Question 1

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

Accepted Answer

A)  Net income/loss in the income statement. 
B)  Cumulative translation adjustment as a deferred asset. 
C)  Cumulative translation adjustment as a deferred liability. 
D)  Other comprehensive income. 
E)  Retained earnings. 
A)  Net income/loss in the income statement. 
B)  Cumulative translation adjustment as a deferred asset. 
C)  Cumulative translation adjustment as a deferred liability. 
D)  Other comprehensive income. 
E)  Retained earnings.

Question 2

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. statement of retained earnings amount for dividends for 2011.

Accepted Answer

A)  $19,000. 
B)  $20,200. 
C)  $18,600. 
D)  $19,400. 
E)  $19,600. 
A)  $19,000. 
B)  $20,200. 
C)  $18,600. 
D)  $19,400. 
E)  $19,600.

Question 3

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

Accepted Answer

A)  There is no translation adjustment. 
B)  There is a transaction loss. 
C)  There is a transaction gain. 
D)  There is a negative translation adjustment. 
E)  There is a positive translation adjustment. 
A)  There is no translation adjustment. 
B)  There is a transaction loss. 
C)  There is a transaction gain. 
D)  There is a negative translation adjustment. 
E)  There is a positive translation adjustment.

Question 4

A foreign subsidiary uses the first-in first-out inventory method. The following inventory balances are given at December 31, 2011 in local currency units (LCU): $\begin{array}{ll}
\text { Inventory at cost } & 320,000 \mathrm{LCU} \
\text { Inventory at replacement cost } & 300,000 \
\text { Inventory at net realizable value } & 420,000 \
\text { Inventory at net realizable value } &\
\text { less normal profit margin }&400,000
\end{array}$
$\text { The following exchange rates are given for } 2011$
$\begin{array} { l  }
 \text { $ 4^{\text {th }} $ quarter average, 2011} &\$ 1.43=1 \mathrm{LCU}\
 \text { December 31.2011}&1.42=1 \mathrm{LCU}\
\end{array}$

-Compute the December 31, 2011, inventory balance using the lower of cost or market method under the temporal method.

Accepted Answer

A)  $429,000. 
B)  $457,600. 
C)  $596,400. 
D)  $568,000. 
E)  $426,000. 
A)  $429,000. 
B)  $457,600. 
C)  $596,400. 
D)  $568,000. 
E)  $426,000.

Question 5

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: $$\begin{array}{l}
\begin{array} { l l r } 
\text { Beginning inventory } & € 20,000 \
\text { Purchases } & € { 400,000 } \
\text { Ending inventory } & € 15,000
\end{array}\
\text { Relevant exchange rates follow: }\
\begin{array} { l r } 
4 {^ \text {th }  { \text {quarter average, } } 2010 } & \$ 93 = € 1 \
\text { December } 31,2010 & .94 = € 1 \
\text { Average 2011 } & .96 = € 1 \
4  {^ \text {th }  { \text {quarter average, } } 2011 } & .99 = € 1 \
\text { December 31, 2011 } & 1.01 = € 1
\end{array}
\end{array}$$
-Compute ending inventory for 2011 under the current rate method.

Accepted Answer

A)  $13,950. 
B)  $14,100. 
C)  $14,400. 
D)  $14,850. 
E)  $15,150. 
A)  $13,950. 
B)  $14,100. 
C)  $14,400. 
D)  $14,850. 
E)  $15,150.

Question 6

Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2011 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, 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: $\begin{array}{ll}
\text { January } 1,2011 & \S 1=\$ 2.40 \
\text { October } 1,2011 & \S 1=\$ 2.22 \
\text { Average for } 2011 & \S 1=\$ 2.28 \
\text { December } 31,2011 & \S 1=\$ 2.16
\end{array}$
-Prepare an income statement for this subsidiary in stickles and then translate these amounts into U.S. dollars.

Accepted Answer

The answer of Ginvold Co. began operating a subsidiary in...

Question 7

In accounting, the term translation refers to

Accepted Answer

A)  the calculation of gains or losses from hedging transactions. 
B)  the calculation of exchange rate gains or losses on individual transactions in foreign currencies. 
C)  the procedure required to identify a company's functional currency. 
D)  the calculation of gains or losses from all transactions for the year. 
E)  a procedure to prepare a foreign subsidiary's financial statements for consolidation. 
A)  the calculation of gains or losses from hedging transactions. 
B)  the calculation of exchange rate gains or losses on individual transactions in foreign currencies. 
C)  the procedure required to identify a company's functional currency. 
D)  the calculation of gains or losses from all transactions for the year. 
E)  a procedure to prepare a foreign subsidiary's financial statements for consolidation.

Question 8

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: $$\begin{array}{l}
\begin{array} { l l r } 
\text { Beginning inventory } & € 20,000 \
\text { Purchases } & € { 400,000 } \
\text { Ending inventory } & € 15,000
\end{array}\
\text { Relevant exchange rates follow: }\
\begin{array} { l r } 
4 {^ \text {th }  { \text {quarter average, } } 2010 } & \$ 93 = € 1 \
\text { December } 31,2010 & .94 = € 1 \
\text { Average 2011 } & .96 = € 1 \
4  {^ \text {th }  { \text {quarter average, } } 2011 } & .99 = € 1 \
\text { December 31, 2011 } & 1.01 = € 1
\end{array}
\end{array}$$
-Compute the cost of goods sold for 2011 in U.S. dollars using the temporal method.

Accepted Answer

A)  $376,650. 
B)  $387,750. 
C)  $388,800. 
D)  $400,950. 
E)  $409,050. 
A)  $376,650. 
B)  $387,750. 
C)  $388,800. 
D)  $400,950. 
E)  $409,050.

Question 9

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

Accepted Answer

A)  There is no translation adjustment. 
B)  There is a transaction loss. 
C)  There is a transaction gain. 
D)  There is a negative translation adjustment. 
E)  There is a positive translation adjustment. 
A)  There is no translation adjustment. 
B)  There is a transaction loss. 
C)  There is a transaction gain. 
D)  There is a negative translation adjustment. 
E)  There is a positive translation adjustment.

Question 10

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: $$\begin{array} { l r } 
\text { January 1, 2010 } & \$ .11 \
\text { March 1, 2011 } & .106 \
\text { December 31, 2011 } & 102 \
\text { Average, 2011 } & .105
\end{array}$$
-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?

Accepted Answer

A)  $1,530. 
B)  $1,575. 
C)  $1590. 
D)  $1,090. 
E)  $1,650. 
A)  $1,530. 
B)  $1,575. 
C)  $1590. 
D)  $1,090. 
E)  $1,650.

Question 11

What is a company's functional currency?

Accepted Answer

A)  The currency of the primary economic environment in which it operates. 
B)  The currency of the country where it has its headquarters. 
C)  The currency in which it prepares its financial statements. 
D)  The reporting currency of its parent for a subsidiary. 
E)  The currency it chooses to designate as such. 
A)  The currency of the primary economic environment in which it operates. 
B)  The currency of the country where it has its headquarters. 
C)  The currency in which it prepares its financial statements. 
D)  The reporting currency of its parent for a subsidiary. 
E)  The currency it chooses to designate as such.

Question 12

Perkle Co. owned a subsidiary in Belgium; the subsidiary's functional currency was the Belgian franc. During 2011, Perkle engaged in hedging transactions to offset part of the subsidiary's net asset position. How should the effects of exchange rate fluctuations on the currency hedge be accounted for?

Accepted Answer

Any effect on the contract res

Question 13

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?

Accepted Answer

To determine the subsidiary's functional

Question 14

A U.S. company's foreign subsidiary had the following amounts in stickles (§), the functional currency, in 2011: $\begin{array}{lr}
\text { Cost of goods sold } & \S 12,000,000 \
\text { Ending inventory } & 600,000 \
\text { Beginning inventory } & 240,000
\end{array}$
The average exchange rate during 2011 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, 2011 was §1 = $.84. At what amount should the foreign subsidiary's purchases have been reflected in the 2011 U.S. dollar income statement?

Accepted Answer

A)  $11,865,600. 
B)  $11,577,600. 
C)  $11,520,000. 
D)  $11,613,600. 
E)  $11,523,600. 
A)  $11,865,600. 
B)  $11,577,600. 
C)  $11,520,000. 
D)  $11,613,600. 
E)  $11,523,600.

Question 15

If a subsidiary is operating in a highly inflationary economy, how are the financial statements to be restated?

Accepted Answer

A)  Historical rate. 
B)  Working capital rate. 
C)  Translation. 
D)  Remeasurement. 
E)  Current rate. 
A)  Historical rate. 
B)  Working capital rate. 
C)  Translation. 
D)  Remeasurement. 
E)  Current rate.

Question 16

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?

Accepted Answer

A)  First translate them, then remeasure them. 
B)  First remeasure them, then translate them. 
C)  State all of the subsidiary's accounts in U.S. dollars using the exchange rate in effect at the balance sheet date. 
D)  Translate them. 
E)  Remeasure them. 
A)  First translate them, then remeasure them. 
B)  First remeasure them, then translate them. 
C)  State all of the subsidiary's accounts in U.S. dollars using the exchange rate in effect at the balance sheet date. 
D)  Translate them. 
E)  Remeasure them.

Question 17

Under the temporal method, property, plant & equipment would be remeasured at what rate?

Accepted Answer

A)  Beginning of the year rate. 
B)  Average rate. 
C)  Current rate. 
D)  Historical rate. 
E)  Composite amount. 
A)  Beginning of the year rate. 
B)  Average rate. 
C)  Current rate. 
D)  Historical rate. 
E)  Composite amount.

Question 18

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

Accepted Answer

A)  There is no translation adjustment. 
B)  There is a transaction loss. 
C)  There is a transaction gain. 
D)  There is a negative translation adjustment. 
E)  There is a positive translation adjustment. 
A)  There is no translation adjustment. 
B)  There is a transaction loss. 
C)  There is a transaction gain. 
D)  There is a negative translation adjustment. 
E)  There is a positive translation adjustment.

Question 19

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: $$\begin{array}{l}
\begin{array} { l l r } 
\text { Beginning inventory } & € 20,000 \
\text { Purchases } & € { 400,000 } \
\text { Ending inventory } & € 15,000
\end{array}\
\text { Relevant exchange rates follow: }\
\begin{array} { l r } 
4 {^ \text {th }  { \text {quarter average, } } 2010 } & \$ 93 = € 1 \
\text { December } 31,2010 & .94 = € 1 \
\text { Average 2011 } & .96 = € 1 \
4  {^ \text {th }  { \text {quarter average, } } 2011 } & .99 = € 1 \
\text { December 31, 2011 } & 1.01 = € 1
\end{array}
\end{array}$$
-Compute ending inventory for 2011 under the temporal method.

Accepted Answer

A)  $13,950. 
B)  $14,100. 
C)  $14,400. 
D)  $14,850. 
E)  $15,150. 
A)  $13,950. 
B)  $14,100. 
C)  $14,400. 
D)  $14,850. 
E)  $15,150.

Question 20

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.
-Compute the amount of the patent reported in the consolidated balance sheet at December 31, 2011.

Accepted Answer

A)  $28,200. 
B)  25,700. 
C)  $35,000. 
D)  $27,200. 
E)  $26,000. 
A)  $28,200. 
B)  25,700. 
C)  $35,000. 
D)  $27,200. 
E)  $26,000.

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

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

In accounting, the term translation refers to

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

What is a company's functional currency?

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?

If a subsidiary is operating in a highly inflationary economy, how are the financial statements to be restated?

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, property, plant & equipment would be remeasured at what rate?

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

The Equity Method of Accounting for Investments

Consolidation of Financial Information

Consolidations-Subsequent to the Date of Acquisition

Consolidated Financial Statements and Outside Ownership

Consolidated Financial Statements - Intra-Entity Asset Transactions

Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flo

Consolidated Financial Statements - Ownership Patterns and Income

Segment and Interim Reporting

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Worldwide Accounting Diversity and International Standards

Financial Reporting and the Securities and Exchange Commission

Accounting for Legal Reorganizations and Liquidations

Partnerships: Formation and Operations

Partnerships: Termination and Liquidation

Accounting for State and Local Governments

Accounting for State and Local Governments

Accounting and Reporting for Private Not-For-Profit Organizations

Accounting for Estates and Trusts

Filters

Exam 10: Translation of Foreign Currency Financial Statements

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

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

In accounting, the term translation refers to

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

What is a company's functional currency?

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?

If a subsidiary is operating in a highly inflationary economy, how are the financial statements to be restated?

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, property, plant & equipment would be remeasured at what rate?

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

The Equity Method of Accounting for Investments

Consolidation of Financial Information

Consolidations-Subsequent to the Date of Acquisition

Consolidated Financial Statements and Outside Ownership

Consolidated Financial Statements - Intra-Entity Asset Transactions

Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flo

Consolidated Financial Statements - Ownership Patterns and Income

Segment and Interim Reporting

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Worldwide Accounting Diversity and International Standards

Financial Reporting and the Securities and Exchange Commission

Accounting for Legal Reorganizations and Liquidations

Partnerships: Formation and Operations

Partnerships: Termination and Liquidation

Accounting for State and Local Governments

Accounting for State and Local Governments

Accounting and Reporting for Private Not-For-Profit Organizations

Accounting for Estates and Trusts

Filters