Exam 12: Multinational Accounting: Issues in Financial Reporting and Translation of Foreign Entity Statements

Note: This is a Kaplan CPA Review Question The functional currency of Nash, Inc.'s subsidiary is the French franc. Nash borrowed French francs as a partial hedge of its investment in the subsidiary. In preparing consolidated financial statements, Nash's translation loss on its investment in the subsidiary exceeded its exchange gain on the borrowing. How should the effects of the loss and gain be reported in Nash's consolidated financial statements?

On January 2, 20X8, Johnson Company acquired a 100% interest in the capital stock of Perth Company for $3,100,000. Any excess cost over book value is attributable to a patent with a 10-year remaining life. At the date of acquisition, Perth's balance sheet contained the following information: Perth's income statement for 20X8 is as follows: The balance sheet of Perth at December 31, 20X8, is as follows: Perth declared and paid a dividend of 20,000 FCU on October 1, 20X8. Spot rates at various dates for 20X8 follow: Assume Perth's revenues, purchases, operating expenses, depreciation expense, and income taxes were incurred evenly throughout 20X8. Refer to the above information. Assuming Perth's local currency is the functional currency, what is the amount of translation adjustments that result from translating Perth's trial balance into U.S. dollars at December 31, 20X8?

On September 30, 20X8, Wilfred Company sold inventory to Jackson Corporation, its Canadian subsidiary. The goods cost Wilfred $30,000 and were sold to Jackson for $40,000, payable in Canadian dollars. The goods are still on hand at the end of the year on December 31. The Canadian dollar (C$) is the functional currency of the Canadian subsidiary. The exchange rates follow: Based on the preceding information, at what amount is the inventory shown on the consolidated balance sheet for the year?

On January 1, 2008, Pace Company acquired all of the outstanding stock of Spin PLC, a British Company, for $350,000. Spin's net assets on the date of acquisition were 250,000 pounds (£). On January 1, 2008, the book and fair values of the Spin's identifiable assets and liabilities approximated their fair values except for property, plant, and equipment and trademarks. The fair value of Spin's property, plant, and equipment exceeded its book value by $25,000. The remaining useful life of Spin's equipment at January 1, 2008, was 10 years. The remainder of the differential was attributable to a trademark having an estimated useful life of 5 years. Spin's trial balance on December 31, 2008, in pounds, follows: Additional Information 1. Spin uses the FIFO method for its inventory. The beginning inventory was acquired on December 31, 2007, and ending inventory was acquired on December 26, 2008. Purchases of £300,000 were made evenly throughout 2008. 2. Spin acquired all of its property, plant, and equipment on March 1, 2006, and uses straight-line depreciation. 3. Spin's sales were made evenly throughout 2008, and its operating expenses were incurred evenly throughout 2008. 4. The dividends were declared and paid on November 1, 2008. 5. Pace's income from its own operations was $150,000 for 2008, and its total stockholders' equity on January 1, 2008, was $1,000,000. Pace declared $50,000 of dividends during 2008. 6. Exchange rates were as follows: Required: 1) Prepare a schedule translating the trial balance from British pounds into U.S. dollars. Assume the pound is the functional currency. 2) Assume that Pace uses the fully adjusted equity method. Record all journal entries that relate to its investment in the British subsidiary during 2008. Provide the necessary documentation and support for the amounts in the journal entries, including a schedule of the translation adjustment related to the differential. 3) Prepare a schedule that determines Pace's consolidated comprehensive income for 2008.

On January 1, 20X8, Transport Corporation acquired 75 percent interest in Steamship Company for $300,000. Steamship is a Norwegian company. The local currency is the Norwegian kroner (NKr). The acquisition resulted in an excess of cost-over-book value of $25,000 due solely to a patent having a remaining life of 5 years. Transport uses the fully adjusted equity method to account for its investment. Steamship's December 31, 20X8, trial balance has been translated into U.S. dollars, requiring a translation adjustment debit of $8,000. Steamship's net income translated into U.S. dollars is $35,000. It declared and paid an NKr 20,000 dividend on June 1, 20X8. Relevant exchange rates are as follows: Assume the kroner is the functional currency. Based on the preceding information, what amount of translation adjustment is required for increase in differential?