Exam 10: Translation of Foreign Currency Financial Statements

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. -Compute the amount of the patent reported on the consolidated balance sheet at December 31,2009.

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 a foreign currency is the functional currency of this subsidiary,what total should have been included in Tulip's balance sheet for the preceding items?

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 exchange rate should have been used in translating Darron's revenues and expenses for 2009?

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 depreciation expense 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,depreciation expense would be restated at what rate?

Under what circumstances would the translation of a foreign subsidiary's financial statements not be required?

In translating a foreign subsidiary's financial statements,which exchange rate does the current method require for the subsidiary's assets and liabilities?

REFERENCE: Ref.10_06 The following account balances are available for Esposito,an Italian U.S.subsidiary for 2009: SHAPE \* MERGEFORMAT -Compute ending inventory for 2009 under 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 asset balance sheet exposure exists and the foreign currency appreciates.Which of the following statements is true?

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 accumulated depreciation 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 temporal method,inventory at market would be restated at what rate?

When translating Quadros' financial statements,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: -What figure would have been reported for cost of goods sold on Porter's consolidated income statement at December 31,2009?

REFERENCE: Ref.10_07 The following inventory balances for 2008 in local currency units (LCU)are given: SHAPE \* MERGEFORMAT -Compute the December 31,2008,inventory balance using the lower of cost or market method under 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: -How is the disposition of the remeasurement gain or loss reported on the parent company's financial statements?

How can a parent corporation determine the functional currency for a foreign subsidiary that conducts business in more than one country?

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 accumulated depreciation for 2008.

REFERENCE: Ref.10_07 The following inventory balances for 2008 in local currency units (LCU)are given: SHAPE \* MERGEFORMAT -Compute the December 31,2008,inventory balance using the current rate method.

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: -On December 31,Westmore had accounts receivable of £280,000.What amount (rounded)would have been included for this subsidiary in calculating consolidated accounts receivable?

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 equipment for 2008.