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 Euro; compute the U.S. income statement amount for depreciation expense for 2013.

A U.S. company's foreign subsidiary had the following amounts in stickles (§) in 2013: 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 country had a highly inflationary economy, at what amount should the foreign subsidiary's cost of goods sold have been reflected in the 2013 U.S. dollar income statement?

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

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. Statement of Retained Earnings amount reported for Dividends in 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. income statement amount for depreciation expense for 2013.

Under the temporal method, inventory at market would be remeasured at what rate?

Contrast the purpose of remeasurement with the purpose of translation.

In accounting, the term translation refers to

In translating a foreign subsidiary's financial statements, what exchange rate should be used for the subsidiary's revenues and expenses?

A foreign subsidiary of a U.S. corporation purchased equipment on January 4, 2010. (A.) How would depreciation expense on the equipment be translated for 2013? (B.) How would depreciation expense on the equipment be remeasured for 2013?

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?

What exchange rate would be used to translate the asset and liability account balances of a foreign subsidiary? What justification can be given for using this exchange rate?

A historical exchange rate for common stock of a foreign subsidiary is best described as

Under the temporal method, how would cost of goods sold be remeasured?

The translation adjustment from translating a foreign subsidiary's financial statements should be shown as

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

On January 1, 2013, Veldon Co., a U.S. corporation with the U.S. dollar as its functional currency, established Malont Co. as a subsidiary. Malont is located in the country of Sorania, and its functional currency is the stickle (§). Malont engaged in the following transactions during 2013: Required: Calculate the translation adjustment for Malont. (Round your answers to the nearest whole dollar.)