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Fundamental of Advanced Accounting 6th edTRANSCRIPT
Chapter 08
Translation of Foreign Currency Financial Statements
Multiple Choice Questions
1. In accounting, the term translation refers to
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.
2. What is a company's functional currency?
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.
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3. According to U.S. GAAP for a local currency perspective, which method is usually required for translating a foreign subsidiary's financial statements into the parent's reporting currency?
A. the temporal method.
B. the current rate method.
C. the current/noncurrent method.
D. the monetary/nonmonetary method.
E. the noncurrent rate method.
4. In translating a foreign subsidiary's financial statements, which exchange rate does
the current method require for the subsidiary's assets and liabilities?
A. the exchange rate in effect when each asset or liability was acquired.
B. the average exchange rate for the current year.
C. a calculated exchange rate based on market value.
D. the exchange rate in effect as of the balance sheet date.
E. the exchange rate in effect at the start of the current year.
5. The translation adjustment from translating a foreign subsidiary's financial
statements should be shown as
A. an asset or liability (depending on the balance) in the consolidated balance sheet.
B. a revenue or expense (depending on the balance) in the consolidated income statement.
C. a component of stockholders' equity in the consolidated balance sheet.
D. a component of cash flows from financing activities in the consolidated statement of cash flows.
E. an element of the notes which accompany the consolidated financial statements.
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6. 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 2013:
Westmore reported sales of £1,500,000 during 2013. What amount (rounded) would have been included for this subsidiary in calculating consolidated sales?
A. $2,415,000.
B. $2,400,000.
C. $2,385,000.
D. $943,396.
E. $931,677.
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7. 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 2013:
On December 31, 2013, Westmore had accounts receivable of £280,000. What amount (rounded) would have been included for this subsidiary in calculating consolidated accounts receivable?
A. $173,913.
B. $176,100.
C. $445,200.
D. $448,000.
E. $450,800.
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8. 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?
A. $800,000 gain.
B. $760,000 gain.
C. $320,000 loss.
D. $280,000 loss.
E. $440,000 loss.
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9. 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 exchange rate should have been used in translating Darron's revenues and expenses for 2013?
A. $1 = §.48.
B. $1 = §.44.
C. $1 = §.46.
D. $1 = §.42.
E. $1 = §.45.
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10. 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?
A. $52,000 decrease in relative value of net assets.
B. $60,800 decrease in relative value of net assets.
C. $61,200 decrease in relative value of net assets.
D. $466,400 increase in relative value of net assets.
E. $26,000 increase in relative value of net assets.
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11. Sinkal Co. was formed on January 1, 2013 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 2013:
What was the amount of the translation adjustment for 2013?
A. $52,000 decrease in relative value of net assets.
B. $60,800 decrease in relative value of net assets.
C. $61,200 decrease in relative value of net assets.
D. $466,400 increase in relative value of net assets.
E. $26,000 increase in relative value of net assets.
12. Which accounts are translated using current exchange rates?
A. all revenues and expenses.
B. all assets and liabilities.
C. cash, receivables, and most liabilities.
D. all current assets and liabilities.
E. all noncurrent assets and liabilities.
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13. Which accounts are remeasured using current exchange rates?
A. all revenues and expenses.
B. all assets and liabilities.
C. cash, receivables, and most liabilities.
D. all current assets and liabilities.
E. all noncurrent assets and liabilities.
14. For a foreign subsidiary that uses the U.S. dollar as its functional currency, what
method is required to ready the financial statements for consolidation?
A. Current/Noncurrent Method.
B. Monetary/Nonmonetary Method.
C. Current Rate Method.
D. Temporal Method.
E. Indirect Method.
15. 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.
B. Dilty's functional currency is the dollar and Dilty is the parent.
C. Dilty's other subsidiaries all had the dollar as their functional currency.
D. Generally accepted accounting principles require that the subsidiary's functional currency must be the dollar if consolidated financial statements are to be prepared.
E. Dilty is located in the U.S.
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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?
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.
17. 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. $609,000.
B. $658,000.
C. $602,000.
D. $630,000.
E. $616,000.
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18. 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?
A. $609,000.
B. $658,000.
C. $602,000.
D. $630,000.
E. $616,000.
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19. 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.
B. $26,400.
C. $22,800.
D. $27,600.
E. $28,800.
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20. 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 cost of goods sold on Porter's consolidated income statement at December 31, 2013?
A. $24,000.
B. $26,400.
C. $22,800.
D. $27,600.
E. $28,800.
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21. A U.S. company's foreign subsidiary had the following amounts in stickles (§) in 2013:
The average exchange rate during 2013 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, 2013 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 2013 U.S. dollar income statement?
A. $11,253,600.
B. $11,577,600.
C. $11,649,600.
D. $11,613,600.
E. $11,523,600.
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22. A U.S. company's foreign subsidiary had the following amounts in stickles (§), the functional currency, in 2013:
The average exchange rate during 2013 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, 2013 was §1 = $.84. At what amount should the foreign subsidiary's cost of goods sold have been reflected in the 2013 U.S. dollar income statement?
A. $11,253,600.
B. $11,577,600.
C. $11,520,000.
D. $11,613,600.
E. $11,523,600.
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23. A U.S. company's foreign subsidiary had the following amounts in stickles (§), the functional currency, in 2013:
The average exchange rate during 2013 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, 2013 was §1 = $.84. Assuming that the foreign nation for the subsidiary had a highly inflationary economy, at what amount should that foreign subsidiary's purchases have been reflected in the 2013 U.S. dollar income statement?
A. $11,865,600.
B. $11,577,600.
C. $11,520,000.
D. $11,613,600.
E. $11,523,600.
24. A historical exchange rate for common stock of a foreign subsidiary is best described
as
A. The rate at date of the acquisition business combination.
B. The rate when the common stock was originally issued for the acquisition transaction.
C. The average rate from date of acquisition to the date of the balance sheet.
D. The rate from the prior year's balances.
E. The January 1 exchange rate.
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25. A net asset balance sheet exposure exists and the foreign currency appreciates. Which of the following statements is true?
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.
26. A net asset balance sheet exposure exists and the foreign currency depreciates.
Which of the following statements is true?
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.
27. A net liability balance sheet exposure exists and the foreign currency appreciates.
Which of the following statements is true?
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.
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28. A net liability balance sheet exposure exists and the foreign currency depreciates. Which of the following statements is true?
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.
29. Which method of translating a foreign subsidiary's financial statements is correct?
A. Historical rate method.
B. Working capital method.
C. Current rate method.
D. Remeasurement.
E. Temporal method.
30. Which method of remeasuring a foreign subsidiary's financial statements is correct?
A. Historical rate method.
B. Working capital method.
C. Current rate method.
D. Translation.
E. Temporal method.
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31. Under the temporal method, inventory at market would be remeasured at what rate?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
32. Under the current rate method, inventory at market would be translated at what
rate?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
33. Under the temporal method, common stock would be remeasured at what rate?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
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34. Under the current rate method, common stock would be translated at what rate?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
35. Under the current rate method, property, plant & equipment would be translated at
what rate?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
36. Under the temporal method, property, plant & equipment would be remeasured at
what rate?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
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37. Under the current rate method, retained earnings would be translated at what rate?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
38. Under the temporal method, retained earnings would be remeasured at what rate?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
39. Under the current rate method, depreciation expense would be translated at what
rate?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
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40. Under the temporal method, depreciation expense would be remeasured at what rate?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
41. Under the temporal method, how would cost of goods sold be remeasured?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. A single historical rate.
E. A combination of historical rates.
42. Under the current rate method, how would cost of goods sold be translated?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
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43. Where is the disposition of a translation loss reported in the parent company's financial statements?
A. Net loss in the income statement.
B. Cumulative translation adjustment as a deferred asset.
C. Cumulative translation adjustment as a deferred liability.
D. Accumulated other comprehensive income.
E. Retained earnings.
44. 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.
B. Cumulative translation adjustment as a deferred asset.
C. Cumulative translation adjustment as a deferred liability.
D. Other comprehensive income.
E. Retained earnings.
45. A highly inflationary economy is defined as
A. Cumulative 5-year inflation in excess of 100%.
B. Cumulative 3-year inflation in excess of 100%.
C. Cumulative 5-year inflation in excess of 90%.
D. Cumulative 3-year inflation in excess of 90%.
E. Any country designated as a company operating in a third-world economy.
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46. If a subsidiary is operating in a highly inflationary economy, how are the financial statements to be restated?
A. Historical rate.
B. Working capital rate.
C. Translation.
D. Remeasurement.
E. Current rate.
47. When consolidating a foreign subsidiary, which of the following statements is true?
A. Parent reports a cumulative translation adjustment from adjusting its investment account under the equity method.
B. Parent reports a gain or loss in net income from adjusting its investment account under the equity method.
C. Subsidiary's cumulative translation adjustment is carried forward to the consolidated balance sheet.
D. Subsidiary's income/loss is carried forward to the consolidated balance sheet.
E. All foreign currency gains/losses are eliminated in the consolidated income statement and balance sheet.
48. When preparing a consolidating statement of cash flows, which of the following
statements is false?
A. All operating activity items are translated at an average exchange rate for the period.
B. A change in accounts receivable is translated using the current rate.
C. A change in long-term debt is translated using the historical rate at the date of the change.
D. Dividends paid are translated using the historical rate at the date of the payment.
E. All items follow translation rates used for the balance sheet and the income statement.
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49. 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?
A. The cumulative translation adjustment included in the Investment in Subsidiary account is eliminated.
B. The excess of fair value over book value since the date of acquisition is revalued for the change in exchange rate.
C. The amount of equity income recognized by the parent in the current year is eliminated.
D. The allocations of excess of fair value over book value at the date of acquisition are eliminated.
E. The subsidiary's stockholders' equity accounts as of the beginning of the year are eliminated.
50. 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 the cost of goods sold for 2013 in U.S. dollars using the temporal method.
A. $376,650.
B. $387,750.
C. $388,800.
D. $400,950.
E. $409,050.
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51. 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 the cost of goods sold for 2013 in U.S. dollars using the current rate method.
A. $376,550.
B. $387,750.
C. $388,800.
D. $400,950.
E. $409,050.
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52. 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.
A. $13,950.
B. $14,100.
C. $14,400.
D. $14,850.
E. $15,150.
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53. 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 current rate method.
A. $13,950.
B. $14,100.
C. $14,400.
D. $14,850.
E. $15,150.
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54. 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.
A. $429,000.
B. $457,600.
C. $596,400.
D. $568,000.
E. $426,000.
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55. 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 current rate method.
A. $454,400.
B. $457,600.
C. $596,400.
D. $568,000.
E. $426,000.
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56. 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?
A. $1,530.
B. $1,575.
C. $1,590.
D. $1,090.
E. $1,650.
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57. 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 remeasured by its U.S. parent. What amount of gain or loss would be reported in its translated income statement?
A. $1,530.
B. $1,575.
C. $1,590.
D. $1,090.
E. $1,650.
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58. Certain balance sheet accounts of a foreign subsidiary of Parker Company at December 31, 2013, have been restated into U.S. dollars as follows:
Assuming the functional currency of the subsidiary is the U.S. dollar, what total should be included in Parker's consolidated balance sheet at December 31, 2013, for the above items?
A. $407,500.
B. $418,000.
C. $396,000.
D. $403,500.
E. $398,500.
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59. Certain balance sheet accounts of a foreign subsidiary of Parker Company at December 31, 2013, have been restated into U.S. dollars as follows:
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, 2013, for the above items?
A. $407,500.
B. $418,000.
C. $396,000.
D. $403,500.
E. $398,500.
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60. Certain balance sheet accounts of a foreign subsidiary of Parker Company at December 31, 2013, have been restated into U.S. dollars as follows:
If the current rate used to restate these amounts is $.95, what was the average historical rate used to arrive at the total amount for historical rates?
A. $0.9000.
B. $1.0000.
C. $0.9500.
D. $0.9474.
E. $1.0556.
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61. 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.
Calculate the U.S. dollar amount allocated to the patent at January 1, 2013.
A. $50,000.
B. $35,000.
C. $34,000.
D. $32,500.
E. $28,200.
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62. 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
A. $7,000.
B. $10,000.
C. $6,800.
D. $9,000.
E. $6,500.
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63. 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.
Compute the amount of the patent reported in the consolidated balance sheet at December 31, 2013.
A. $28,200.
B. $25,700.
C. $35,000.
D. $27,200.
E. $26,000.
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64. 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.
Kennedy's share of Hastie's net income for 2013 would be
A. $18,000.
B. $15,000.
C. $18,200.
D. $16,000.
E. $18,500.
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65. 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. income statement amount for sales for 2013.
A. $364,000.
B. $372,000.
C. $380,000.
D. $360,000.
E. $404,000.
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66. 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 inventory at December 31, 2013.
A. $18,800.
B. $19,600.
C. $18,000.
D. $20,200.
E. $19,000.
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67. 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.
A. $81,900.
B. $90,900.
C. $83,700.
D. $88,200.
E. $85,500.
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McGraw-Hill Education.
68. 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. Statement of Retained Earnings amount reported for Dividends in 2013.
A. $19,000.
B. $20,200.
C. $18,600.
D. $19,400.
E. $19,600.
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69. 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 accumulated depreciation for 2013.
A. $40,950.
B. $41,850.
C. $45,450.
D. $42,750.
E. $44,100.
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McGraw-Hill Education.
70. 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. income statement amount for depreciation expense for 2013.
A. $8,190.
B. $8,370.
C. $8,820.
D. $9,090.
E. $8,550.
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McGraw-Hill Education.
71. 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 U.S. Dollar; compute the U.S. income statement amount for sales for 2013.
A. $364,000.
B. $372,000.
C. $380,000.
D. $360,000.
E. $404,000.
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McGraw-Hill Education.
72. 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 U.S. Dollar; compute the U.S. balance sheet amount for inventory, at cost, for 2013.
A. $18,800.
B. $19,600.
C. $18,000.
D. $20,200.
E. $19,000.
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McGraw-Hill Education.
73. 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 U.S. Dollar; compute the U.S. balance sheet amount for equipment for 2013.
A. $81,900.
B. $90,900.
C. $83,700.
D. $88,200.
E. $85,500.
8-48Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
74. 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 U.S. Dollar; compute the U.S. statement of retained earnings amount for dividends for 2013.
A. $19,000.
B. $20,200.
C. $18,600.
D. $19,400.
E. $19,600.
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McGraw-Hill Education.
75. 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 U.S. Dollar; compute the U.S. balance sheet amount for accumulated depreciation for 2013.
A. $40,950.
B. $41,850.
C. $45,450.
D. $42,750.
E. $44,100.
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McGraw-Hill Education.
76. 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 U.S. Dollar; compute the U.S. income statement amount for depreciation expense for 2013.
A. $8,190.
B. $8,370.
C. $8,820.
D. $9,090.
E. $8,550.
Essay Questions
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77. A foreign subsidiary was acquired on January 1, 2013. Determine the exchange rate used to restate the following accounts at December 31, 2013. Land was purchased on October 1, 2013. Relevant exchange dates follow:
(A) January 1, 2013(B) October 1, 2013(C) December 31, 2013(D) Average, 2013(E) Composite, using multiple dates.
Identify the exchange rate used to translate items 1-5 when the functional currency is the foreign currency:
____ 1. Land.____ 2. Equipment.____ 3. Bonds payable.____ 4. Common stock.____ 5. Retained earnings.
Identify the exchange rate used to remeasure the items 6-10 when the functional currency is the U.S. dollar:
____ 6. Land.____ 7. Equipment.____ 8. Bonds payable.____ 9. Common stock.____ 10. Retained earnings.
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78. In translating a foreign subsidiary's financial statements, what exchange rate should be used for the subsidiary's revenues and expenses?
79. How can a parent corporation determine the functional currency for a foreign
subsidiary that conducts business in more than one country?
80. What exchange rate should be used to translate (a) revenues and expenses that
occur throughout the year and (b) a gain or loss that occurs on a specific day?
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81. Perkle Co. owned a subsidiary in Belgium; the subsidiary's functional currency was the Belgian franc. During 2013, 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?
82. Under what circumstances would the remeasurement of a foreign subsidiary's
financial statements be required?
83. A foreign subsidiary of a U.S. corporation purchased equipment on January 4, 2010.
(A.) How would depreciation expense on the equipment be translated for 2013?(B.) How would depreciation expense on the equipment be remeasured for 2013?
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84. 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?
85. 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?
86. What is the justification for the remeasurement of foreign currency transactions?
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87. Contrast the purpose of remeasurement with the purpose of translation.
Short Answer Questions
88. On January 1, 2013, Fandu Corp. began operations of a foreign subsidiary. On April 1, 2013, the subsidiary purchased inventory costing 150,000 stickles. One-fourth of this inventory remained unsold at the end of 2013 while 40% of the liability from the purchase had not yet been paid. The pertinent indirect exchange rates were:
Required:
What should have been the December 31, 2013 inventory and accounts payable balances for this foreign subsidiary as translated into U.S. dollars? (Round your answers to the nearest whole dollar.)
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89. On January 1, 2013, 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 2013:
Required:
Calculate the translation adjustment for Malont. (Round your answers to the nearest whole dollar.)
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90. Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2013 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, 2014. A building was then purchased for §170,000 on January 1, 2013. 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, 2013. 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.
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91. Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2013 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, 2014. A building was then purchased for §170,000 on January 1, 2013. 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, 2013. The functional currency for the subsidiary was the Stickle (§). Currency exchange rates were as follows:
Prepare a statement of retained earnings for this subsidiary in stickles and then translate the amounts into U.S. dollars.
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92. Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2013 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, 2014. A building was then purchased for §170,000 on January 1, 2013. 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, 2013. The functional currency for the subsidiary was the Stickle (§). Currency exchange rates were as follows:
Prepare a balance sheet for this subsidiary in stickles and then translate the amounts into U.S. dollars.
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93. Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2013 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, 2014. A building was then purchased for §170,000 on January 1, 2013. 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, 2013. The functional currency for the subsidiary was the Stickle (§). Currency exchange rates were as follows:
Prepare a statement of cash flows for this subsidiary in stickles and then translate the amounts into U.S. dollars.
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94. Boerkian Co. started 2013 with two assets: Cash of §26,000 (Stickles) and Land that originally cost §72,000 when acquired on April 4, 2010. On May 1, 2013, the company rendered services to a customer for §36,000, an amount immediately paid in cash. On October 1, 2013, 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 stickle (§) was the functional currency of the subsidiary. Calculate the translation adjustment for this subsidiary for 2013 and state whether this is a positive or a negative adjustment.
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95. Boerkian Co. started 2013 with two assets: Cash of §26,000 (Stickles) and Land that originally cost §72,000 when acquired on April 4, 2010. On May 1, 2013, the company rendered services to a customer for §36,000, an amount immediately paid in cash. On October 1, 2013, 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 Boerkian was a foreign subsidiary of a U.S. multinational company and the U.S. dollar was the functional currency of the subsidiary. Prepare a schedule of changes in the net monetary assets of Boerkian for the year 2013 and properly label the resulting gain or loss.
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96. Boerkian Co. started 2013 with two assets: Cash of §26,000 (Stickles) and Land that originally cost §72,000 when acquired on April 4, 2010. On May 1, 2013, the company rendered services to a customer for §36,000, an amount immediately paid in cash. On October 1, 2013, 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, 2013 balance sheet, what was the translated value of the Land account?
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97. Boerkian Co. started 2013 with two assets: Cash of §26,000 (Stickles) and Land that originally cost §72,000 when acquired on April 4, 2010. On May 1, 2013, the company rendered services to a customer for §36,000, an amount immediately paid in cash. On October 1, 2013, 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, 2013 balance sheet, what was the remeasured value of the Land account?
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Chapter 08 Translation of Foreign Currency Financial Statements Answer Key
Multiple Choice Questions
1. In accounting, the term translation refers to
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.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 1 Easy
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
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2. What is a company's functional currency?
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.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 1 Easy
Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.
Topic: Two Translation Combinations
3. According to U.S. GAAP for a local currency perspective, which method is usually required for translating a foreign subsidiary's financial statements into the parent's reporting currency?
A. the temporal method.
B. the current rate method.
C. the current/noncurrent method.
D. the monetary/nonmonetary method.
E. the noncurrent rate method.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 1 Easy
Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.
Topic: Two Translation Combinations
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4. In translating a foreign subsidiary's financial statements, which exchange rate does the current method require for the subsidiary's assets and liabilities?
A. the exchange rate in effect when each asset or liability was acquired.
B. the average exchange rate for the current year.
C. a calculated exchange rate based on market value.
D. the exchange rate in effect as of the balance sheet date.
E. the exchange rate in effect at the start of the current year.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 1 Easy
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
5. The translation adjustment from translating a foreign subsidiary's financial statements should be shown as
A. an asset or liability (depending on the balance) in the consolidated balance sheet.
B. a revenue or expense (depending on the balance) in the consolidated income statement.
C. a component of stockholders' equity in the consolidated balance sheet.
D. a component of cash flows from financing activities in the consolidated statement of cash flows.
E. an element of the notes which accompany the consolidated financial statements.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 1 Easy
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McGraw-Hill Education.
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
6. 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 2013:
Westmore reported sales of £1,500,000 during 2013. What amount (rounded) would have been included for this subsidiary in calculating consolidated sales?
A. $2,415,000.
B. $2,400,000.
C. $2,385,000.
D. $943,396.
E. $931,677.
£1,500,000 × $1.59 (Avg Rate) = $2,385,000
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.Learning Objective: 08-03 Translate a foreign subsidiary's financial statements into its parent's reporting
currency using the current rate method and calculate the related translation adjustment.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation MethodsTopic: Translation of Financial Statements-Current Rate Method
Topic: Two Translation Combinations
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7. 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 2013:
On December 31, 2013, Westmore had accounts receivable of £280,000. What amount (rounded) would have been included for this subsidiary in calculating consolidated accounts receivable?
A. $173,913.
B. $176,100.
C. $445,200.
D. $448,000.
E. $450,800.
£280,000 × $1.61 = $450,800
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.Learning Objective: 08-03 Translate a foreign subsidiary's financial statements into its parent's reporting
currency using the current rate method and calculate the related translation adjustment.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation MethodsTopic: Translation of Financial Statements-Current Rate Method
Topic: Two Translation Combinations
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8. 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?
A. $800,000 gain.
B. $760,000 gain.
C. $320,000 loss.
D. $280,000 loss.
E. $440,000 loss.
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 3 HardLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.
Learning Objective: 08-04 Remeasure a foreign subsidiary's financial statements using the temporal method and calculate the associated remeasurement gain or loss.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Remeasurement of Financial Statements-Temporal Method
Topic: Translation MethodsTopic: Two Translation Combinations
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McGraw-Hill Education.
9. 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 exchange rate should have been used in translating Darron's revenues and expenses for 2013?
A. $1 = §.48.
B. $1 = §.44.
C. $1 = §.46.
D. $1 = §.42.
E. $1 = §.45.
Average Rate for Revenues & Expenses [$1 = §.44]
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 1 EasyLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
Topic: Two Translation Combinations
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McGraw-Hill Education.
10. 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?
A. $52,000 decrease in relative value of net assets.
B. $60,800 decrease in relative value of net assets.
C. $61,200 decrease in relative value of net assets.
D. $466,400 increase in relative value of net assets.
E. $26,000 increase in relative value of net assets.
[§1,000,000 × [$.42 - $.48] ($.06) = ($60,000)] + [§20,000 × [$.42 - $.46] ($.04)] = ($800) = ($60,800) Loss in Relative Asset Value
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 3 HardLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.Learning Objective: 08-03 Translate a foreign subsidiary's financial statements into its parent's reporting
currency using the current rate method and calculate the related translation adjustment.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation MethodsTopic: Translation of Financial Statements-Current Rate Method
Topic: Two Translation Combinations
8-73Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
11. Sinkal Co. was formed on January 1, 2013 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 2013:
What was the amount of the translation adjustment for 2013?
A. $52,000 decrease in relative value of net assets.
B. $60,800 decrease in relative value of net assets.
C. $61,200 decrease in relative value of net assets.
D. $466,400 increase in relative value of net assets.
E. $26,000 increase in relative value of net assets.
[§1,000,000 × [$.42 - $.48] ($.06) = ($60,000)] + [§20,000 × [$.42 - $.46] ($.04)] = ($800) = ($60,800) Loss in Relative Asset Value
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 3 HardLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.Learning Objective: 08-03 Translate a foreign subsidiary's financial statements into its parent's reporting
currency using the current rate method and calculate the related translation adjustment.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation MethodsTopic: Translation of Financial Statements-Current Rate Method
Topic: Two Translation Combinations
8-74Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
12. Which accounts are translated using current exchange rates?
A. all revenues and expenses.
B. all assets and liabilities.
C. cash, receivables, and most liabilities.
D. all current assets and liabilities.
E. all noncurrent assets and liabilities.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 2 Medium
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
13. Which accounts are remeasured using current exchange rates?
A. all revenues and expenses.
B. all assets and liabilities.
C. cash, receivables, and most liabilities.
D. all current assets and liabilities.
E. all noncurrent assets and liabilities.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 2 Medium
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
8-75Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
14. For a foreign subsidiary that uses the U.S. dollar as its functional currency, what method is required to ready the financial statements for consolidation?
A. Current/Noncurrent Method.
B. Monetary/Nonmonetary Method.
C. Current Rate Method.
D. Temporal Method.
E. Indirect Method.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: UnderstandDifficulty: 2 Medium
Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.
Topic: Two Translation Combinations
15. 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.
B. Dilty's functional currency is the dollar and Dilty is the parent.
C. Dilty's other subsidiaries all had the dollar as their functional currency.
D. Generally accepted accounting principles require that the subsidiary's functional currency must be the dollar if consolidated financial statements are to be prepared.
E. Dilty is located in the U.S.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
8-76Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Blooms: AnalyzeDifficulty: 2 Medium
Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.
Topic: Two Translation Combinations
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?
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.
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: EvaluateDifficulty: 1 Easy
Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.
Topic: Two Translation Combinations
8-77Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
17. 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. $609,000.
B. $658,000.
C. $602,000.
D. $630,000.
E. $616,000.
If LC is the Functional Currency, Current Rates Used for All Items = $602,000
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 1 EasyLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.Learning Objective: 08-03 Translate a foreign subsidiary's financial statements into its parent's reporting
currency using the current rate method and calculate the related translation adjustment.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation MethodsTopic: Translation of Financial Statements-Current Rate Method
Topic: Two Translation Combinations
8-78Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
18. 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?
A. $609,000.
B. $658,000.
C. $602,000.
D. $630,000.
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
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.
Learning Objective: 08-04 Remeasure a foreign subsidiary's financial statements using the temporal method and calculate the associated remeasurement gain or loss.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Remeasurement of Financial Statements-Temporal Method
Topic: Translation MethodsTopic: Two Translation Combinations
8-79Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
19. 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.
B. $26,400.
C. $22,800.
D. $27,600.
E. $28,800.
§120,000 × $.20 = $24,000
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 1 EasyLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.Learning Objective: 08-03 Translate a foreign subsidiary's financial statements into its parent's reporting
currency using the current rate method and calculate the related translation adjustment.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation MethodsTopic: Translation of Financial Statements-Current Rate Method
Topic: Two Translation Combinations
8-80Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
20. 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 cost of goods sold on Porter's consolidated income statement at December 31, 2013?
A. $24,000.
B. $26,400.
C. $22,800.
D. $27,600.
E. $28,800.
§120,000 × $.24 = $28,800
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.Learning Objective: 08-03 Translate a foreign subsidiary's financial statements into its parent's reporting
currency using the current rate method and calculate the related translation adjustment.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation MethodsTopic: Translation of Financial Statements-Current Rate Method
Topic: Two Translation Combinations
8-81Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
21. A U.S. company's foreign subsidiary had the following amounts in stickles (§) in 2013:
The average exchange rate during 2013 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, 2013 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 2013 U.S. dollar income statement?
A. $11,253,600.
B. $11,577,600.
C. $11,649,600.
D. $11,613,600.
E. $11,523,600.
Beginning Inventory [(§240,000 × $1.20) $288,000] - Purchases [Beginning Inventory §240,000 - COGS §12,000,000 - Ending Inventory §600,000 = §12,360,000 × $.96 = $11,865,600] - Ending Inventory [(§600,000 × $.90) $540,000] = COGS $11,613,600
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 3 HardLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation Methods
8-82Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
22. A U.S. company's foreign subsidiary had the following amounts in stickles (§), the functional currency, in 2013:
The average exchange rate during 2013 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, 2013 was §1 = $.84. At what amount should the foreign subsidiary's cost of goods sold have been reflected in the 2013 U.S. dollar income statement?
A. $11,253,600.
B. $11,577,600.
C. $11,520,000.
D. $11,613,600.
E. $11,523,600.
§12,000,000 × $.96 = $11,520,000
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 3 HardLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation Methods
8-83Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
23. A U.S. company's foreign subsidiary had the following amounts in stickles (§), the functional currency, in 2013:
The average exchange rate during 2013 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, 2013 was §1 = $.84. Assuming that the foreign nation for the subsidiary had a highly inflationary economy, at what amount should that foreign subsidiary's purchases have been reflected in the 2013 U.S. dollar income statement?
A. $11,865,600.
B. $11,577,600.
C. $11,520,000.
D. $11,613,600.
E. $11,523,600.
Beginning Inventory §240,000 - COGS §12,000,000 - Ending Inventory §600,000 = Purchases §12,360,000 × $.96 = $11,865,600
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 3 HardLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation Methods
8-84Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
24. A historical exchange rate for common stock of a foreign subsidiary is best described as
A. The rate at date of the acquisition business combination.
B. The rate when the common stock was originally issued for the acquisition transaction.
C. The average rate from date of acquisition to the date of the balance sheet.
D. The rate from the prior year's balances.
E. The January 1 exchange rate.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: AnalyzeDifficulty: 2 Medium
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
25. A net asset balance sheet exposure exists and the foreign currency appreciates. Which of the following statements is true?
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.
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: AnalyzeDifficulty: 2 Medium
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
8-85Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
26. A net asset balance sheet exposure exists and the foreign currency depreciates. Which of the following statements is true?
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.
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: AnalyzeDifficulty: 2 Medium
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
27. A net liability balance sheet exposure exists and the foreign currency appreciates. Which of the following statements is true?
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.
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
8-86Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Blooms: AnalyzeDifficulty: 2 Medium
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
28. A net liability balance sheet exposure exists and the foreign currency depreciates. Which of the following statements is true?
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.
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: AnalyzeDifficulty: 2 Medium
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
29. Which method of translating a foreign subsidiary's financial statements is correct?
A. Historical rate method.
B. Working capital method.
C. Current rate method.
D. Remeasurement.
E. Temporal method.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
8-87Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 1 Easy
Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.
Topic: Two Translation Combinations
30. Which method of remeasuring a foreign subsidiary's financial statements is correct?
A. Historical rate method.
B. Working capital method.
C. Current rate method.
D. Translation.
E. Temporal method.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 1 Easy
Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.
Topic: Two Translation Combinations
31. Under the temporal method, inventory at market would be remeasured at what rate?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
AACSB: Diversity
8-88Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 2 Medium
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
32. Under the current rate method, inventory at market would be translated at what rate?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 2 Medium
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
8-89Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
33. Under the temporal method, common stock would be remeasured at what rate?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 1 Easy
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
34. Under the current rate method, common stock would be translated at what rate?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 1 Easy
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
8-90Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
35. Under the current rate method, property, plant & equipment would be translated at what rate?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 2 Medium
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
36. Under the temporal method, property, plant & equipment would be remeasured at what rate?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 2 Medium
8-91Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
37. Under the current rate method, retained earnings would be translated at what rate?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 2 Medium
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
38. Under the temporal method, retained earnings would be remeasured at what rate?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
8-92Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 2 Medium
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
39. Under the current rate method, depreciation expense would be translated at what rate?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 2 Medium
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
8-93Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
40. Under the temporal method, depreciation expense would be remeasured at what rate?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 2 Medium
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
41. Under the temporal method, how would cost of goods sold be remeasured?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. A single historical rate.
E. A combination of historical rates.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 2 Medium
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Topic: Comparison of the Results from Applying the Two Different Methods
8-94Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Topic: Translation Methods
42. Under the current rate method, how would cost of goods sold be translated?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 2 Medium
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
43. Where is the disposition of a translation loss reported in the parent company's financial statements?
A. Net loss in the income statement.
B. Cumulative translation adjustment as a deferred asset.
C. Cumulative translation adjustment as a deferred liability.
D. Accumulated other comprehensive income.
E. Retained earnings.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 2 Medium
Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be
8-95Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
translated using the current rate method and when they are to be translated using the temporal method.Topic: Two Translation Combinations
44. 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.
B. Cumulative translation adjustment as a deferred asset.
C. Cumulative translation adjustment as a deferred liability.
D. Other comprehensive income.
E. Retained earnings.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 2 Medium
Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.
Topic: Two Translation Combinations
45. A highly inflationary economy is defined as
A. Cumulative 5-year inflation in excess of 100%.
B. Cumulative 3-year inflation in excess of 100%.
C. Cumulative 5-year inflation in excess of 90%.
D. Cumulative 3-year inflation in excess of 90%.
E. Any country designated as a company operating in a third-world economy.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 2 Medium
Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be
8-96Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
translated using the current rate method and when they are to be translated using the temporal method.Topic: Two Translation Combinations
46. If a subsidiary is operating in a highly inflationary economy, how are the financial statements to be restated?
A. Historical rate.
B. Working capital rate.
C. Translation.
D. Remeasurement.
E. Current rate.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 2 Medium
Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.
Topic: Two Translation Combinations
47. When consolidating a foreign subsidiary, which of the following statements is true?
A. Parent reports a cumulative translation adjustment from adjusting its investment account under the equity method.
B. Parent reports a gain or loss in net income from adjusting its investment account under the equity method.
C. Subsidiary's cumulative translation adjustment is carried forward to the consolidated balance sheet.
D. Subsidiary's income/loss is carried forward to the consolidated balance sheet.
E. All foreign currency gains/losses are eliminated in the consolidated income statement and balance sheet.
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: Analyze
8-97Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Difficulty: 3 HardLearning Objective: 08-06 Prepare a consolidation worksheet for a parent and its foreign subsidiary.
Topic: Consolidation of a Foreign Subsidiary
48. When preparing a consolidating statement of cash flows, which of the following statements is false?
A. All operating activity items are translated at an average exchange rate for the period.
B. A change in accounts receivable is translated using the current rate.
C. A change in long-term debt is translated using the historical rate at the date of the change.
D. Dividends paid are translated using the historical rate at the date of the payment.
E. All items follow translation rates used for the balance sheet and the income statement.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: RememberDifficulty: 2 Medium
Learning Objective: 08-03 Translate a foreign subsidiary's financial statements into its parent's reporting currency using the current rate method and calculate the related translation adjustment.
Topic: Translation of Financial Statements-Current Rate Method
49. 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?
A. The cumulative translation adjustment included in the Investment in Subsidiary account is eliminated.
B. The excess of fair value over book value since the date of acquisition is revalued for the change in exchange rate.
C. The amount of equity income recognized by the parent in the current year is eliminated.
D. The allocations of excess of fair value over book value at the date of acquisition are eliminated.
E. The subsidiary's stockholders' equity accounts as of the beginning of the year are eliminated.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: Measurement
8-98Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Accessibility: Keyboard NavigationBlooms: Analyze
Difficulty: 2 MediumLearning Objective: 08-06 Prepare a consolidation worksheet for a parent and its foreign subsidiary.
Topic: Consolidation of a Foreign Subsidiary
50. 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 the cost of goods sold for 2013 in U.S. dollars using the temporal method.
A. $376,650.
B. $387,750.
C. $388,800.
D. $400,950.
E. $409,050.
Begin Inventory (€20,000 × $.93 = $18,600) + Purchases (€400,000 × $.96 = $384,000) - End Inventory (€15,000 × $.99 = $14,850) = COGS $387,750
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
8-99Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
temporal methods.Learning Objective: 08-04 Remeasure a foreign subsidiary's financial statements using the temporal method
and calculate the associated remeasurement gain or loss.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Remeasurement of Financial Statements-Temporal MethodTopic: Translation Methods
51. 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 the cost of goods sold for 2013 in U.S. dollars using the current rate method.
A. $376,550.
B. $387,750.
C. $388,800.
D. $400,950.
E. $409,050.
€405,000 × $.96 = $388,800
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
8-100Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
temporal methods.Learning Objective: 08-03 Translate a foreign subsidiary's financial statements into its parent's reporting
currency using the current rate method and calculate the related translation adjustment.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation MethodsTopic: Translation of Financial Statements-Current Rate Method
52. 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.
A. $13,950.
B. $14,100.
C. $14,400.
D. $14,850.
E. $15,150.
€15,000 × $.99 = $14,850
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-04 Remeasure a foreign subsidiary's financial statements using the temporal method
8-101Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
and calculate the associated remeasurement gain or loss.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Remeasurement of Financial Statements-Temporal MethodTopic: Translation Methods
53. 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 current rate method.
A. $13,950.
B. $14,100.
C. $14,400.
D. $14,850.
E. $15,150.
€15,000 × $1.01 = $15,150
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-03 Translate a foreign subsidiary's financial statements into its parent's reporting
currency using the current rate method and calculate the related translation adjustment.Topic: Comparison of the Results from Applying the Two Different Methods
8-102Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Topic: Translation MethodsTopic: Translation of Financial Statements-Current Rate Method
54. 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.
A. $429,000.
B. $457,600.
C. $596,400.
D. $568,000.
E. $426,000.
Inventory at Cost 320,000 LCU × $1.43 = $457,600
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 3 HardLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation Methods
8-103Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
55. 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 current rate method.
A. $454,400.
B. $457,600.
C. $596,400.
D. $568,000.
E. $426,000.
Inventory at Cost 320,000 LCU × $1.42 = $454,400
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation Methods
8-104Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
56. 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?
A. $1,530.
B. $1,575.
C. $1,590.
D. $1,090.
E. $1,650.
[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
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation Methods
8-105Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
57. 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 remeasured by its U.S. parent. What amount of gain or loss would be reported in its translated income statement?
A. $1,530.
B. $1,575.
C. $1,590.
D. $1,090.
E. $1,650.
[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
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation Methods
8-106Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
58. Certain balance sheet accounts of a foreign subsidiary of Parker Company at December 31, 2013, have been restated into U.S. dollars as follows:
Assuming the functional currency of the subsidiary is the U.S. dollar, what total should be included in Parker's consolidated balance sheet at December 31, 2013, for the above items?
A. $407,500.
B. $418,000.
C. $396,000.
D. $403,500.
E. $398,500.
If the Dollar is the Functional Currency, Current Rates Used for All Items except PP&E at their Historical Values ($47,500 + $95,000 + $76,000 + $54,000 + $135,000) = $407,500
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
Topic: Two Translation Combinations
8-107Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
59. Certain balance sheet accounts of a foreign subsidiary of Parker Company at December 31, 2013, have been restated into U.S. dollars as follows:
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, 2013, for the above items?
A. $407,500.
B. $418,000.
C. $396,000.
D. $403,500.
E. $398,500.
If LC is the Functional Currency, Current Rates Used for All Items = $418,000
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 1 EasyLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
Topic: Two Translation Combinations
8-108Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
60. Certain balance sheet accounts of a foreign subsidiary of Parker Company at December 31, 2013, have been restated into U.S. dollars as follows:
If the current rate used to restate these amounts is $.95, what was the average historical rate used to arrive at the total amount for historical rates?
A. $0.9000.
B. $1.0000.
C. $0.9500.
D. $0.9474.
E. $1.0556.
$418,000/$.95 = $440,000; $396,000/$440,000 = $.90
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.
Topic: Two Translation Combinations
8-109Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
61. 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.
Calculate the U.S. dollar amount allocated to the patent at January 1, 2013.
A. $50,000.
B. $35,000.
C. $34,000.
D. $32,500.
E. $28,200.
$350,000 - FV of Assets (C$450,000 × $.70) $315,000 = $35,000 Patent Value
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: ApplyDifficulty: 2 Medium
Learning Objective: 08-06 Prepare a consolidation worksheet for a parent and its foreign subsidiary.Topic: Consolidation of a Foreign Subsidiary
8-110Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
62. 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
A. $7,000.
B. $10,000.
C. $6,800.
D. $9,000.
E. $6,500.
Patent Value $35,000/$.70 = Patent Value C$50,000/5 yrs = C$10,000 per year × $.68 = $6,800 Translated
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: ApplyDifficulty: 3 Hard
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
8-111Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
63. 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.
Compute the amount of the patent reported in the consolidated balance sheet at December 31, 2013.
A. $28,200.
B. $25,700.
C. $35,000.
D. $27,200.
E. $26,000.
Patent Value C$50,000 - Amortization for 2013 C$10,000 = BV C$40,000 × $.65 = $26,000 Translated
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: ApplyDifficulty: 2 Medium
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
8-112Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
64. 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.
Kennedy's share of Hastie's net income for 2013 would be
A. $18,000.
B. $15,000.
C. $18,200.
D. $16,000.
E. $18,500.
Translated Net Income $25,000 - Translated Amortization $6,800 = $18,200 Parent's Share of Net Income for 2013
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementAccessibility: Keyboard Navigation
Blooms: ApplyDifficulty: 3 Hard
Learning Objective: 08-06 Prepare a consolidation worksheet for a parent and its foreign subsidiary.Topic: Consolidation of a Foreign Subsidiary
8-113Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
65. 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. income statement amount for sales for 2013.
A. $364,000.
B. $372,000.
C. $380,000.
D. $360,000.
E. $404,000.
€400,000 × $.95 = $380,000
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 1 EasyLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.
8-114Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Learning Objective: 08-03 Translate a foreign subsidiary's financial statements into its parent's reporting currency using the current rate method and calculate the related translation adjustment.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
Topic: Translation of Financial Statements-Current Rate Method
66. 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 inventory at December 31, 2013.
A. $18,800.
B. $19,600.
C. $18,000.
D. $20,200.
E. $19,000.
€20,000 × $1.01 = $20,200
AACSB: Analytic
8-115Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 1 EasyLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-03 Translate a foreign subsidiary's financial statements into its parent's reporting
currency using the current rate method and calculate the related translation adjustment.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation MethodsTopic: Translation of Financial Statements-Current Rate Method
8-116Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
67. 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.
A. $81,900.
B. $90,900.
C. $83,700.
D. $88,200.
E. $85,500.
€90,000 × $1.01 = $90,900
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.
8-117Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Learning Objective: 08-03 Translate a foreign subsidiary's financial statements into its parent's reporting currency using the current rate method and calculate the related translation adjustment.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
Topic: Translation of Financial Statements-Current Rate Method
68. 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. Statement of Retained Earnings amount reported for Dividends in 2013.
A. $19,000.
B. $20,200.
C. $18,600.
D. $19,400.
E. $19,600.
€20,000 × $.97 = $19,400
AACSB: Analytic
8-118Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 1 EasyLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-03 Translate a foreign subsidiary's financial statements into its parent's reporting
currency using the current rate method and calculate the related translation adjustment.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation MethodsTopic: Translation of Financial Statements-Current Rate Method
8-119Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
69. 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 accumulated depreciation for 2013.
A. $40,950.
B. $41,850.
C. $45,450.
D. $42,750.
E. $44,100.
€45,000 × $1.01 = $45,450
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.
8-120Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Learning Objective: 08-03 Translate a foreign subsidiary's financial statements into its parent's reporting currency using the current rate method and calculate the related translation adjustment.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
Topic: Translation of Financial Statements-Current Rate Method
70. 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. income statement amount for depreciation expense for 2013.
A. $8,190.
B. $8,370.
C. $8,820.
D. $9,090.
E. $8,550.
€9,000 × $.95 = $8,550
AACSB: Analytic
8-121Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-03 Translate a foreign subsidiary's financial statements into its parent's reporting
currency using the current rate method and calculate the related translation adjustment.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation MethodsTopic: Translation of Financial Statements-Current Rate Method
8-122Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
71. 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 U.S. Dollar; compute the U.S. income statement amount for sales for 2013.
A. $364,000.
B. $372,000.
C. $380,000.
D. $360,000.
E. $404,000.
€400,000 × $.95 = $380,000
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 1 EasyLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.
8-123Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Learning Objective: 08-04 Remeasure a foreign subsidiary's financial statements using the temporal method and calculate the associated remeasurement gain or loss.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Remeasurement of Financial Statements-Temporal Method
Topic: Translation Methods
72. 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 U.S. Dollar; compute the U.S. balance sheet amount for inventory, at cost, for 2013.
A. $18,800.
B. $19,600.
C. $18,000.
D. $20,200.
E. $19,000.
€20,000 × $.94 = $18,800
AACSB: Analytic
8-124Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 1 EasyLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-04 Remeasure a foreign subsidiary's financial statements using the temporal method
and calculate the associated remeasurement gain or loss.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Remeasurement of Financial Statements-Temporal MethodTopic: Translation Methods
8-125Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
73. 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 U.S. Dollar; compute the U.S. balance sheet amount for equipment for 2013.
A. $81,900.
B. $90,900.
C. $83,700.
D. $88,200.
E. $85,500.
€90,000 × $.91 = $81,900
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.
8-126Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Learning Objective: 08-04 Remeasure a foreign subsidiary's financial statements using the temporal method and calculate the associated remeasurement gain or loss.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Remeasurement of Financial Statements-Temporal Method
Topic: Translation Methods
74. 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 U.S. Dollar; compute the U.S. statement of retained earnings amount for dividends for 2013.
A. $19,000.
B. $20,200.
C. $18,600.
D. $19,400.
E. $19,600.
€20,000 × $.97 = $19,400
AACSB: Analytic
8-127Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 1 EasyLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-04 Remeasure a foreign subsidiary's financial statements using the temporal method
and calculate the associated remeasurement gain or loss.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Remeasurement of Financial Statements-Temporal MethodTopic: Translation Methods
8-128Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
75. 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 U.S. Dollar; compute the U.S. balance sheet amount for accumulated depreciation for 2013.
A. $40,950.
B. $41,850.
C. $45,450.
D. $42,750.
E. $44,100.
€45,000 × $.91 = $40,950
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.
8-129Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Learning Objective: 08-04 Remeasure a foreign subsidiary's financial statements using the temporal method and calculate the associated remeasurement gain or loss.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Remeasurement of Financial Statements-Temporal Method
Topic: Translation Methods
76. 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 U.S. Dollar; compute the U.S. income statement amount for depreciation expense for 2013.
A. $8,190.
B. $8,370.
C. $8,820.
D. $9,090.
E. $8,550.
€9,000 × $.91 = $8,190
AACSB: Analytic
8-130Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-04 Remeasure a foreign subsidiary's financial statements using the temporal method
and calculate the associated remeasurement gain or loss.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Remeasurement of Financial Statements-Temporal MethodTopic: Translation Methods
Essay Questions
8-131Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
77. A foreign subsidiary was acquired on January 1, 2013. Determine the exchange rate used to restate the following accounts at December 31, 2013. Land was purchased on October 1, 2013. Relevant exchange dates follow:
(A) January 1, 2013(B) October 1, 2013(C) December 31, 2013(D) Average, 2013(E) Composite, using multiple dates.
Identify the exchange rate used to translate items 1-5 when the functional currency is the foreign currency:
____ 1. Land.____ 2. Equipment.____ 3. Bonds payable.____ 4. Common stock.____ 5. Retained earnings.
Identify the exchange rate used to remeasure the items 6-10 when the functional currency is the U.S. dollar:
____ 6. Land.____ 7. Equipment.____ 8. Bonds payable.____ 9. Common stock.____ 10. Retained earnings.
(1.) C; (2) C; (3.) C; (4.) A; (5.) E; (6.) B; (7.) A; (8.) C; (9.) A; (10.) E
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementBlooms: RememberDifficulty: 2 Medium
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
Topic: Two Translation Combinations
8-132Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
78. In translating a foreign subsidiary's financial statements, what exchange rate should be used for the subsidiary's revenues and expenses?
The historical rate that was in effect when the revenues and expenses were incurred should be used unless those revenues and expenses occur throughout the year, and then a weighted average exchange rate for the year may be used.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementBlooms: RememberDifficulty: 2 Medium
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
79. How can a parent corporation determine the functional currency for a foreign subsidiary that conducts business in more than one country?
If the foreign subsidiary has distinct and separable operations in different countries, each of these operations can use a different currency. If the subsidiary does not have distinct operations in different countries, the currency in which the most transactions are carried out should be selected.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 Medium
Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.
Topic: Two Translation Combinations
8-133Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
80. What exchange rate should be used to translate (a) revenues and expenses that occur throughout the year and (b) a gain or loss that occurs on a specific day?
Revenues and expenses occurring throughout the year may be translated using the average exchange rate for the year. A gain or loss occurring on a specific date should be translated using the rate in effect on that day.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementBlooms: Remember
Difficulty: 1 EasyLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation Methods
81. Perkle Co. owned a subsidiary in Belgium; the subsidiary's functional currency was the Belgian franc. During 2013, 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?
Any effect on the contract resulting from exchange rate fluctuations is classified as a translation adjustment, rather than as a foreign exchange gain or loss.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementBlooms: Understand
Difficulty: 1 EasyLearning Objective: 08-05 Understand the rationale for hedging a net investment in a foreign operation and
describe the treatment of gains and losses on hedges used for this purpose.Topic: Hedging Balance Sheet Exposure
8-134Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
82. Under what circumstances would the remeasurement of a foreign subsidiary's financial statements be required?
The remeasurement of a foreign subsidiary's financial statements is required in the following situations:
(A.) when the subsidiary's functional currency is the U.S. dollar.(B.) when the subsidiary operates in a highly inflationary economy.(C.) when the local currency is not the functional currency and the statements first need to be remeasured from one foreign currency to another foreign currency.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementBlooms: RememberDifficulty: 2 Medium
Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.
Topic: Two Translation Combinations
83. A foreign subsidiary of a U.S. corporation purchased equipment on January 4, 2010.
(A.) How would depreciation expense on the equipment be translated for 2013?(B.) How would depreciation expense on the equipment be remeasured for 2013?
(A.) Depreciation expense would be translated using the average exchange rate for 2013. (B.) Depreciation expense would be remeasured using the exchange rate in effect when the equipment was purchased.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementBlooms: RememberDifficulty: 2 Medium
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
Topic: Two Translation Combinations
8-135Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
84. 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?
Assets and liabilities are translated using the current exchange rate, the rate in effect at the balance sheet date. This rate is chosen because assets and liabilities are expected to affect future cash flows. Therefore, they should be translated using the most up-to-date exchange rates available.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementBlooms: Understand
Difficulty: 1 EasyLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation Methods
85. 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?
To determine the subsidiary's functional currency, Farley Brothers should look at the volume of the subsidiary's transactions in various currencies. If most of the subsidiary's sales and purchases are in dollars, the dollar may be the logical choice for the functional currency. If there are many transactions between the subsidiary and the parent, and if most of the subsidiary's financing comes from the U.S., the dollar may be a better choice than the euro.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementBlooms: Understand
Difficulty: 1 EasyLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation Methods
8-136Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
86. What is the justification for the remeasurement of foreign currency transactions?
Remeasurement is needed for transactions denominated in a currency other than the entity's functional currency. A U.S. company that engages in transactions in other countries may have to remeasure some of its transactions. The implicit justification for remeasurement is that foreign currency transactions which affect monetary assets and liabilities have a direct effect on the entity's cash flows. There will be direct effects on future cash flows in the functional currency, and thus an effect on net income.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 Medium
Learning Objective: 08-04 Remeasure a foreign subsidiary's financial statements using the temporal method and calculate the associated remeasurement gain or loss.
Topic: Remeasurement of Financial Statements-Temporal Method
87. Contrast the purpose of remeasurement with the purpose of translation.
The purpose of translation is to transform a subsidiary's financial statements, prepared in its functional currency, into the reporting currency of the parent. The purpose of remeasurement is to restate transactions from one currency into the functional currency of the entity. Remeasurement is also required when a subsidiary's financial statements have been denominated in a currency other than the subsidiary's functional currency.
AACSB: Diversity
AACSB: Reflective thinkingAICPA BB: Global
AICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 Medium
Learning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Learning Objective: 08-04 Remeasure a foreign subsidiary's financial statements using the temporal method and calculate the associated remeasurement gain or loss.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Remeasurement of Financial Statements-Temporal Method
Topic: Translation Methods
8-137Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Short Answer Questions
88. On January 1, 2013, Fandu Corp. began operations of a foreign subsidiary. On April 1, 2013, the subsidiary purchased inventory costing 150,000 stickles. One-fourth of this inventory remained unsold at the end of 2013 while 40% of the liability from the purchase had not yet been paid. The pertinent indirect exchange rates were:
Required:
What should have been the December 31, 2013 inventory and accounts payable balances for this foreign subsidiary as translated into U.S. dollars? (Round your answers to the nearest whole dollar.)
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-03 Translate a foreign subsidiary's financial statements into its parent's reporting
currency using the current rate method and calculate the related translation adjustment.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation MethodsTopic: Translation of Financial Statements-Current Rate Method
8-138Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
89. On January 1, 2013, 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 2013:
Required:
Calculate the translation adjustment for Malont. (Round your answers to the nearest whole dollar.)
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-03 Translate a foreign subsidiary's financial statements into its parent's reporting
currency using the current rate method and calculate the related translation adjustment.Topic: Translation of Financial Statements-Current Rate Method
8-139Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
90. Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2013 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, 2014. A building was then purchased for §170,000 on January 1, 2013. 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, 2013. 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.
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-03 Translate a foreign subsidiary's financial statements into its parent's reporting
currency using the current rate method and calculate the related translation adjustment.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation MethodsTopic: Translation of Financial Statements-Current Rate Method
8-140Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
91. Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2013 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, 2014. A building was then purchased for §170,000 on January 1, 2013. 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, 2013. The functional currency for the subsidiary was the Stickle (§). Currency exchange rates were as follows:
Prepare a statement of retained earnings for this subsidiary in stickles and then translate the amounts into U.S. dollars.
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-03 Translate a foreign subsidiary's financial statements into its parent's reporting
currency using the current rate method and calculate the related translation adjustment.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation MethodsTopic: Translation of Financial Statements-Current Rate Method
8-141Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
92. Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2013 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, 2014. A building was then purchased for §170,000 on January 1, 2013. 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, 2013. The functional currency for the subsidiary was the Stickle (§). Currency exchange rates were as follows:
Prepare a balance sheet for this subsidiary in stickles and then translate the amounts into U.S. dollars.
Ginvold Co. SubsidiaryBalance SheetDecember 31, 2013
8-142Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-03 Translate a foreign subsidiary's financial statements into its parent's reporting
currency using the current rate method and calculate the related translation adjustment.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Translation MethodsTopic: Translation of Financial Statements-Current Rate Method
8-143Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
93. Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2013 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, 2014. A building was then purchased for §170,000 on January 1, 2013. 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, 2013. The functional currency for the subsidiary was the Stickle (§). Currency exchange rates were as follows:
Prepare a statement of cash flows for this subsidiary in stickles and then translate the amounts into U.S. dollars.
Ginvold Co. SubsidiaryStatement of Cash FlowsFor the Year Ended, December 31, 2013
8-144Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-03 Translate a foreign subsidiary's financial statements into its parent's reporting
currency using the current rate method and calculate the related translation adjustment.Topic: Translation of Financial Statements-Current Rate Method
94. Boerkian Co. started 2013 with two assets: Cash of §26,000 (Stickles) and Land that originally cost §72,000 when acquired on April 4, 2010. On May 1, 2013, the company rendered services to a customer for §36,000, an amount immediately paid in cash. On October 1, 2013, 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 stickle (§) was the functional currency of the subsidiary. Calculate the translation adjustment for this subsidiary for 2013 and state whether this is a positive or a negative adjustment.
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: Measurement
8-145Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Blooms: ApplyDifficulty: 2 Medium
Learning Objective: 08-03 Translate a foreign subsidiary's financial statements into its parent's reporting currency using the current rate method and calculate the related translation adjustment.
Topic: Translation of Financial Statements-Current Rate Method
95. Boerkian Co. started 2013 with two assets: Cash of §26,000 (Stickles) and Land that originally cost §72,000 when acquired on April 4, 2010. On May 1, 2013, the company rendered services to a customer for §36,000, an amount immediately paid in cash. On October 1, 2013, 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 Boerkian was a foreign subsidiary of a U.S. multinational company and the U.S. dollar was the functional currency of the subsidiary. Prepare a schedule of changes in the net monetary assets of Boerkian for the year 2013 and properly label the resulting gain or loss.
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 3 HardLearning Objective: 08-04 Remeasure a foreign subsidiary's financial statements using the temporal method
and calculate the associated remeasurement gain or loss.Topic: Remeasurement of Financial Statements-Temporal Method
8-146Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
96. Boerkian Co. started 2013 with two assets: Cash of §26,000 (Stickles) and Land that originally cost §72,000 when acquired on April 4, 2010. On May 1, 2013, the company rendered services to a customer for §36,000, an amount immediately paid in cash. On October 1, 2013, 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, 2013 balance sheet, what was the translated value of the Land account?
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and when they are to be translated using the temporal method.
Topic: Comparison of the Results from Applying the Two Different MethodsTopic: Translation Methods
Topic: Two Translation Combinations
8-147Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
97. Boerkian Co. started 2013 with two assets: Cash of §26,000 (Stickles) and Land that originally cost §72,000 when acquired on April 4, 2010. On May 1, 2013, the company rendered services to a customer for §36,000, an amount immediately paid in cash. On October 1, 2013, 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, 2013 balance sheet, what was the remeasured value of the Land account?
AACSB: Analytic
AACSB: DiversityAICPA BB: Global
AICPA FN: MeasurementBlooms: Apply
Difficulty: 2 MediumLearning Objective: 08-01 Explain the theoretical underpinnings and the limitations of the current rate and
temporal methods.Learning Objective: 08-04 Remeasure a foreign subsidiary's financial statements using the temporal method
and calculate the associated remeasurement gain or loss.Topic: Comparison of the Results from Applying the Two Different Methods
Topic: Remeasurement of Financial Statements-Temporal MethodTopic: Translation Methods
8-148Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.