Exam 14: Foreign Currency Financial Statements

Pelmer has a foreign subsidiary,Sapp Corporation of Germany,whose functional currency is the euro.Sapp's books are maintained in euros.On December 31,2011,Sapp has an account receivable denominated in British pounds.Which one of the following statements is true?

The following assets of Poole Corporation's Romanian subsidiary have been converted into U.S.dollars at the following exchange rates: Assume the functional currency of the subsidiary is the U.S.dollar and the books are kept in a different currency.The assets should be reported in the consolidated financial statements of Poole Corporation and Subsidiary in the total amount of

At the time of a business acquisition,

Which of the following assets and/or liabilities are considered monetary?

Phim Inc. ,a U.S.company,owns 100% of Sera Corporation,a New Zealand company.Sera's equipment was acquired on the following dates (amounts are stated in New Zealand dollars as NZ$): Jan.01,2011 Purchased equipment for NZ$40,000 Jul.01,2011 Purchased equipment for NZ$80,000 Jan.01,2012 Purchased equipment for NZ$50,000 Jul.01,2012 Sold equipment purchased on Jan.01,2011 for NZ$35,000 Exchange rates for the New Zealand dollar on various dates are: Sera's equipment has an estimated 5-year life with no salvage value and is depreciated using the straight-line method.Sera's functional currency and reporting currency are the New Zealand dollar. Required: 1.Determine the value of Sera's equipment account on December 31,2012 in U.S.dollars. 2.Determine Sera's depreciation expense for 2012 in U.S.dollars. 3.Determine the gain or loss from the sale of equipment on July 1,2012 in U.S.dollars.

All of the following factors would be used to define a foreign entity's functional currency,except

For each of the 12 accounts listed in the table below,select the correct exchange rate to use when either remeasuring or translating a foreign subsidiary for its U.S.parent company. Codes C = Current exchange rate H = Historical exchange rate A = Average exchange rate

Note to Instructor: This exam item is similar to Exercise 3 except that the exchange rates have been changed and the temporal method is used instead of the current rate method. The Polka Corporation,a U.S.corporation,formed a British subsidiary on January 1,2011 by investing 550,000 British pounds (£)in exchange for all of the subsidiary's no-par common stock.The British subsidiary,Stripe Corporation,purchased real property on April 1,2011 at a cost of £500,000,with £100,000 allocated to land and £400,000 allocated to the building.The building is depreciated over a 40-year estimated useful life on a straight-line basis with no salvage value.The U.S.dollar is Stripe's functional currency,but it keeps its records in pounds.The British economy does not experience high rates of inflation.Exchange rates for the pound on various dates are: Stripe's adjusted trial balance is presented below for the year ended December 31,2011. Required: Prepare Stripe's: 1.Remeasurement working papers; 2.Remeasured income statement;and 3.Remeasured balance sheet.

Which of the following statements about the Current Rate method is false?

A U.S.firm has a Belgian subsidiary that uses the British pound as its functional currency.According to GAAP,the U.S.dollar from Belgian unit's point of view will be

Exchange gains or losses from remeasurement appear

If a U.S.company wants to hedge a prospective loss on its investment in a foreign entity that may result from a foreign currency fluctuation,the U.S.company should

A foreign subsidiary's accounts receivable balance should be translated for the consolidated financial statements at

Plato Corporation,a U.S.company,purchases all of the outstanding stock of Socrates Company,which operates outside the U.S.on January 1,2011.Socrates' net assets have fair values that equal their book values with the exception of land that has a fair value of 200,000 foreign currency units and equipment with a fair value of 100,000 foreign currency units.Plato paid $180,000 for this acquisition.The balance sheets for Plato and Socrates are shown below just before the business combination.Socrates' functional currency is the foreign currency unit (fcu)and the exchange rate at the date of acquisition was $.40 per fcu.Socrates uses the fcu for record-keeping purposes. Required: Prepare a consolidated balance sheet for Plato and subsidiary at January 1,2011 immediately following the business combination.

Paskin Corporation's wholly-owned Canadian subsidiary has a Canadian dollar functional currency.In translating the subsidiary's account balances into U.S.dollars for reporting purposes,which one of the following accounts would be translated at historical exchange rates?

Assume the functional currency of a foreign entity is the U.S.dollar,but the books are kept in euros.The objective of remeasurement of a foreign entity's accounts is to

When translating foreign subsidiary income statements using the current rate method,why are some accounts translated at an average rate?

On January 1,2011,Paste Unlimited,a U.S.company,acquired 100% of Sticky Corporation of Italy,paying an excess of 112,500 euros over the book value of Sticky's net assets.The excess was allocated to undervalued equipment with a five year remaining useful life.Sticky's functional currency is the euro,and the books are kept in euros.Exchange rates for the euro for 2011 are: Required: 1.Determine the depreciation expense on the excess allocated to equipment for 2011 in U.S.dollars. 2.Determine the unamortized excess allocated to equipment on December 31,2011 in U.S.dollars. 3.If Sticky's functional currency was the U.S.dollar,what would be the depreciation expense on the excess allocated to the equipment for 2011?

Selvey Inc.is a wholly-owned subsidiary of Parsfield Incorporated,a U.S.firm.The country where Selvey operates is determined to have a highly inflationary economy according to GAAP definitions.Therefore,for purposes of preparing consolidated financial statements,the functional currency is