Exam 8: Translation of Foreign Currency Financial Statements

Certain balance sheet accounts of a foreign subsidiary of Parker Company at December 31, 2013, have been restated into U.S. dollars as follows: Restated at Current Rates Historical Rates Cash \ 47,500 \ 45,000 Accounts receivable 95,000 90,000 Inventory, at market 76,000 72,000 Land 57,000 54,000 Equipment (net) 135,000 Total \ 418,000 \ 396,000 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, 2013, for the above items?

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 2013: Compute the cost of goods sold for 2013 in U.S. dollars using the current rate method.

Kennedy Company acquired all of the outstanding common stock of Hastie Company of Canada for U.S. $350,000 on January 1, 2013, when the exchange rate for the Canadian dollar (CAD) was U.S. $.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, 2013, Hastie's trial balance net income was translated at U.S. $25,000. The average exchange rate for the Canadian dollar during 2013 was U.S. $.68, and the 2013 year-end exchange rate was U.S. $.65. Calculate the U.S. dollar amount allocated to the patent at January 1, 2013.

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

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

Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1, 2012. Selected account balances are available for the year ended December 31, 2013, and are stated in Euro, the local currency. Sales 400,000 Inventory (bought on February 1, 2013) 20,000 Equipment (bought on January 1, 2012) 90,000 Dividends (paid on September 1, 2013) 20,000 Accumulated depreciation - Equipment 12/31/13 45,000 Depreciation expense - Equipment, 2013 9,000 $\text { Relevant exchange rates for } 1 \text { Euro are given below: }$ January 1, 2012 \ .91 January 1, 2013 .93 February 1, 2013 .94 September 1, 2013 .97 December 31, 2013 1.01 4 th quarter average, 2012 .90 4 th quarter average, 2013 .98 Average, 2013 .95 Assume the functional currency is the Euro; compute the U.S. balance sheet amount for accumulated depreciation for 2013.

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, 2012, for §120,000 that was sold on January 17, 2013 for §156,000. The subsidiary paid for the inventory on January 31, 2013. Currency exchange rates between the dollar and the Stickle were as follows: What amount would have been reported for cost of goods sold on Porter's consolidated income statement at December 31, 2013?

Certain balance sheet accounts of a foreign subsidiary of Parker Company at December 31, 2013, have been restated into U.S. dollars as follows: Restated at Current Rates Historical Rates Cash \ 47,500 \ 45,000 Accounts receivable 95,000 90,000 Inventory, at market 76,000 72,000 Land 57,000 54,000 Equipment (net) 135,000 Total \ 418,000 \ 396,000 If the current rate used to restate these amounts is $.95, what was the average historical rate used to arrive at the total amount for historical rates?

Gunther Co. established a subsidiary in Mexico on January 1, 2013. The subsidiary engaged in the following transactions during 2013: What amount of foreign exchange gain or loss would have been recognized in Gunther's consolidated income statement for 2013?

Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1, 2012. Selected account balances are available for the year ended December 31, 2013, and are stated in Euro, the local currency. Sales 400,000 Inventory (bought on February 1, 2013) 20,000 Equipment (bought on January 1, 2012) 90,000 Dividends (paid on September 1, 2013) 20,000 Accumulated depreciation - Equipment 12/31/13 45,000 Depreciation expense - Equipment, 2013 9,000 $\text { Relevant exchange rates for } 1 \text { Euro are given below: }$ January 1, 2012 \ .91 January 1, 2013 .93 February 1, 2013 .94 September 1, 2013 .97 December 31, 2013 1.01 4 th quarter average, 2012 .90 4 th quarter average, 2013 .98 Average, 2013 .95 Assume the functional currency is the U.S. Dollar; compute the U.S. statement of retained earnings amount for dividends for 2013.

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 2013: Compute ending inventory for 2013 under the current rate method.

When preparing a consolidation worksheet for a parent and its foreign subsidiary accounted for under the equity method, which of the following statements is false?

Where is the disposition of a translation loss reported in the parent company's financial statements?

Certain balance sheet accounts of a foreign subsidiary of Parker Company at December 31, 2013, have been restated into U.S. dollars as follows: Restated at Current Rates Historical Rates Cash \ 47,500 \ 45,000 Accounts receivable 95,000 90,000 Inventory, at market 76,000 72,000 Land 57,000 54,000 Equipment (net) 135,000 Total \ 418,000 \ 396,000 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, 2013, for the above items?

Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2013 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, 2014. A building was then purchased for §170,000 on January 1, 2013. 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, 2013. The functional currency for the subsidiary was the Stickle (§). Currency exchange rates were as follows: January 1,2013 \S1=\ 2.40 October 1,2013 \S1=\ 2.22 Average for 2013 \S1=\ 2.28 December 31,2013 \S1=\ 2.16 Prepare a balance sheet for this subsidiary in stickles and then translate the amounts into U.S. dollars.

What is the justification for the remeasurement of foreign currency transactions?

A U.S. company's foreign subsidiary had the following amounts in stickles (§), the functional currency, in 2013: Cost of goods sold \S12,000,000 Ending inventory 600,000 Beginning inventory 240,000 The average exchange rate during 2013 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, 2013 was §1 = $.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 2013 U.S. dollar income statement?

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, 2013. The equipment was purchased on January 1, 2012. Relevant exchange rates for the peso are as follows: January 1,2012 \ .110 March 1,2013 .106 December 31,2013 .102 Average, 2013 .105 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?

Which accounts are translated using current exchange rates?

Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2013 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, 2014. A building was then purchased for §170,000 on January 1, 2013. 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, 2013. The functional currency for the subsidiary was the Stickle (§). Currency exchange rates were as follows: January 1,2013 \S1=\ 2.40 October 1,2013 \S1=\ 2.22 Average for 2013 \S1=\ 2.28 December 31,2013 \S1=\ 2.16 Prepare a statement of cash flows for this subsidiary in stickles and then translate the amounts into U.S. dollars.