Exam 14: Foreign Currency Financial Statements

Pritt Company purchased all the outstanding stock of Standy Company (a manufacturing company in Argentina)when the book value of Standy's net assets equaled their fair value.Standy's summarized balance sheet is shown below on January 1,2014,the date of acquisition,and on December 31,2014,when the exchange rates were $.25 and $.20,respectively.The average exchange rate for 2014 was $.23,and Standy paid dividends in 2014 amounting to 300,000 pesos when the exchange rate was $.21. Required: If Standy's functional currency and reporting currency are the Argentine peso,compute the change to other comprehensive income that would result from the translation of these financial statements at December 31,2014.

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?

Plato Corporation,a U.S.company,purchases all of the outstanding stock of Socrates Company,which operates outside the U.S.on January 1,2014.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 1,2014 immediately following the business combination.

Accounts representing an allowance for uncollectible accounts are converted into U.S.dollars at

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

Exchange gains or losses from remeasurement appear

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

At the time of a business acquisition,

Which of the following foreign subsidiary accounts will have the same value on consolidated financial statements,regardless of whether the statements are remeasured or translated?

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

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 a continuation of Exercise 3 and proceeds forward with Skillet's second year of operations. Skillet Corporation,a British subsidiary of Pan Corporation (a U.S.company)was formed by Pan on January 1,2014 in exchange for all of the subsidiary's common stock.Skillet has now ended its second year of operations on December 31,2015.Relevant exchange rates are: Skillet's adjusted trial balance is presented below for the calendar year 2015.The amount of equity adjustment carried over from 2014 is a credit balance of $41,250 (in dollars). Required: For Skillet's second year of operations,prepare the: 1.Translation working papers; 2.Translated income statement;and 3.Translated balance sheet.

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

On January 1,2014,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 2014 are: Required: 1.Determine the depreciation expense on the excess allocated to equipment for 2014 in U.S.dollars. 2.Determine the unamortized excess allocated to equipment on December 31,2014 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 2014?

Plane Corporation,a U.S.company,owns 100% of Shipp Corporation,a Libyan company.Shipp's equipment was acquired on the following dates (amounts are stated in Libyan dinars): Jan.01,2014 Purchased equipment for 40,000 dinars Jul.01,2014 Purchased equipment for 80,000 dinars Jan.01,2015 Purchased equipment for 50,000 dinars Jul.01,2015 Sold equipment purchased on Jan.01,2014 for 35,000 dinars Exchange rates for the Libyan dinars on various dates are: Shipp's equipment has an estimated 5-year life with no salvage value and is depreciated using the straight-line method,calculating depreciation expense on a monthly basis.Shipp's functional currency is the U.S.dollar,but the company uses the Libyan dinar as its reporting currency. Required: 1.Determine the value of Shipp's equipment account on December 31,2015 in U.S.dollars. 2.Determine Shipp's depreciation expense for 2015 in U.S.dollars. 3.Determine the gain or loss from the sale of equipment on July 1,2015 in U.S.dollars.

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.01,2014 Purchased equipment for NZ$40,000 Jul.01,2014 Purchased equipment for NZ$80,000 Jan.01,2015 Purchased equipment for NZ$50,000 Jul.01,2015 Sold equipment purchased on Jan.01,2014 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 31,2015 in U.S.dollars. 2.Determine Sera's depreciation expense for 2015 in U.S.dollars. 3.Determine the gain or loss from the sale of equipment on July 1,2015 in U.S.dollars.

Par Industries,a U.S.Corporation,purchased Slice Company of New Zealand for $1,411,800 on January 1,2014.Slice's functional currency is the New Zealand dollar (NZ$).Slice's books are kept in NZ$.The book values of Slice's assets and liabilities were equal to fair values,with the exception of land which was valued at NZ$1,300,000.Slice's balance sheet appears below: Relevant exchange rates are shown below: January 1,2014 1 NZ$ = $0.78 Average rate 2014 1 NZ$ = $0.79 December 31,2014 1 NZ$ = $0.80 Required: Determine the unrealized translation gain or loss at December 31,2014 relating to the excess allocated to the undervalued land.

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

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