Exam 9: Reporting Foreign Operations

What is the risk of an apparent gain or loss arising from the restatement of financial statements prepared in one currency to another currency called?

On January 1,20X7,Clock Inc.of Vancouver,British Columbia,purchased 75% of the outstanding shares of Time Limited,in London England.Time Limited's statements of financial position,statements of comprehensive income and changes in equity - retained earnings section for the year ended December 31,20X7 are below. Additional information: 1.Time was incorporated on January 1,20X3 when it acquired all its equipment for £4,005,000 and issued its 10 year bonds payable. 2.Time's purchases and sales occurred evenly over the year.Inventories on hand at December 31,20X6 and December 20X7 were purchased evenly over the last quarter of 20X6 and 20X7,respectively.Inventories as at December 31,20X7 were £650,000. 3.Dividends were paid on March 31,20X7. 4.Foreign exchanges rates are as follows: Required: Translate Time's statement of financial position as at December 31,20X7 into Canadian dollars assuming its functional currency is Canadian dollars.Calculate the translation gain or loss arising in 20X7.

Which of the following factors is a primary indicator used to choose a functional currency?

Which translation method should be used for the following subsidiaries?

Under the temporal method,what is the accounting treatment for exchange gains and losses arising from previous years?

Cho Co. ,a public Canadian corporation has a subsidiary in South Africa.It has been determined that the functional currency of the foreign operations is the South African rand.Which of the following statements is true?

Liverpool Company operates retail stores in Canada and an exporting business in London that specializes in buying and selling British tweeds.The London subsidiary provided the following financial statements in pounds sterling to the Canadian parent company. Liverpool Company was incorporated on January 1,1984,at which time an amount of property,plant,and equipment with a present (December 31,20X5)Net Book Value of £3,000,000 was purchased.Additional equipment was purchased December 31,20X4 (20% of depreciation expense relates to this new equipment).The long-term notes were issued,to replace financing provided by the parent,on January 1,20X4. Direct exchange rates for the pound sterling (1 $C/£ )are: The January 1,20X5 retained earnings balance of the London Branch of the Liverpool Company correctly translated to Canadian dollars was $1,783,774.The beginning inventory of £380,000 was acquired during the last quarter of 20X4 and the ending inventory was acquired during the last quarter of 20X5.Sales and purchases were made,and other expenses were incurred,evenly throughout the year. Required: Compute the gain or loss on holding net monetary items for the Liverpool Company for the year ending December 31,20X5.

Under the current-rate method,what is the accounting treatment for exchange gains and losses arising from previous years?

Under the current-rate method,which of the following items would be translated using the historical rate?

If a foreign currency is strengthening with respect to the Canadian dollar,which of the following is true?

Water Bottling Inc.(WBI)is a 100% wholly owned subsidiary with operations in France.WBI was purchased by a Canadian parent on January 1,20X5.The financial records of WBI are maintained in euros and provide the following information with respect to equipment,intangibles and goodwill. Equipment - purchased on January 1,20X5 for €250,000 - depreciated over 5 years on a straight-line basis. Equipment - purchased on January 1,20X6 for €175,000 - depreciated over 5 years on a straight-line basis. Foreign exchange rates were as follows: Required: Assume that WBC's functional currency is the euro.Calculate the translated Canadian dollar balances for the following accounts for December 31,20X7 a.Equipment b.Accumulated depreciation - equipment c.Depreciation expense d.Goodwill

On January 1,20X7,Clock Inc.of Vancouver,British Columbia,purchased 75% of the outstanding shares of Time Limited,in London England.Time Limited's statements of financial position,statements of comprehensive income and changes in equity - retained earnings section for the year ended December 31,20X7 are below. Additional information: 1.Time was incorporated on January 1,20X3 when it acquired all its equipment for £4,005,000 and issued its 10 year bonds payable. 2.Time's purchases and sales occurred evenly over the year.Inventories on hand at December 31,20X6 and December 20X7 were purchased evenly over the last quarter of 20X6 and 20X7,respectively.Inventories as at December 31,20X7 were £650,000. 3.Dividends were paid on March 31,20X7. 4.Foreign exchanges rates are as follows: Required: Translate Time's statement of financial position as at December 31,20X7 into Canadian dollars assuming its functional currency is British pound sterling.Include a calculation to prove the amount of the cumulative foreign exchange translation gains and losses.

All of the following statements are stated in Brazil reals (R$) Additional information: Selected exchange rates: Date of purchase of inventory on hand at year-end R$1 = $.05688 Dividends were declared on June 30,20X5 Opening inventory = R$130,000 Inventory purchases for the year = R$1,570,000 Machinery,land,and buildings were purchased on June 30,20X4 Bralta is the Brazilian subsidiary of Altapro Co. ,a Canadian company.Under the current-rate method,what is the balance of the total assets?

Which of the following accounts would be translated to the reporting currency at the current rate of exchange for an integrated subsidiary?

All of the following statements are stated in Brazil reals (R$) Additional information: Selected exchange rates: Date of purchase of inventory on hand at year-end R$1 = $.05688 Dividends were declared on June 30,20X5 Opening inventory = R$130,000 Inventory purchases for the year = R$1,570,000 Machinery,land,and buildings were purchased on June 30,20X4 Bralta is the Brazilian subsidiary of Altapro Co. ,a Canadian company.What is the balance of total assets under the temporal method?

DNA was incorporated on January 2,20X0 and commenced active operations immediately.Common shares were issued on the date of incorporation and no new common shares have been issued since then.On December 31,20X3,INT purchased 70% of the outstanding common shares of DNA for 800,000 Swiss francs (CHF). DNA's main operations are located in Switzerland.For the year ending December 31,20X6,the income statement (in 000s)for DNA was as follows: The comparative and condensed statements of financial position (in 000s)for DNA were as follows: OTHER INFORMATION: • Purchases and sales of merchandise inventory occurred evenly throughout the year. • The ending inventory was purchased evenly throughout the last month of the year. • DNA had purchased the capital assets on hand at the end of 20X6 on March 17,20X1.There were no purchases or sales of capital assets from 20X3 to 20X6. • Dividends were paid on June 30,20X6. Assume that foreign exchange rates were as follows: Required: Translate DNA's balance sheet (excluding retained earnings)at December 31,20X6 into Canadian dollars under the temporal method.

All of the following statements are stated in Brazil reals (R$) Additional information: Selected exchange rates: Date of purchase of inventory on hand at year-end R$1 = $.05688 Dividends were declared on June 30,20X5 Opening inventory = R$130,000 Inventory purchases for the year = R$1,570,000 Machinery,land,and buildings were purchased on June 30,20X4 Bralta is the Brazilian subsidiary of Altapro Co. ,a Canadian company.Bralta's had net assets at June 30,20X4 of R$1,100,000.What is the accumulated loss adjustment under the current-rate method at 20X5?

All of the following statements are stated in Brazil reals (R$) Additional information: Selected exchange rates: Date of purchase of inventory on hand at year-end R$1 = $.05688 Dividends were declared on June 30,20X5 Opening inventory = R$130,000 Inventory purchases for the year = R$1,570,000 Machinery,land,and buildings were purchased on June 30,20X4 Bralta is the Brazilian subsidiary of Altapro Co. ,a Canadian company.Under the temporal method,what is the total of the non-monetary assets?

When it is not clear what the functional currency is,an accountant must use professional judgement to choose the functional currency.What is the main criterion upon which the choice should be based?

IQ has a wholly owned subsidiary in China.This subsidiary is dependent on IQ for financing and sales.How should foreign exchange gains on translation of the subsidiary's statements to Canadian dollars be reported on IQ's consolidated financial statements?