Exam 10: Translation of Foreign Currency Financial Statements

A U.S. company's foreign subsidiary had the following amounts in stickles (§), the functional currency, 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 nation for the subsidiary had a highly inflationary economy, at what amount should that foreign subsidiary's purchases have been reflected in the 2021 U.S. dollar income statement?

Perkle Co. owned a subsidiary in Belgium; the subsidiary's functional currency was the Belgian franc. During 2021, 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?

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 that Boerkian was a foreign subsidiary of a U.S. multinational company and the stickle (§) was the functional currency of the subsidiary. Calculate the translation adjustment for this subsidiary for 2021 and state whether this is a positive or a negative adjustment.

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

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 ending inventory for 2021 under the temporal method.

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 current rate method.

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 current rate method.

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 U.S. dollar is the functional currency. On the December 31, 2021 balance sheet, what was the remeasured value of the Land account?

If a subsidiary is operating in a highly inflationary economy, how are the financial statements to be restated?

A U.S. company's foreign subsidiary had the following amounts in stickles (§), the functional currency, in 2021: The average exchange rate during 2021 was §1 = $0.98. The beginning inventory was acquired when the exchange rate was §1 = $1.18. The ending inventory was acquired when the exchange rate was §1 = $0.92. The exchange rate at December 31, 2021 was §1 = $0.82. At what amount should the foreign subsidiary's cost of goods sold have been reflected in the 2021 U.S. dollar income statement?

Contrast the purpose of remeasurement with the purpose of translation.

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 cash flows for this subsidiary in stickles and then translate the amounts into U.S. dollars.

Under what circumstances would the remeasurement of a foreign subsidiary's financial statements be required?

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 translated by its U.S. parent. What amount of gain or loss would be reported in its translated income statement?

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?

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

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

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 cost of goods sold on Dunder's consolidated income statement at December 31, 2021?

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

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. statement of retained earnings amount for dividends for 2021.