Exam 10: Translation of Foreign Currency Financial Statements

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 -If the current rate used to restate these balances is $.95,what was the historical rate used to restate the same balances?

REFERENCE: Ref.10_10 Kennedy Company acquired all of the outstanding common stock of Hastie Company of Canada for US$350,000 on January 1,2009,when the exchange rate for the Canadian dollar was US$.70.The fair value of the net assets of Hastie was equal to their book value of C$450,000 (Canadian dollars)on the date of acquisition.Any excess cost over fair value was attributed to an unrecorded patent with a remaining life of five years.The functional currency of Hastie is the Canadian dollar. For the year ended December 31,2009,Hastie's translated net income was $25,000.The average exchange rate for the Canadian dollar during 2009 was US$.68,and the 2009 year-end exchange rate was US$.65. -Calculate the US$ amount allocated to the patent at January 1,2009.

REFERENCE: Ref.10_08 Perez Company,a Mexican subsidiary of a U.S.company,sold equipment costing 200,000 pesos with accumulated depreciation of 75,000 pesos for 140,000 pesos on March 1,2009.The equipment was purchased on January 1,2008,when the exchange rate for the peso was $.11.Relevant exchange rates for the peso are as follows: SHAPE \* MERGEFORMAT -The financial statements for Perez are translated by its U.S.parent.What amount of gain or loss would be reported in its translated income statement?

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: -Gunther Co.established a subsidiary in Mexico on January 1,2008.The subsidiary engaged in the following transactions during 2008: What amount of foreign exchange gain or loss would have been recognized on Gunther's consolidated income statement for 2008?

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 euro,compute the restated amount for dividends for 2008.

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 -Which accounts are remeasured using current exchange rates?

Perkle Co.owned a subsidiary in Belgium;the subsidiary's functional currency was the Belgian franc.During 2009,Perkle engaged in hedging transactions to offset part of the subsidiary's net asset position.How should the effects of exchange rate fluctuations on the currency hedge be accounted for?

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,common stock would be restated at what rate?

On January 1,2008,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 2008: SHAPE \* MERGEFORMAT Required: Calculate the translation adjustment for Malont.(Round your answers to the nearest whole dollar. )

REFERENCE: Ref.10_13 Boerkian Co.started 2008 with two assets: cash of §26,000 (stickles)and land that originally cost §72,000 when acquired on April 4,2004.On May 1,2008,the company rendered services to a customer for §36,000,an amount immediately paid in cash.On October 1,2008,the company incurred an operating expense of §22,000 that was immediately paid.No other transactions occurred during the year.Currency exchange rates were as follows: SHAPE \* MERGEFORMAT -Assume that Boerkian was a foreign subsidiary of a U.S.multinational company.On the December 31,2008 balance sheet,what was the remeasured value of the Land account?

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 retained earnings for this subsidiary in stickles and then translate these amounts into U.S.dollars.

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 sales for 2008.

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 highly inflationary economy is defined as

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 dividends for 2008.

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,inventory at market would be restated at what rate?

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

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,property,plant & equipment would be restated at what rate?

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,retained earnings would be restated at what rate?

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 preparing a consolidating statement of cash flows,which of the following statements is false?

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,how would cost of goods sold be restated?