4.

In translating a foreign subsidiary's financial statements, which exchange rate does

the current method require for the subsidiary's assets and liabilities?

D. the exchange rate in effect as of the balance sheet date.

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

C. a component of stockholders' equity in the consolidated balance sheet.

**Gunther Co. established a subsidiary in Mexico on January 1, 2013. The subsidiary

engaged in the following transactions during 2013:

What amount of foreign exchange gain or loss would have been recognized in Gunther's
consolidated income statement for 2013?

D. $280,000 loss.

Darron Co. was formed on January 1, 2013 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 2013:

What was the amount of the translation adjustment for 2013?

B. $60,800 decrease in relative value of net assets.
[1,000,000 [$.42 - $.48] ($.06) = ($60,000)] + [20,000 [$.42 - $.46] ($.04)] = ($800)
= ($60,800) Loss in Relative Asset Value
Which accounts are remeasured using current exchange rates?

C. cash, receivables, and most 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?
A. Most of the subsidiary's sales and purchases were with companies in the U.S.

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?
LC=FC

C. $602,000.
If LC is the Functional Currency, Current Rates Used for All Items = $602,000

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?

USD=FC
E. $616,000.
If the Dollar is the Functional Currency, Current Rates Used for Receivables at
their Historical Rate ($280,000 + $140,000 + $77,000 + $119,000) = $616,000

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, 2012, for 120,000 that
was sold on January 17, 2013 for 156,000. The subsidiary paid for the inventory on January
31, 2013. Currency exchange rates between the dollar and the Stickle were as follows:
What amount would have been reported for this inventory in Porter's consolidated balance
sheet at December 31, 2012?

A. $24,000.
120,000 $.20 = $24,000

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

B. The rate when the common stock was originally issued for the acquisition transaction.

A net asset balance sheet exposure exists and the foreign currency appreciates. Which of
the following statements is true?
E. There is a positive translation adjustment.

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

D. There is a negative translation adjustment.

Current Temporal
Method (Remeasuring)
(Translating)

Inv@mkt Current Rate Current Rate

CS His His

Property, Current Current

Plant, Equip

RE Composite Composite

Dep Exp Avg His

COGS Avg Combo of His

Where is the disposition of a remeasurement gain or loss reported in the parent company's
financial statements?
A. Net income/loss in the income statement.

If a subsidiary is operating in a highly inflationary economy, how are the financial

statements to be restated?
D. Remeasurement.

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

C. Subsidiary's cumulative translation adjustment is carried forward to the consolidated

balance sheet.
When preparing a consolidating statement of cash flows, which of the following statements
is false?

B. A change in accounts receivable is translated using the current rate.

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?

D. The allocations of excess of fair value over book value at the date of acquisition are
eliminated.

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 2013:

Compute ending inventory for 2013 under the temporal method.

D. $14,850.
E. $15,150.
15,000 $.99 = $14,850 4th quarter avg

Compute ending inventory for 2013 under the current rate method.

D. $14,850.
E. $15,150.
15,000 $1.01 = $15,150 dec 31 rate
A foreign subsidiary uses the first-in first-out inventory method. The following inventory
balances are given at December 31, 2013 in local currency units (LCU):

Compute the December 31, 2013, inventory balance using the lower of cost or market
method under the temporal method.

B. $457,600.
Inventory at Cost 320,000 LCU $1.43 = $457,600

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, 2013.
The equipment was purchased on January 1, 2012. Relevant exchange rates for the peso are
as follows:

The financial statements for Perez are translated by its U.S. parent. What amount of gain or
loss would be reported in its translated income statement?

C. $1,590.
D. $1,090.
[Sales Price MNP 140,000 .106 = $14,840] - [BV as Historical Cost MNP 200,000 - Acc.
Deprec. MNP 75,000 = MNP 125,000 .106 = $13,250] = $1,590 Gain

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?

C. $1,590.
D. $1,090.
[Sales Price MNP 140,000 .106 = $14,840] - [BV as Historical Cost MNP 200,000 - Acc.
Deprec. MNP 75,000 = MNP 125,000 .110 = $13,750] = $1,090 Gain
Kennedy Company acquired all of the outstanding common stock of Hastie Company of
Canada for U.S. $350,000 on January 1, 2013, 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, 2013, Hastie's trial balance net income was translated at
U.S. $25,000. The average exchange rate for the Canadian dollar during 2013 was U.S. $.68,
and the 2013 year-end exchange rate was U.S. $.65.

Amortization of the patent, translated, for 2013 would be

C. $6,800.
Patent Value $35,000/$.70 = Patent Value C$50,000/5 yrs = C$10,000 per year $.68 =
$6,800 Translated

Kennedy's share of Hastie's net income for 2013 would be

C. $18,200.
Translated Net Income $25,000 - Translated Amortization $6,800 = $18,200 Parent's Share
of Net Income for 2013

Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1, 2012.
Selected account balances are available for the year ended December 31, 2013, 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 2013.

B. $90,900.
90,000 $1.01 = $90,900
Assume the functional currency is the U.S. Dollar; compute the U.S. balance sheet amount
for accumulated depreciation for 2013.
A. $40,950.
45,000 $.91 = $40,950

Assume the functional currency is the U.S. Dollar; compute the U.S. income statement
amount for depreciation expense for 2013.
A. $8,190.
9,000 $.91 = $8,190

Accounts for uncollectible accounts are converted into US dollars at**

current rates regardless of the functional currency.

Current Historical

Rates Rates

Accounts receivable $ 850,000 $ 875,000

Trademark 600,000 575,000

Property plant and equipment 1,200,000 900,000

Totals $ 2,650,000 $ 2,350,000

If the functional currency of the subsidiary is the US dollar, the assets should be
reported in the consolidated financial statements of Oriole Corporation and
Subsidiary in the total amount of

$2,325,000. Acc. Rec. $850,000 + Trademark $575,000 + Plant $900,000

Remeasurement exchange gains or losses appear

in the continuing operations section of the consolidated income

statement.**

A US parent makes a 1,000,000 krona loan worth $108,250 to its Swedish subsidiary
in the current year. The loan is denominated in US dollars and the functional
currency of the subsidiary is the krona. This intercompany transaction is a foreign
currency transaction of

the subsidiary but not the parent

A foreign subsidiarys accounts receivable balance should be translated for the

consolidated financial statements at
Spot rate at yr end

If a US company wants to hedge a prospective loss in a foreign entity from a foreign

currency fluctuation, which of the following actions is recommended?

The US company should borrow money in the foreign entitys local

country.**

The balance in Newsprint Corp.'s foreign exchange loss account was $10,000 on
December 31, 2008, before any necessary year-end adjustment relating to the
following:
(1) Newsprint had a $15,000 debit resulting from the restatement in dollars of the
accounts of its wholly owned foreign subsidiary for the year ended December 31,
2008.
(2) Newsprint had an account payable to an unrelated foreign supplier, payable in
the supplier's local currency unit (LCU) on January 15, 2009. The U.S. dollar
equivalent of the payable was $50,000 on the December 1, 2008, invoice date and
$53,000 on December 31, 2008.Based on the information provided, in Newsprint's
2008 consolidated income statement, what amount should be included as foreign
exchange loss in computing net income, if the LCU is the functional currency and
the translation method is appropriate?
B. $13,000**

Based on the information provided, in Newsprint's 2008 consolidated income

statement, what amount should be included as foreign exchange loss in computing
net income, if the U.S. dollar is the functional currency and the remeasurement
method is appropriate?
D. $28,000**
3. Infinity Corporation acquired 80 percent of the common stock of an Egyptian
company on January 1, 2008. The goodwill associated with this acquisition was
$18,350. Exchange rates at various dates during 2008 follow:

Goodwill suffered an impairment of 20 percent during the year. If the functional

currency is the Egyptian Pound, how much goodwill impairment loss should be
reported on Infinity's consolidated statement of income for 2008?
C. $3,680** 18350*.2=3670/.1835(on the date)=20000*.1840(yr end)=3680

Michigan-based Leo Corporation acquired 100 percent of the common stock of a

British company on January 1, 2008, for $1,100,000. The British subsidiary's net
assets amounted to 500,000 pounds on the date of acquisition. On January 1, 2008,
the book values of its identifiable assets and liabilities approximated their fair
values. As a result of an analysis of functional currency indicators, Leo determined
that the British pound was the functional currency. On December 31, 2008, the
British subsidiary's adjusted trial balance, translated into U.S. dollars, contained
$17,000 more debits than credits. The British subsidiary reported income of 33,000
pounds for 2008 and paid a cash dividend of 8,000 pounds on October 25, 2008.
Included on the British subsidiary's income statement was depreciation expense of
3,500 pounds. Leo uses the basic equity method of accounting for its investment in
the British subsidiary and determined that goodwill in the first year had an
impairment loss of 25 percent of its initial amount. Exchange rates at various dates
during 2008 follow:

Based on the preceding information, what amount should Leo record as "income
from subsidiary" based on the British subsidiary's reported net income?
A. $72,930 33000*2.21 avg rate
Based on the preceding information, on Leo's consolidated balance sheet at
December 31, 2008, what amount should be reported for the goodwill acquired on
January 1, 2008?
B. $39,286** dec 31 rate 2.20

9. Based on the preceding information, in the stockholders' equity section of Leo's

consolidated balance sheet at December 31, 2008, Leo should report the translation
adjustment as a component of other comprehensive income of:
A. $19,440**

When the local currency of the foreign subsidiary is the functional currency, a
foreign subsidiary's inventory carried at cost would be converted to U.S. dollars by:
D. translation using the current exchange rate.

The assets listed below of a foreign subsidiary have been converted to U.S. dollars
at both current and historical exchange rates. Assuming that the local currency of
the foreign subsidiary is the functional currency, what total amount should appear
for these assets on the U.S. company's consolidated balance sheet?

A. $636,000 all current**

Elan, a U.S. corporation, completed the December 31, 2008, foreign currency
translation of its 70 percent owned Swiss subsidiary's trial balance using the current
rate method. The translation resulted in a debit adjustment of $25,000. The
subsidiary had reported net income of 800,000 Swiss francs for 2008 and paid
dividends of 50,000 Swiss francs on September 1, 2008. The translation rates for
the year were:

The January 1 balance of the Investment in the Swiss subsidiary account was
$1,600,000. Elan acquired its interest in the Swiss subsidiary at book value with no
differential or goodwill recorded at acquisition.

31. Elan's Investment in Swiss subsidiary account at December 31, 2008, is:
A. $1,881,050.**

NI 800,000*avg rate .57*.7ownership=319,200

Dividends 50,000*date declaration rate .59*.7ownership=20,650

Debit adjustment 25,000*.7 ownership=17,500

1,600,000 investment acc +319,200NI-20,650D-17,500debit

adjustment=1881050

32. Elan's consolidated workpaper eliminations related to the foreign currency

translation adjustment will include which entry?

D. Option D**

30% is NCI 25,000adjustment *.3

****On January 2, 2008, Johnson Company acquired a 100% interest in the capital
stock of Perth Company for $3,100,000. Any excess cost over book value is
attributable to a patent with a 10-year remaining life. At the date of acquisition,
Perth's balance sheet contained the following information:

Perth's income statement for 2008 is as follows:

The balance sheet of Perth at December 31, 2008, is as follows:

Perth declared and paid a dividend of 20,000 FCU on October 1, 2008. Spot rates at
various dates for 2008 follow:

Assume Perth's revenues, purchases, operating expenses, depreciation expense,

and income taxes were incurred evenly throughout 2008.

35. Refer to the above information. Assuming Perth's local currency is the functional
currency, what is the amount of translation adjustments that result from translating
Perth's trial balance into U.S. dollars at December 31, 2008?
C. $405,000 credit

36. Refer to the above information. Assuming Perth's local currency is the functional
currency, what is the amount of patent amortization for 2008 that results from
Johnson's acquisition of Perth's stock on January 2, 2008. Round your answer to the
nearest dollar.
B. $11,884

Refer to the above information. Assuming Perth's local currency is the functional
currency, what is the amount of translation adjustment that appears on Johnson's
consolidated financial statements at December 31, 2008?
A. $419,184 credit
38. Refer to the above information. Assuming Perth's local currency is the functional
currency, what is the balance in Johnson's investment in foreign subsidiary account
at December 31, 2008, assuming use of the equity method?
C. $3,568,300

39. Refer to the above information. Assuming the U.S. dollar is the functional
currency, what is Johnson's remeasurement gain (loss) for 2008? (Assume the
ending inventory was acquired on December 31, 2008.)
D. $32,000 gain

Refer to the above information. Assuming the U.S. dollar is the functional currency,
what is the amount of Perth's cost of goods sold remeasured in U.S. dollars?
A. $811,500

Refer to the above information. Assuming the U.S. dollar is the functional currency,
what is the amount of patent amortization for 2008 that results from Johnson's
acquisition of Perth's stock on January 2, 2008?
D. $11,500

42. Refer to the above information. Assuming the U.S. dollar is the functional
currency, what is Perth's net income for 2008 in U.S. dollars (include the
remeasurement gain or loss in Perth's net income)?
A. $238,000

Refer to the above information. Assuming the U.S. dollar is the functional currency,
what is the balance in Johnson's investment in foreign subsidiary account at
December 31, 2008 (assuming the use of the equity method)?
B. $3,294,500

On January 1, 2008, Transport Corporation acquired 75 percent interest in

Steamship Company for $300,000. Steamship is a Norwegian company. The local
currency is the Norwegian kroner (NKr). The acquisition resulted in an excess of
cost-over-book value of $25,000 due solely to a patent having a remaining life of 5
years. Transport uses the equity method to account for its investment. Steamship's
December 31, 2008, trial balance has been translated into U.S. dollars, requiring a
translation adjustment debit of $8,000. Steamship's net income translated into U.S.
dollars is $35,000. It declared and paid an NKr 20,000 dividend on June 1, 2008.
Relevant exchange rates are as follows:
Assume the kroner is the functional currency.

Based on the preceding information, what amount of translation adjustment is

required for increase in differential?
C. $4,500**** 6000*.75 ownership

Based on the preceding information, in the journal entry to record the amortization
of the patent for 2008 on the parent's books, Investment in Steamship Company will
be debited for:
B. $5,500*** 5000 a yr /.2*.22 avg

On September 30, 2008, Wilfred Company sold inventory to Jackson Corporation, its
Canadian subsidiary. The goods cost Wilfred $30,000 and were sold to Jackson for
$40,000, payable in Canadian dollars. The goods are still on hand at the end of the
year on December 31. The Canadian dollar (C$) is the functional currency of the
Canadian subsidiary. The exchange rates follow:

48. Based on the preceding information, at what dollar amount is the ending
inventory shown in the trial balance of the consolidated workpaper?
A. $45,000** 40,000/.8*.9

50. Based on the preceding information, at what amount is the inventory shown on
the consolidated balance sheet for the year?
D. $35,000**