Exam 10: Translation of Foreign Currency Financial Statements

REFERENCE: Ref.10_05 A subsidiary of Porter Inc. ,a U.S.company,was located in a foreign country.The functional currency of this subsidiary was the stickle (§).The subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows: -Under the current rate method,property,plant & equipment would be restated at what rate?

REFERENCE: Ref.10_04 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 should have been included in Tulip's balance sheet for the items above?

REFERENCE: Ref.10_12 Ginvold Co.began operating a subsidiary in a foreign country on January 1,2008 by acquiring all of the common stock for §50,000.This subsidiary immediately borrowed §120,000 on a five-year note with ten percent interest payable annually beginning on January 1,2008.A building was then purchased for §170,000.This property had a ten-year anticipated life and no salvage value and was to be depreciated using the straight-line method.The building was immediately rented for three years to a group of local doctors for §6,000 per month.By year-end,payments totaling §60,000 had been made.On October 1,§5,000 were paid for a repair made on that date.A cash dividend of §6,000 was transferred back to Ginvold on December 31,2008.The functional currency for the subsidiary was the stickle.Currency exchange rates were as follows: SHAPE \* MERGEFORMAT -Prepare a balance sheet for this subsidiary in stickles and then translate these amounts into U.S.dollars.

REFERENCE: Ref.10_05 A subsidiary of Porter Inc. ,a U.S.company,was located in a foreign country.The functional currency of this subsidiary was the stickle (§).The subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows: -Under the current rate method,common stock would be restated at what rate?

What is a company's functional currency?

REFERENCE: Ref.10_05 A subsidiary of Porter Inc. ,a U.S.company,was located in a foreign country.The functional currency of this subsidiary was the stickle (§).The subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows: -A historical exchange rate for a foreign subsidiary is best described as

REFERENCE: Ref.10_05 A subsidiary of Porter Inc. ,a U.S.company,was located in a foreign country.The functional currency of this subsidiary was the stickle (§).The subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows: -A net asset balance sheet exposure exists and the foreign currency depreciates.Which of the following statements is true?

REFERENCE: Ref.10_05 A subsidiary of Porter Inc. ,a U.S.company,was located in a foreign country.The functional currency of this subsidiary was the stickle (§).The subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows: -When consolidating a foreign subsidiary,which of the following statements is true?

REFERENCE: Ref.10_02 Darron Co.was formed on January 1,2009 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 2007: SHAPE \* MERGEFORMAT -What was the amount of the translation adjustment for 2009?

REFERENCE: Ref.10_09 Certain balance sheet accounts of a foreign subsidiary of Parker Company at December 31,2008,have been restated into U.S.dollars as follows: SHAPE \* MERGEFORMAT -Assuming the functional currency of the subsidiary is the U.S.dollar,what total should be included in Parker's consolidated balance sheet at December 31,2008,for the above items?

REFERENCE: Ref.10_01 Westmore,Ltd.is a British subsidiary of a U.S.company.Westmore's functional currency is the pound sterling.The following exchange rates were in effect during 2008: -Westmore reported sales of £1,500,000 during 2008.What amount (rounded)would have been included for this subsidiary in calculating consolidated sales?

REFERENCE: Ref.10_05 A subsidiary of Porter Inc. ,a U.S.company,was located in a foreign country.The functional currency of this subsidiary was the stickle (§).The subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows: -If a subsidiary is operating in a highly inflationary economy,how are the financial statements to be restated?

In accounting,the term translation refers to

REFERENCE: Ref.10_05 A subsidiary of Porter Inc. ,a U.S.company,was located in a foreign country.The functional currency of this subsidiary was the stickle (§).The subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows: -Which method of translating a foreign subsidiary's financial statements is correct?

REFERENCE: Ref.10_11 Quadros Inc. ,a Portugese firm was acquired by a U.S.company on January 1,2007.Selected account balances are available for the year ended December 31,2008,and are stated in euro,the local currency. SHAPE \* MERGEFORMAT -Assume the functional currency is the U.S.dollar,compute the restated amount for equipment for 2008.

Contrast the purpose of remeasurement with the purpose of translation.

REFERENCE: Ref.10_03 Dilty Corp.owned a subsidiary in France.Dilty concluded that the subsidiary's functional currency was the U.S.dollar. -Which one of the following statements would justify this conclusion?

REFERENCE: Ref.10_05 A subsidiary of Porter Inc. ,a U.S.company,was located in a foreign country.The functional currency of this subsidiary was the stickle (§).The subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows: -Under the temporal method,depreciation expense would be restated at what rate?

REFERENCE: Ref.10_12 Ginvold Co.began operating a subsidiary in a foreign country on January 1,2008 by acquiring all of the common stock for §50,000.This subsidiary immediately borrowed §120,000 on a five-year note with ten percent interest payable annually beginning on January 1,2008.A building was then purchased for §170,000.This property had a ten-year anticipated life and no salvage value and was to be depreciated using the straight-line method.The building was immediately rented for three years to a group of local doctors for §6,000 per month.By year-end,payments totaling §60,000 had been made.On October 1,§5,000 were paid for a repair made on that date.A cash dividend of §6,000 was transferred back to Ginvold on December 31,2008.The functional currency for the subsidiary was the stickle.Currency exchange rates were as follows: SHAPE \* MERGEFORMAT -Prepare a statement of cash flows for this subsidiary in stickles and then translate these amounts into U.S.dollars.

A foreign subsidiary was purchased on January 1,2008.Determine the exchange rate used to restate the following accounts at December 31,2008.Land was purchased on October 1,2008.Relevant exchange dates follow: (A)January 1,2008 (B)October 1,2008 (C)December 31,2008 (D)Average,2008 (E)Composite,using multiple dates. Identify the exchange rate used to translate items 1-5: ____ 1.Land. ____ 2.Equipment. ____ 3.Bonds payable. ____ 4.Common stock. ____ 5.Retained earnings. Identify the exchange rate used to remeasure the items 6-10: ____ 6.Land. ____ 7.Equipment. ____ 8.Bonds payable. ____ 9.Common stock. ____ 10.Retained earnings.