Exam 10: Translation of Foreign Currency Financial Statements

Certain balance sheet accounts of a foreign subsidiary of the Tulip Co. had been stated in U.S. dollars as follows: -If the U.S. dollar is the functional currency of this subsidiary, what total amount should be included in Tulip's balance sheet in U.S. dollars?

Kennedy Company acquired all of the outstanding common stock of Hastie Company of Canada for U.S. $350,000 on January 1, 2011, when the exchange rate for the Canadian dollar (CAD) was U.S. $.70. The fair value of the net assets of Hastie was equal to their book value of CAD 450,000 on the date of acquisition. Any acquisition consideration excess 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, 2011, Hastie's trial balance net income was translated at U.S. $25,000. The average exchange rate for the Canadian dollar during 2011 was U.S. $.68, and the 2011 year-end exchange rate was U.S. $.65. -Calculate the U.S. dollar amount allocated to the patent at January 1, 2011.

Quadros Inc., a Portugese 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. -Assume the functional currency is the euro, compute the U.S. balance sheet amount for equipment for 2011.

Certain balance sheet accounts of a foreign subsidiary of the Tulip Co. had been stated in U.S. dollars as follows: -If the subsidiary's local currency is its functional currency, what total amount should be included in Tulip's balance sheet in U.S. dollars?

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 local currency where the subsidiary is located. The subsidiary acquired inventory on credit on November 1, 2010, for §120,000 that was sold on January 17, 2011 for §156,000. The subsidiary paid for the inventory on January 31, 2011. Currency exchange rates between the dollar and the stickle were as follows: November 1,2010 \ .19=\S1 December 31,2010 \ .20=\S1 January 1, 2011 \ .22=\S1 January 31,2011 \ .23=\S1 Average for 2011 \ .24=\S1 -What amount would have been reported for cost of goods sold on Porter's consolidated income statement at December 31, 2011?

When preparing a consolidation worksheet for a parent and its foreign subsidiary accounted for under the equity method, which of the following statements is false?

Quadros Inc., a Portugese 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. -Assume the functional currency is the U.S. dollar, compute the U.S. balance sheet amount for inventory, at cost, for 2011.

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

Under the temporal method, common stock would be remeasured at what rate?

On January 1, 2011, 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 2011: January 1, 2011 Issued common stock for \S500,000 July 14, 2011 Sold a patent at a gain of \S40,000 October 1,2011 Paid dividends of \S60,000 Malont's operating revenues and expenses for 2011 were $\S 800,000$ and $\S 650,000$ , respectively. The appropriate exchange rates were: January 1,2011 \S1=\ 2.5 July 14,2011 \S1=\ 2.1 October 1,2011 \S1=\ 2.6 December 31, 2011 \S1=\ 2.7 Average for 2011 \S1=\ 2.4 Required: Calculate the translation adjustment for Malont. (Round your answers to the nearest whole dollar)

Under the current rate method, inventory at market would be translated at what rate?

Quadros Inc., a Portugese 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. -Assume the functional currency is the U.S. dollar, compute the U.S. balance sheet amount for equipment for 2011.

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: -Sinkal Co. was formed on January 1, 2011 as a wholly owned foreign subsidiary of a U.S. corporation. Sinkal's functional currency was the stickle (§). The following transactions and events occurred during 2011: What was the amount of the translation adjustment for 2011?

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?

Under what circumstances would the remeasurement of a foreign subsidiary's financial statements be required?

Quadros Inc., a Portugese 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. -Assume the functional currency is the U.S. dollar, compute the U.S. balance sheet amount for accumulated depreciation for 2011.

Kennedy Company acquired all of the outstanding common stock of Hastie Company of Canada for U.S. $350,000 on January 1, 2011, when the exchange rate for the Canadian dollar (CAD) was U.S. $.70. The fair value of the net assets of Hastie was equal to their book value of CAD 450,000 on the date of acquisition. Any acquisition consideration excess 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, 2011, Hastie's trial balance net income was translated at U.S. $25,000. The average exchange rate for the Canadian dollar during 2011 was U.S. $.68, and the 2011 year-end exchange rate was U.S. $.65. -Kennedy's share of Hastie's net income for 2011 would be

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 local currency where the subsidiary is located. The subsidiary acquired inventory on credit on November 1, 2010, for §120,000 that was sold on January 17, 2011 for §156,000. The subsidiary paid for the inventory on January 31, 2011. Currency exchange rates between the dollar and the stickle were as follows: November 1,2010 \ .19=\S1 December 31,2010 \ .20=\S1 January 1, 2011 \ .22=\S1 January 31,2011 \ .23=\S1 Average for 2011 \ .24=\S1 -What amount would have been reported for this inventory in Porter's consolidated balance sheet at December 31, 2010?

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

Dilty Corp. owned a subsidiary in France. Dilty concluded that the subsidiary's functional currency was the U.S. dollar. -Which one of the following statements would justify this conclusion?