Exam 8: Translation of Foreign Currency Financial Statements

Boerkian Co. started 2013 with two assets: Cash of §26,000 (Stickles) and Land that originally cost §72,000 when acquired on April 4, 2010. On May 1, 2013, the company rendered services to a customer for §36,000, an amount immediately paid in cash. On October 1, 2013, 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: April 4,2010 \S1=\ .28 January 1,2013 \S1=\ .29 May 1,2013 \S1=\ .30 October 1,2013 \S1=\ .31 December 31,2013 \S1=\ .35 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, 2013 balance sheet, what was the remeasured value of the Land account?

Under the temporal method, retained earnings would be remeasured at what rate?

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. At what amount should the foreign subsidiary's cost of goods sold have been reflected in the 2013 U.S. dollar income statement?

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 inventory at December 31, 2013.

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. Amortization of the patent, translated, for 2013 would be

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 inventory, at cost, for 2013.

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

Perkle Co. owned a subsidiary in Belgium; the subsidiary's functional currency was the Belgian franc. During 2013, 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?

Farley Brothers, a U.S. company, had a subsidiary in Italy. Under what conditions would the U.S. dollar be the functional currency for this subsidiary?

Boerkian Co. started 2013 with two assets: Cash of §26,000 (Stickles) and Land that originally cost §72,000 when acquired on April 4, 2010. On May 1, 2013, the company rendered services to a customer for §36,000, an amount immediately paid in cash. On October 1, 2013, 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: April 4,2010 \S1=\ .28 January 1,2013 \S1=\ .29 May 1,2013 \S1=\ .30 October 1,2013 \S1=\ .31 December 31,2013 \S1=\ .35 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, 2013 balance sheet, what was the translated value of the Land account?

When consolidating a foreign subsidiary, which of the following statements is true?

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

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. Kennedy's share of Hastie's net income for 2013 would be

What is a company's functional currency?

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 exchange rate should have been used in translating Darron's revenues and expenses for 2013?

Which accounts are remeasured using current exchange rates?

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

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

Under the current rate method, retained earnings would be translated at what rate?

Which method of remeasuring a foreign subsidiary's financial statements is correct?