Exam 8: Translation of Foreign Currency Financial Statements

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. balance sheet amount for equipment for 2013.

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

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?

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 2013: Westmore reported sales of £1,500,000 during 2013. What amount (rounded) would have been included for this subsidiary in calculating consolidated sales?

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 foreign subsidiary uses the first-in first-out inventory method. The following inventory balances are given at December 31, 2013 in local currency units (LCU): Compute the December 31, 2013, inventory balance using the lower of cost or market method under the temporal method.

Sinkal Co. was formed on January 1, 2013 as a wholly owned foreign subsidiary of a U.S. corporation. Sinkal's functional currency was the stickle (§). The following transactions and events occurred during 2013: What was the amount of the translation adjustment for 2013?

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

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?

A highly inflationary economy is defined as

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. income statement amount for sales for 2013.

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

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

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

Darron Co. was formed on January 1, 2013 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 2013: What was the amount of the translation adjustment for 2013?

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

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

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 an income statement for this subsidiary in stickles and then translate these amounts into U.S. dollars.

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

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