Exam 10: Translation of Foreign Currency Financial Statements

A subsidiary of Dunder Inc., a U.S. company, was located in a foreign country. The functional currency of this subsidiary was the Stickle (§) which is the local currency where the subsidiary is located. The subsidiary acquired inventory on credit on November 1, 2020, for §160,000 that was sold on January 17, 2021 for §207,000. The subsidiary paid for the inventory on January 31, 2021. Currency exchange rates between the dollar and the Stickle were as follows: What amount would have been reported for this inventory in Dunder's consolidated balance sheet at December 31, 2020?

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

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 depreciation expense for 2021.

Under the current rate method, which accounts are translated using current exchange rates?

A U.S. company's foreign subsidiary had the following amounts in stickles (§) in 2021: The average exchange rate during 2021 was §1 = $0.96. The beginning inventory was acquired when the exchange rate was §1 = $1.20. The ending inventory was acquired when the exchange rate was §1 = $0.90. The exchange rate at December 31, 2021 was §1 = $0.84. 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 2021 U.S. dollar income statement?

What is the basic objective underlying the temporal method?

A foreign subsidiary of a U.S. corporation purchased equipment on January 4, 2021.(A.) How would depreciation expense on the equipment be translated for 2021?(B.) How would depreciation expense on the equipment be remeasured for 2021?

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, 2021. The equipment was purchased on January 1, 2020. Relevant exchange rates for the peso are as follows: 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 subsidiary of Reynolds Inc., a U.S. company, was located in a foreign country. The local currency of this subsidiary was the Euro (€) while the functional currency of this subsidiary was the U.S. dollar. The subsidiary acquired Equipment A on January 1, 2018, for €250,000. Depreciation expense associated with Equipment A was €25,000 per year. On January 1, 2020, the subsidiary acquired Equipment B for €150,000 and Equipment B had associated depreciation expense of €10,000. The subsidiary owned no other depreciable assets. Currency exchange rates between the U.S. dollar and the Euro were as follows: What amount would have been reported for depreciation expense related to the equipment owned by the subsidiary in Reynolds's consolidated balance sheet at December 31, 2018?

Esposito is an Italian subsidiary of a U.S. company.Esposito's ending inventory is valued at the average cost for the last quarter of the year.The following account balances are available for Esposito for 2021: Relevant exchange rates follow: Compute the cost of goods sold for 2021 in U.S. dollars using the temporal method.

A subsidiary of Reynolds Inc., a U.S. company, was located in a foreign country. The local currency of this subsidiary was the Euro (€) while the functional currency of this subsidiary was the U.S. dollar. The subsidiary acquired Equipment A on January 1, 2018, for €250,000. Depreciation expense associated with Equipment A was €25,000 per year. On January 1, 2020, the subsidiary acquired Equipment B for €150,000 and Equipment B had associated depreciation expense of €10,000. The subsidiary owned no other depreciable assets. Currency exchange rates between the U.S. dollar and the Euro were as follows: What amount would have been reported for total equipment owned by the subsidiary in Reynolds's consolidated balance sheet at December 31, 2020?

Which method of translating a foreign subsidiary's financial statements is correct if it is assumed that the parent's net investment is exposed to foreign exchange risk?

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

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

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. Statement of Retained Earnings amount reported for Dividends in 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: If the current rate used to restate these amounts is $0.95, what was the average historical rate used to arrive at the total amount for historical rates?

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.Compute the amount of the patent reported in the consolidated balance sheet at December 31, 2021.

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: Assume Boerkian was a foreign subsidiary of a U.S. multinational company and the U.S. dollar was the functional currency of the subsidiary. Prepare a schedule of changes in the net monetary assets of Boerkian for the year 2021 and properly label the resulting gain or loss.

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 equipment for 2021.

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