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: -A net liability balance sheet exposure exists and the foreign currency appreciates.Which of the following statements is true?

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 current rate method.

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 remeasured by its U.S.parent.What amount of gain or loss would be reported in its translated income statement?

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 U.S.company's foreign subsidiary had the following amounts in stickles (§)in 2009: The average exchange rate during 2009 was §1 = $.96.The beginning inventory was acquired when the exchange rate was §1 = $1.20.The ending inventory was acquired when the exchange rate was §1 = $.90.The exchange rate at December 31,2009 was §1 = $.84.Assuming that the foreign country had a highly inflationary economy,at what amount should the foreign subsidiary's cost of goods sold have been reflected in the 2009 U.S.dollar income statement?

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 sales for 2008.

What exchange rate would be used to translate the asset and liability account balances of a foreign subsidiary? What justification can be given for using this exchange 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 temporal method,retained earnings would be restated at what rate?

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 inventory 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 U.S.dollar,compute the restated amount for depreciation expense 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 of the following translation methods was originally mandated by SFAS No.8?

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 functional currency and (2)that the stickle was the functional currency of the subsidiary.What was the translation adjustment for this subsidiary 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: -How is the disposition of the translated gain or loss reported on the parent company's financial statements?

The translation adjustment from translating a foreign subsidiary's financial statements should be shown as

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 local currency,what total should be included in Parker's consolidated balance sheet at December 31,2008,for the above items?