Exam 10: Translation of Foreign Currency Financial Statements

Oscar, Ltd. is a British subsidiary of a U.S. company. Oscar's functional currency is the pound sterling (£). The following exchange rates were in effect during 2021: Oscar reported sales of £1,200,000 during 2021. What amount (rounded) would have been included for this subsidiary in calculating consolidated sales?

A highly inflationary economy is defined as

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

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

When using the current rate method, the translation adjustment from translating a foreign subsidiary's financial statements should be shown as

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

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?

Boerkian Co. started 2021 with two assets: Cash of §26,000 (Stickles) and Land that originally cost §72,000 when acquired on April 4, 2018. On May 1, 2021, the company rendered services to a customer for §36,000, an amount immediately paid in cash. On October 1, 2021, the company incurred an operating expense of §22,000 that was immediately paid. No other transactions occurred during the year so an average exchange rate is not necessary. Currency exchange rates were as follows: Required:Assume that Boerkian was a foreign subsidiary of a U.S. multinational company and the local currency of the subsidiary (stickle) is the functional currency. On the December 31, 2021 balance sheet, what was the translated value of the Land account?

Kennedy Company acquired all of the outstanding common stock of Hastie Company of Canada for U.S. $350,000 on January 1, 2021, when the exchange rate for the Canadian dollar (CAD) was U.S. $0.70. The fair value of the net assets of Hastie was equal to their book value of CAD 450,000 on the date of acquisition. Any acquisition consideration excess 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, 2021, Hastie's trial balance net income was translated at U.S. $25,000. The average exchange rate for the Canadian dollar during 2021 was U.S. $0.68, and the 2021 year-end exchange rate was U.S. $0.65.Calculate the U.S. dollar amount allocated to the patent at January 1, 2021.

Certain balance sheet accounts of a foreign subsidiary of Parker Company at December 31, 2021, have been restated into U.S. dollars as follows: 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, 2021, for the above items?

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

What are techniques that a parent company can use to hedge the balance sheet exposures of their foreign operations?

Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1, 2020. Selected account balances are available for the year ended December 31, 2021, and are stated in Euro, the local currency. Relevant exchange rates for 1 Euro are given below: Assume the functional currency is the Euro; compute the U.S. balance sheet amount for accumulated depreciation for 2021.

Levinson Co. established a subsidiary in Mexico on January 1, 2021. The subsidiary engaged in the following transactions during 2021: Levinson concluded that the subsidiary's functional currency was the dollar. Exchange rates for 2021 were: What amount of foreign exchange gain or loss would have been recognized in Levinson's consolidated income statement for 2021?

Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1, 2020. Selected account balances are available for the year ended December 31, 2021, and are stated in Euro, the local currency. Relevant exchange rates for 1 Euro are given below: Assume the functional currency is the Euro; compute the U.S. income statement amount for depreciation expense for 2021.

What is a company's functional currency?

Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1, 2020. Selected account balances are available for the year ended December 31, 2021, and are stated in Euro, the local currency. Relevant exchange rates for 1 Euro are given below: Assume the functional currency is the U.S. Dollar; compute the U.S. balance sheet amount for equipment for 2021.

A foreign subsidiary uses the first-in first-out inventory method. The following inventory balances are given at December 31, 2021 in local currency units (LCU): The following exchange rates are given for 2021: Compute the December 31, 2021, inventory balance using the lower of cost or net realizable value method under the temporal method.

Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1, 2020. Selected account balances are available for the year ended December 31, 2021, and are stated in Euro, the local currency. Relevant exchange rates for 1 Euro are given below: Assume the functional currency is the U.S. Dollar; compute the U.S. income statement amount for sales for 2021.

Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2021 by acquiring all of the common stock for §50,000 Stickles, the local currency. This subsidiary immediately borrowed §120,000 on a five-year note with ten percent interest payable annually beginning on January 1, 2022. A building was then purchased for §170,000 on January 1, 2021. This property had a ten-year anticipated life and no salvage value and was to be depreciated using the straight-line method. The building was immediately rented for three years to a group of local doctors for §6,000 per month. By year-end, payments totaling §60,000 had been received. On October 1, §5,000 were paid for a repair made on that date and it was the only transaction of this kind for the year. A cash dividend of §6,000 was transferred back to Ginvold on December 31, 2021. The functional currency for the subsidiary was the Stickle (§). Currency exchange rates were as follows: Prepare a statement of retained earnings for this subsidiary in stickles and then translate the amounts into U.S. dollars.