Exam 14: Foreign Currency Financial Statements

A foreign subsidiary's foreign currency statements must conform with the U.S.GAAP before translated into U.S.dollars.

At the time of a business acquisition,

Gains and losses from foreign currency transactions which are designated as economic hedges of a net investment in a foreign subsidiary are recorded as translation adjustments of stockholder's equity.

On January 1,2014,Placid Corporation acquired a 40% interest in Superior Industries,a Canadian Corporation,for $811,900 when Superior's stockholders' equity consisted of 1,000,000 Canadian dollars (C$)capital stock and C$500,000 retained earnings.Superior's functional currency is the Canadian dollar and the books are kept in the same currency.The exchange rate at the time of the purchase was $1.15 per Canadian dollar.Any excess allocated to patents is to be amortized over 10 years.A summary of changes in the stockholders' equity of Superior during 2014 and related exchange rates follows: Required: Determine the following: 1.Fair value of the patent from Placid's investment in Superior on January 1,2014 in U.S.dollars 2.Patent amortization for 2014 in U.S.dollars 3.Unamortized patent at December 31,2014 in U.S.dollars 4.Equity adjustment from the patent in U.S.dollars 5.Income from Superior for 2014 in U.S.dollars 6.Investment in Superior balance at December 31,2014 in U.S.dollars

A foreign entity is a subsidiary of a U.S.parent company and has always used the current rate method to translate its foreign financial statements on behalf of its parent company.Which one of the following statements 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

Pan Corporation,a U.S.company,formed a British subsidiary on January 1,2014 by investing 450,000 British pounds (£)in exchange for all of the subsidiary's no-par common stock.The British subsidiary,Skillet Corporation,purchased real property on April 1,2014 at a cost of £500,000,with £100,000 allocated to land and £400,000 allocated to a building.The building is depreciated over a 40-year estimated useful life on a straight-line basis with no salvage value.The British pound is Skillet's functional currency and its reporting currency.The British economy does not have high rates of inflation.Exchange rates for the pound on various dates were: Skillet's adjusted trial balance is presented below for the year ended December 31,2014. Debits: Credits Required: Prepare Skillet's: 1.Translation working papers; 2.Translated income statement; and 3.Translated balance sheet.

Pew Corporation (a U.S.corporation)acquired all of the stock of Skunk Company (a Brazilian company)on January 1,2014 for $9,300,000 when Skunk had 10,000,000 Brazilian real (BR)capital stock and 5,000,000 BR retained earnings.The book value of Skunk's net assets equaled the fair value on this date,and any cost/book value differential is due to a patent with a 5-year remaining useful life.Skunk's functional currency is the BR.Skunk's books are maintained in the functional currency.The exchange rates for BR's for 2014 are shown below: Required: 1.Calculate the patent value from the business combination on January 1,2014 in U.S.dollars. 2.Calculate the patent amortization in U.S.dollars for 2014. 3.Prepare the journal entry (in U.S.dollars)required on Pew's books to record the patent amortization for 2014,assuming that Pew accounts for Skunk using the equity method.

When the functional currency of a foreign entity is the U.S.dollar,the foreign entity's accounts are remeasured into its U.S.dollar functional currency.

For foreign subsidiaries whose functional currency is not the parent's reporting currency the current rate method is used to translate assets and liabilities using the exchange rate on the balance sheet date.

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

Under the temporal method monetary assets and liabilities are remeasured at historical rates and other assets and equities are remeasured at current exchange rates.

Exchange gains or losses from remeasurement appear

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

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

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

Each of the following accounts has been converted to U.S.dollars from a foreign subsidiary's financial statements.Based on the information given,determine if the U.S.dollar or a foreign currency is the functional currency of the subsidiary. 2.Marketable debt securities carried at cost were 3.Depreciation Expense was converted at the historical 4.Inventories carried at their historical cost were converted 5.Intangible assets were converted at the historical exchange 6.Deferred income tax liability was converted at the 7.Property,Plant and Equipment were converted 8.Accounts Payable was converted at the year-end 9.Patents were converted at the exchange rate in place at 10.Accumulated depreciation on buildings was converted

Pelmer has a foreign subsidiary,Sapp Corporation of Germany,whose functional currency is the euro.Sapp's books are maintained in euros.On December 31,2014,Sapp has an account receivable denominated in British pounds.Which one of the following statements is true?

Functional currency is the currency of the primary economic environment in which it operates.

Stripe Corporation,a British subsidiary of Polka Corporation (a U.S.company)was formed by Polka on January 1,2014 in exchange for all of the subsidiary's common stock.Stripe has now ended its second year of operations on December 31,2015.Relevant exchange rates are: January 01,2014 = 1£ = $1.60 April 01,2014 = 1£ = $1.62 December 31,2015 = 1£ = $1.57 2015 average rate = 1£ = $1.56 Stripe's adjusted trial balance is presented below for the calendar year 2015. $\text { In Pounds }$ Debits: Cash £172,000 Accounts receivable 308,000 Notes receivable 98,000 Building 400,000 Land 100,000 Depreciation expense 10,000 Other expenses 117,000 Salary expense Total debits Credits Accumulated depreciation £17,500 Accounts payable 200,000 Common stock 550,000 Retained earnings 213,500 Sales revenue Total credits £1,581,000 Required: Prepare Stripe's: 1.Remeasurement working papers; 2.Remeasured income statement; and 3.Remeasured balance sheet.