Question 45

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

How is the disposition of the remeasurement gain or loss reported on the parent company's financial statements?

A)Net income/loss on 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.

Question 46

REFERENCE: Ref.10_09
Certain balance sheet accounts of a foreign subsidiary of Parker Company at December 31,2008,have been restated into U.S.dollars as follows:
SHAPE \* MERGEFORMAT

Assuming the functional currency of the subsidiary is the local currency,what total should be included in Parker's consolidated balance sheet at December 31,2008,for the above items?

A)$407,500.
B)$418,000.
C)$396,000.
D)$403,500.
E)$398,500.

Question 47

REFERENCE: Ref.10_08
Perez Company,a Mexican subsidiary of a U.S.company,sold equipment costing 200,000 pesos with accumulated depreciation of 75,000 pesos for 140,000 pesos on March 1,2009.The equipment was purchased on January 1,2008,when the exchange rate for the peso was $.11.Relevant exchange rates for the peso are as follows:
SHAPE \* MERGEFORMAT

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)$1,465.
D)$1,090.
E)$1,650.

Question 48

REFERENCE: Ref.10_07
The following inventory balances for 2008 in local currency units (LCU)are given:
SHAPE \* MERGEFORMAT

Compute the December 31,2008,inventory balance using the lower of cost or market method under the temporal method.

A)$429,000.
B)$457,600.
C)$596,000.
D)$568,000.
E)$473,600.

Question 49

REFERENCE: Ref.10_09
Certain balance sheet accounts of a foreign subsidiary of Parker Company at December 31,2008,have been restated into U.S.dollars as follows:
SHAPE \* MERGEFORMAT

If the current rate used to restate these balances is $.95,what was the historical rate used to restate the same balances?

A)$)90.
B)$1.00.
C)$)95.
D)$)9474.
E)$1.0556.

Question 50

REFERENCE: Ref.10_10
Kennedy Company acquired all of the outstanding common stock of Hastie Company of Canada for US$350,000 on January 1,2009,when the exchange rate for the Canadian dollar was US$.70.The fair value of the net assets of Hastie was equal to their book value of C$450,000 (Canadian dollars)on the date of acquisition.Any excess cost over fair value was attributed to an unrecorded patent with a remaining life of five years.The functional currency of Hastie is the Canadian dollar.
For the year ended December 31,2009,Hastie's translated net income was $25,000.The average exchange rate for the Canadian dollar during 2009 was US$.68,and the 2009 year-end exchange rate was US$.65.
Kennedy's share of Hastie's net income for 2009 would be

A)$18,000.
B)$15,000.
C)$18,200.
D)$16,000.
E)$18,500.

Question 51

REFERENCE: Ref.10_10
Kennedy Company acquired all of the outstanding common stock of Hastie Company of Canada for US$350,000 on January 1,2009,when the exchange rate for the Canadian dollar was US$.70.The fair value of the net assets of Hastie was equal to their book value of C$450,000 (Canadian dollars)on the date of acquisition.Any excess cost over fair value was attributed to an unrecorded patent with a remaining life of five years.The functional currency of Hastie is the Canadian dollar.
For the year ended December 31,2009,Hastie's translated net income was $25,000.The average exchange rate for the Canadian dollar during 2009 was US$.68,and the 2009 year-end exchange rate was US$.65.
Compute the amount of the patent reported on the consolidated balance sheet at December 31,2009.

A)$28,200.
B)428,000.
C)$35,000.
D)$27,200.
E)$26,000.

Question 52

REFERENCE: Ref.10_06
The following account balances are available for Esposito,an Italian U.S.subsidiary for 2009:
SHAPE \* MERGEFORMAT

Compute the cost of goods sold for 2009 in U.S.dollars using the temporal method.

A)$376,650.
B)$387,750.
C)$388,800.
D)$400,950.
E)$409,050.

Question 53

REFERENCE: Ref.10_06
The following account balances are available for Esposito,an Italian U.S.subsidiary for 2009:
SHAPE \* MERGEFORMAT

Compute the cost of goods sold for 2009 in U.S.dollars using the current rate method.

A)$376,550.
B)$387,750.
C)$388,800.
D)$400,950.
E)$409,050.

Question 54

REFERENCE: Ref.10_09
Certain balance sheet accounts of a foreign subsidiary of Parker Company at December 31,2008,have been restated into U.S.dollars as follows:
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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 31,2008,for the above items?

A)$407,500.
B)$418,000.
C)$396,000.
D)$403,500.
E)$398,500.

Question 55

REFERENCE: Ref.10_06
The following account balances are available for Esposito,an Italian U.S.subsidiary for 2009:
SHAPE \* MERGEFORMAT

Compute ending inventory for 2009 under the current rate method.

A)$13,950.
B)$14,100.
C)$14,400.
D)$14,850.
E)$15,150.

Question 56

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

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

A)Parent reports a cumulative translation adjustment using the equity method.
B)Parent's reports a gain or loss in net income using 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 on the consolidated income statement and balance sheet.

Question 57

REFERENCE: Ref.10_08
Perez Company,a Mexican subsidiary of a U.S.company,sold equipment costing 200,000 pesos with accumulated depreciation of 75,000 pesos for 140,000 pesos on March 1,2009.The equipment was purchased on January 1,2008,when the exchange rate for the peso was $.11.Relevant exchange rates for the peso are as follows:
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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.

Question 58

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

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

A)Subsidiary dividends are deducted as a financing activity.
B)Noncontrolling interest in subsidiary dividends are deducted as a financing activity.
C)Parent dividends are deducted as a financing activity.
D)Amortization of cost over book value of the investment in subsidiary is added to net income as an operating activity using the indirect method.
E)Intercompany gains do not appear on the consolidated statement of cash flows.

Question 59

REFERENCE: Ref.10_06
The following account balances are available for Esposito,an Italian U.S.subsidiary for 2009:
SHAPE \* MERGEFORMAT

Compute ending inventory for 2009 under the temporal method.

A)$13,950.
B)$14,100.
C)$14,400.
D)$14,850.
E)$15,150.

Question 60

REFERENCE: Ref.10_05
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 subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

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 an underworld economy.

Question 61

REFERENCE: Ref.10_11
Quadros Inc. ,a Portugese firm was acquired by a U.S.company on January 1,2007.Selected account balances are available for the year ended December 31,2008,and are stated in euro,the local currency.
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Assume the functional currency is the U.S.dollar,compute the restated amount for sales for 2008.

A)$364,000.
B)$372,000.
C)$380,000.
D)$360,000.
E)$404,000.

Question 62

Perkle Co.owned a subsidiary in Belgium;the subsidiary's functional currency was the Belgian franc.During 2009,Perkle engaged in hedging transactions to offset part of the subsidiary's net asset position.How should the effects of exchange rate fluctuations on the currency hedge be accounted for?

Question 63

REFERENCE: Ref.10_11
Quadros Inc. ,a Portugese firm was acquired by a U.S.company on January 1,2007.Selected account balances are available for the year ended December 31,2008,and are stated in euro,the local currency.
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Assume the functional currency is the U.S.dollar,compute the restated amount for inventory for 2008.

A)$18,600.
B)$19,600.
C)$18,000.
D)$20,200.
E)$19,000.

Question 64

REFERENCE: Ref.10_11
Quadros Inc. ,a Portugese firm was acquired by a U.S.company on January 1,2007.Selected account balances are available for the year ended December 31,2008,and are stated in euro,the local currency.
SHAPE \* MERGEFORMAT

Assume the functional currency is the U.S.dollar,compute the restated amount for depreciation expense for 2008.

A)$8,190.
B)$8,370.
C)$8,820.
D)$9,090.
E)$8,550.

Question 65

REFERENCE: Ref.10_11
Quadros Inc. ,a Portugese firm was acquired by a U.S.company on January 1,2007.Selected account balances are available for the year ended December 31,2008,and are stated in euro,the local currency.
SHAPE \* MERGEFORMAT

Assume the functional currency is the U.S.dollar,compute the restated amount for dividends for 2008.

A)$19,000.
B)$20,200.
C)$18,600.
D)$19,400.
E)$19,600.

Question 66

When translating Quadros' financial statements,which of the following statements is true?

A)There will be a remeasurement gain reported on the consolidated income statement.
B)There will be a remeasurement loss reported on the consolidated income statement.
C)There will be a positive cumulative translation adjustment reported on the consolidated balance sheet.
D)There will be a positive cumulative translation adjustment reported on the consolidated income statement.
E)There will be a transaction gain reported on the consolidated income statement.

Question 67

A foreign subsidiary was purchased on January 1,2008.Determine the exchange rate used to restate the following accounts at December 31,2008.Land was purchased on October 1,2008.Relevant exchange dates follow:
(A)January 1,2008
(B)October 1,2008
(C)December 31,2008
(D)Average,2008
(E)Composite,using multiple dates.
Identify the exchange rate used to translate items 1-5:
____ 1.Land.
____ 2.Equipment.
____ 3.Bonds payable.
____ 4.Common stock.
____ 5.Retained earnings.
Identify the exchange rate used to remeasure the items 6-10:
____ 6.Land.
____ 7.Equipment.
____ 8.Bonds payable.
____ 9.Common stock.
____ 10.Retained earnings.

Question 68

REFERENCE: Ref.10_11
Quadros Inc. ,a Portugese firm was acquired by a U.S.company on January 1,2007.Selected account balances are available for the year ended December 31,2008,and are stated in euro,the local currency.
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Assume the functional currency is the euro,compute the restated amount for accumulated depreciation for 2008.

A)$40,950.
B)$41,850.
C)$45,450.
D)$42,750.
E)$44,100.

Question 69

REFERENCE: Ref.10_11
Quadros Inc. ,a Portugese firm was acquired by a U.S.company on January 1,2007.Selected account balances are available for the year ended December 31,2008,and are stated in euro,the local currency.
SHAPE \* MERGEFORMAT

Assume the functional currency is the U.S.dollar,compute the restated amount for equipment for 2008.

A)$81,900.
B)$90,900.
C)$83,700.
D)$88,200.
E)$85,500.

Question 70

REFERENCE: Ref.10_11
Quadros Inc. ,a Portugese firm was acquired by a U.S.company on January 1,2007.Selected account balances are available for the year ended December 31,2008,and are stated in euro,the local currency.
SHAPE \* MERGEFORMAT

Assume the functional currency is the euro,compute the restated amount for depreciation expense for 2008.

A)$8,190.
B)$8,370.
C)$8,820.
D)$9,090.
E)$8,550.

Question 71

How can a parent corporation determine the functional currency for a foreign subsidiary that conducts business in more than one country?

Question 72

REFERENCE: Ref.10_11
Quadros Inc. ,a Portugese firm was acquired by a U.S.company on January 1,2007.Selected account balances are available for the year ended December 31,2008,and are stated in euro,the local currency.
SHAPE \* MERGEFORMAT

Assume the functional currency is the euro,compute the restated amount for equipment for 2008.

A)$81,900.
B)$90,900.
C)$83,700.
D)$88,200.
E)$85,500.

Question 73

REFERENCE: Ref.10_11
Quadros Inc. ,a Portugese firm was acquired by a U.S.company on January 1,2007.Selected account balances are available for the year ended December 31,2008,and are stated in euro,the local currency.
SHAPE \* MERGEFORMAT

Assume the functional currency is the euro,compute the restated amount for dividends for 2008.

A)$19,000.
B)$20,200.
C)$18,600.
D)$19,400.
E)$19,600.

Question 74

A foreign subsidiary of a U.S.corporation purchased equipment on January 4,2005.
(A. )How would depreciation expense on the equipment be translated for 2008?
(B. )How would depreciation expense on the equipment be remeasured for 2008?

Question 75

REFERENCE: Ref.10_11
Quadros Inc. ,a Portugese firm was acquired by a U.S.company on January 1,2007.Selected account balances are available for the year ended December 31,2008,and are stated in euro,the local currency.
SHAPE \* MERGEFORMAT

Assume the functional currency is the U.S.dollar,compute the restated amount for accumulated depreciation for 2008.

A)$40,950.
B)$41,850.
C)$45,450.
D)$42,750.
E)$44,100.

Question 76

In translating a foreign subsidiary's financial statements,what exchange rate should be used for the subsidiary's revenues and expenses?

Question 77

Under what circumstances would the translation of a foreign subsidiary's financial statements not be required?

Question 78

REFERENCE: Ref.10_11
Quadros Inc. ,a Portugese firm was acquired by a U.S.company on January 1,2007.Selected account balances are available for the year ended December 31,2008,and are stated in euro,the local currency.
SHAPE \* MERGEFORMAT

Assume the functional currency is the euro,compute the restated amount for inventory for 2008.

A)$18,600.
B)$19,600.
C)$18,000.
D)$20,200
E)$19,000.

Question 79

What exchange rate should be used to translate (a)revenues and expenses that occur throughout the year and (b)a gain or loss that occurs on a specific day?

Question 80

REFERENCE: Ref.10_11
Quadros Inc. ,a Portugese firm was acquired by a U.S.company on January 1,2007.Selected account balances are available for the year ended December 31,2008,and are stated in euro,the local currency.
SHAPE \* MERGEFORMAT

Assume the functional currency is the euro,compute the restated amount for sales for 2008.

A)$364,000.
B)$372,000.
C)$380,000.
D)$360,000.
E)$404,000.