Exam 22: Accounting in a Global Market

The following financial information is for DC Company, a non-U.S. firm with shares listed on a U.S. stock exchange: If DC Company were following U.S. GAAP, the minority interest would have been classified as a liability instead of as part of stockholders' equity. In addition, minority interest income of $4,000 for the year would have been excluded from the computation of net income. Under U.S. GAAP the investment securities would have been classified as trading securities and the interest on financing of self-constructed assets would have been capitalized rather than expensed. Prepare reconciliations of DC's reported stockholders' equity and net income to U.S. GAAP.

Current generally accepted accounting principles require that the translation of a foreign subsidiary's accounting records should be accomplished by the

Domingo Company, a U.S. company, owns a 100% interest in its subsidiary, Pavarotti, S.A., located in Italy. Pavarotti, S.A., began operations on January 1, 2011. The subsidiary's operations consist of leasing space in an office building. The building, which cost one million euros, was financed primarily by Italian banks. All revenues and expenses are received and paid in euros. The subsidiary also maintains its accounting records in euros. In light of these facts, management of the U.S. parent has determined that the euro is the functional currency of the subsidiary. The subsidiary's balance sheet at December 31, 2011, and income statement for the year then ended, are presented below, in euros: The following are relevant exchange rates for the year 2011: €1 = $1.50 at the beginning of 2011, at which time the common stock was issued and the land and building were financed by the mortgage. €1 = $1.55 weighted average for 2011. €1 = $1.58 at the date the dividends were declared and paid and the unearned rent was received. €1 = $1.62 at the end of 2011. Required: Prepare in U.S. dollars a balance sheet at December 31, 2011, and an income statement for the year then ended.

Under international accounting standards, the pension-related asset or liability is recognized on the balance sheet as the

Northern Metalworks, Inc., purchased Canadian Metal Products, a Canadian company, on January 4, 2011. On the date of purchase, the exchange rate for 1 Canadian dollar was U.S. $0.79. Canadian Metal Products balance sheet on the date of purchase is shown below: Required: Prepare a translated balance sheet as of January 4, 2011.

Which of the following is true regarding the application of lower-of-cost-or-market method under international accounting standards?

Under international accounting standards, cash paid for interest (associated with interest expense) can be shown on the statement of cash flows as an

Sarkozy Enterprises, a subsidiary of Obama Company based in New York, reported the following information at the end of its first year of operations (all in French francs): assets--4,790,000; expenses--6,500,000; liabilities--2,950,000; capital stock--1,200;000, revenues--7,140,000. Relevant exchange rates are as follows: As a result of the translation process, what amount is recorded on the financial statements as the translation adjustment?

Under international accounting standards, the derecognition of receivables requires that

Rome Enterprises, a subsidiary of La Italia Company based in New York, reported the following information at the end of its first year of operations (all in euros): assets--1,320,000; expenses--340,000; liabilities--880,000; capital stock--80,000, revenues--400,000. Relevant exchange rates are as follows: As a result of the translation process, what amount is recorded on the financial statements as the translation adjustment?

The following financial information is for Olaf Company, a non-U.S. firm with shares listed on a U.S. stock exchange: If Olaf Company were following U.S. GAAP, the minority interest would have been classified as a liability instead of as part of stockholders' equity. In addition, minority interest income of $3,000 for the year would have been excluded from the computation of net income. Under U.S. GAAP the investment securities would have been classified as trading securities and the interest on financing of self-constructed assets would have been capitalized rather than expensed. Prepare reconciliations of Olaf's reported stockholders' equity and net income to U.S. GAAP.

Which of the following is correct regarding international accounting standards for the impairment of intangible assets?

Which of the following statements most accurately reflects the approach the FASB and IASB have identified for reaching convergence of U.S. and international accounting standards?

Financial information for Toro Enterprises at the end of 2011 is as follows: Relevant exchange rates are as follows: In addition, the computed retained earnings balance from the prior year's translated financial statements is $2,405,000 at the end of 2011. Prepare a translated trial balance for Toro Enterprises.

Foreign currency translation adjustments arising from translation of the financial statements of a foreign subsidiary are reported in

Which of the following is correct regarding the treatment of short-term obligations expected to be refinanced?

Under international accounting standards, if a sale-leaseback results in an operating lease then

On July 15, 2011, United Manufacturing Inc., a New York based conglomerate, purchased, Sky Inc., a Korean-based company. Sky Inc.'s balance sheet on the date of purchase is as follows:

Reagan Corporation, a U.S. company, owns a 100% interest in its subsidiary, Thatcher Limited., located in the United Kingdom. Thatcher began operations on January 1, 2010. All revenues and expenses are received and paid in British pounds. The subsidiary maintains its accounting records in British pounds. In light of these facts, management of the U.S. parent has determined that the British pound is the functional currency of the subsidiary. The subsidiary's balance sheet at December 31, 2011, and income statement for the year then ended, are presented below in British pounds: The following are relevant exchange rates for the year 2011: £1 = $1.51 at the beginning of 2010, at which time the common stock was issued. £1 = $1.55 weighted average for 2011. £1 = $1.58 at the date the dividends were declared and paid. £1 = $1.53 at the end of 2011. £1 = $1.56 at the beginning of 2011. The balance of the cumulative translation account at January 1, 2011, was $1,157. Required: Prepare in U.S. dollars a balance sheet at December 31, 2011, and an income statement for the year then ended for Thatcher, Limited.

Under international accounting standards, the standard for accounting for construction contracts