Exam 10: Translation of Foreign Currency Financial Statements

Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1, 2010. Selected account balances are available for the year ended December 31, 2011, and are stated in euro, the local currency. Relevant exchange rates for 1 euro are given below: Assume the functional currency is the euro, compute the U.S. balance sheet amount for equipment for 2011.

Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2011 by acquiring all of the common stock for §50,000 Stickles, the local currency. This subsidiary immediately borrowed §120,000 on a five-year note with ten percent interest payable annually beginning on January 1, 2012. A building was then purchased for §170,000 on January 1, 2011. 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 received. On October 1, §5,000 were paid for a repair made on that date and it was the only transaction of this kind for the year. A cash dividend of §6,000 was transferred back to Ginvold on December 31, 2011. The functional currency for the subsidiary was the Stickle (§). Currency exchange rates were as follows: Prepare an income statement for this subsidiary in stickles and then translate these amounts into U.S. dollars.

A historical exchange rate for common stock of a foreign subsidiary is best described as

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

Boerkian Co. started 2011 with two assets: Cash of §26,000 (Stickles) and Land that originally cost §72,000 when acquired on April 4, 2008. On May 1, 2011, the company rendered services to a customer for §36,000, an amount immediately paid in cash. On October 1, 2011, the company incurred an operating expense of §22,000 that was immediately paid. No other transactions occurred during the year so an average exchange rate is not necessary. Currency exchange rates were as follows: Assume that Boerkian was a foreign subsidiary of a U.S. multinational company and the U.S. dollar is the functional currency. On the December 31, 2011 balance sheet, what was the remeasured value of the Land account?

Under the current rate method, retained earnings would be translated at what rate?

Under the temporal method, inventory at market would be remeasured at what rate?

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?

Where is the disposition of a remeasurement gain or loss reported in the parent company's financial statements?

Esposito is an Italian subsidiary of a U.S. company. Esposito's ending inventory is valued at the average cost for the last quarter of the year. The following account balances are available for Esposito for 2011: Compute ending inventory for 2011 under the temporal method.

When consolidating a foreign subsidiary, which of the following statements is true?

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, 2011. The equipment was purchased on January 1, 2010. Relevant exchange rates for the peso are as follows: 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?

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 2011: On December 31, 2011, Westmore had accounts receivable of ≤280,000. What amount (rounded) would have been included for this subsidiary in calculating consolidated accounts receivable?

Darron Co. was formed on January 1, 2011 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 2011: What was the amount of the translation adjustment for 2011?

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?

Under the temporal method, depreciation expense would be remeasured at what rate?

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

Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1, 2010. Selected account balances are available for the year ended December 31, 2011, and are stated in euro, the local currency. Relevant exchange rates for 1 euro are given below: Assume the functional currency is the euro, compute the U.S. income statement amount for depreciation expense for 2011.

Boerkian Co. started 2011 with two assets: Cash of §26,000 (Stickles) and Land that originally cost §72,000 when acquired on April 4, 2008. On May 1, 2011, the company rendered services to a customer for §36,000, an amount immediately paid in cash. On October 1, 2011, the company incurred an operating expense of §22,000 that was immediately paid. No other transactions occurred during the year so an average exchange rate is not necessary. Currency exchange rates were as follows: Required: Assume that Boerkian was a foreign subsidiary of a U.S. multinational company and the local currency of the subsidiary (stickle) is the functional currency. On the December 31, 2011 balance sheet, what was the translated value of the Land account?

Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1, 2010. Selected account balances are available for the year ended December 31, 2011, and are stated in euro, the local currency. Relevant exchange rates for 1 euro are given below: Assume the functional currency is the euro, compute the U.S. income statement amount for sales for 2011.