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: -What figure would have been reported for this inventory on Porter's consolidated balance sheet at December 31,2008?

REFERENCE: Ref.10_06 The following account balances are available for Esposito,an Italian U.S.subsidiary for 2009: SHAPE \* MERGEFORMAT -Compute the cost of goods sold for 2009 in U.S.dollars using the temporal method.

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 liability balance sheet exposure exists and the foreign currency depreciates.Which of the following statements is true?

What exchange rate should be used to translate (a)revenues and expenses that occur throughout the year and (b)a gain or loss that occurs on a specific day?

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,how would cost of goods sold be restated?

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 inventory for 2008.

According to SFAS 52,which method is usually required for translating a foreign subsidiary's financial statements into the parent's reporting currency?

REFERENCE: Ref.10_06 The following account balances are available for Esposito,an Italian U.S.subsidiary for 2009: SHAPE \* MERGEFORMAT -Compute the cost of goods sold for 2009 in U.S.dollars using the current rate method.

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 an income statement 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: -Which method of remeasuring a foreign subsidiary's financial statements is correct?

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 -Required: Assume that Boerkian was a foreign subsidiary of a U.S.multinational company.On the December 31,2008 balance sheet,what was the translated value of the Land account?

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. -Kennedy's share of Hastie's net income for 2009 would be

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 (1)that Boerkian was a foreign subsidiary of a U.S.multinational company that used the U.S.dollar as its reporting currency and (2)that the U.S.dollar was the functional currency of the subsidiary.What was the remeasurement gain or loss for 2008?

On January 1,2008,Fandu Corp.started a foreign subsidiary.On April 1,2008,the subsidiary purchased inventory costing 150,000 stickles.One-fourth of this inventory remained unsold at the end of 2008 while 40% of the liability from the purchase had not yet been paid.The pertinent exchange rates were: SHAPE \* MERGEFORMAT Required: What should have been the December 31,2008 inventory and accounts payable balances for this foreign subsidiary as translated into U.S.dollars? (Round your answers to the nearest whole dollar. )

REFERENCE: Ref.10_03 Dilty Corp.owned a subsidiary in France.Dilty concluded that the subsidiary's functional currency was the U.S.dollar. -What must Dilty do to ready the subsidiary's financial statements for consolidation?

Farley Brothers,a U.S.company,had a subsidiary in Italy.Under what conditions would the U.S.dollar be the functional currency for this subsidiary?

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. -Amortization of the patent,translated,for 2009 would be

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 -For a foreign subsidiary that uses the US dollar as its functional currency,what translation method is required?

A foreign subsidiary of a U.S.corporation purchased equipment on January 4,2005. (A. )How would depreciation expense on the equipment be translated for 2008? (B. )How would depreciation expense on the equipment be remeasured for 2008?

What is the justification for the remeasurement of foreign currency transactions?