REFERENCE: 8-11 Quadros Inc. ,a Portuguese firm was acquired by a U.S.company on January 1,2017.Selected account balances are available for the year ended December 31,2018,and are stated in Euro,the local currency. $\begin{array}{lr} \text { Sales } & £ 400,000 \\ \text { Inventory (bought on February 1, 2018) } & 20,000 \\ \text { Equipment (bought on January 1, 2017) } & 90,000 \\ \text { Dividends (paid on September 1, 2018) } & 20,000 \\ \text { Accumulated depreciation -Equipment 12/31/18 } & 45,000 \\ \text { Depreciation expense - Equipment, 2018 } & 9,000 \end{array}$ $\text { Relevant exchange rates for } 1 \text { Euro are given below: }$ $\begin{array}{lr} \text { January 1, 2017 } & \$ .91 \\ \text { January 1, 2018 } & .93 \\ \text { February 1, 2018 } & .94 \\ \text { September 1, 2018 } & .97 \\ \text { December 31, 2018 } & 1.01 \\ \text { 4 th quarter average, 2017 } & .90 \\ \text { 4 th quarter average, 2018 } & .98 \\ \text { Average, 2018 } & .95 \end{array}$ -Assume the functional currency is the Euro;compute the U.S.income statement amount for sales for 2018.

A) $364,000. B) $372,000. C) $380,000. D) $360,000. E) $404,000. A) $364,000. B) $372,000. C) $380,000. D) $360,000. E) $404,000.

REFERENCE: 8-09 Certain balance sheet accounts of a foreign subsidiary of Parker Company at December 31,2018,have been restated into U.S.dollars as follows: $\begin{array}{lrr} &\ { \text { Restated at } } \\ & \text { Current Rates } & \text { Historical Rates } \\ \text { Cash } & \$ 47,500 & \$ 45,000 \\ \text { Accounts receivable } & 95,000 & 90,000 \\ \text { Marketable securities, at fair value } & 76,000 & 72,000 \\ \text { Land } & 57,000 & 54,000 \\ \text { Equipment (net) } & 142,500 & 135,000 \\ \quad \text { Total } & \$ 418,000 & \$ 396,000 \end{array}$ -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. A) $0.9000. B) $1.0000. C) $0.9500. D) $0.9474. E) $1.0556.

REFERENCE: 8-11 Quadros Inc. ,a Portuguese firm was acquired by a U.S.company on January 1,2017.Selected account balances are available for the year ended December 31,2018,and are stated in Euro,the local currency. $\begin{array}{lr} \text { Sales } & £ 400,000 \\ \text { Inventory (bought on February 1, 2018) } & 20,000 \\ \text { Equipment (bought on January 1, 2017) } & 90,000 \\ \text { Dividends (paid on September 1, 2018) } & 20,000 \\ \text { Accumulated depreciation -Equipment 12/31/18 } & 45,000 \\ \text { Depreciation expense - Equipment, 2018 } & 9,000 \end{array}$ $\text { Relevant exchange rates for } 1 \text { Euro are given below: }$ $\begin{array}{lr} \text { January 1, 2017 } & \$ .91 \\ \text { January 1, 2018 } & .93 \\ \text { February 1, 2018 } & .94 \\ \text { September 1, 2018 } & .97 \\ \text { December 31, 2018 } & 1.01 \\ \text { 4 th quarter average, 2017 } & .90 \\ \text { 4 th quarter average, 2018 } & .98 \\ \text { Average, 2018 } & .95 \end{array}$ -Assume the functional currency is the U.S.Dollar;compute the U.S.balance sheet amount for inventory,at cost,for 2018.

A) $18,800. B) $19,600. C) $18,000. D) $20,200. E) $19,000. A) $18,800. B) $19,600. C) $18,000. D) $20,200. E) $19,000.

REFERENCE: 8-08 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 1,2018.The equipment was purchased on January 1,2017.Relevant exchange rates for the peso are as follows: \[\begin{array} { l r } \text { January 1,2017 } & \$ .110 \\ \text { March 1,2018 } & .106 \\ \text { December 31, 2018 } & .102 \\ \text { Average, 2018 } & .105 \end{array}\] -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. A) $1,530. B) $1,575. C) $1,590. D) $1,090. E) $1,650.

REFERENCE: 8-11 Quadros Inc. ,a Portuguese firm was acquired by a U.S.company on January 1,2017.Selected account balances are available for the year ended December 31,2018,and are stated in Euro,the local currency. $\begin{array}{lr} \text { Sales } & £ 400,000 \\ \text { Inventory (bought on February 1, 2018) } & 20,000 \\ \text { Equipment (bought on January 1, 2017) } & 90,000 \\ \text { Dividends (paid on September 1, 2018) } & 20,000 \\ \text { Accumulated depreciation -Equipment 12/31/18 } & 45,000 \\ \text { Depreciation expense - Equipment, 2018 } & 9,000 \end{array}$ $\text { Relevant exchange rates for } 1 \text { Euro are given below: }$ $\begin{array}{lr} \text { January 1, 2017 } & \$ .91 \\ \text { January 1, 2018 } & .93 \\ \text { February 1, 2018 } & .94 \\ \text { September 1, 2018 } & .97 \\ \text { December 31, 2018 } & 1.01 \\ \text { 4 th quarter average, 2017 } & .90 \\ \text { 4 th quarter average, 2018 } & .98 \\ \text { Average, 2018 } & .95 \end{array}$ -Assume the functional currency is the U.S.Dollar;compute the U.S.income statement amount for sales for 2018.

A) $364,000. B) $372,000. C) $380,000. D) $360,000. E) $404,000. A) $364,000. B) $372,000. C) $380,000. D) $360,000. E) $404,000.

REFERENCE: 8-11 Quadros Inc. ,a Portuguese firm was acquired by a U.S.company on January 1,2017.Selected account balances are available for the year ended December 31,2018,and are stated in Euro,the local currency. $\begin{array}{lr} \text { Sales } & £ 400,000 \\ \text { Inventory (bought on February 1, 2018) } & 20,000 \\ \text { Equipment (bought on January 1, 2017) } & 90,000 \\ \text { Dividends (paid on September 1, 2018) } & 20,000 \\ \text { Accumulated depreciation -Equipment 12/31/18 } & 45,000 \\ \text { Depreciation expense - Equipment, 2018 } & 9,000 \end{array}$ $\text { Relevant exchange rates for } 1 \text { Euro are given below: }$ $\begin{array}{lr} \text { January 1, 2017 } & \$ .91 \\ \text { January 1, 2018 } & .93 \\ \text { February 1, 2018 } & .94 \\ \text { September 1, 2018 } & .97 \\ \text { December 31, 2018 } & 1.01 \\ \text { 4 th quarter average, 2017 } & .90 \\ \text { 4 th quarter average, 2018 } & .98 \\ \text { Average, 2018 } & .95 \end{array}$ -Assume the functional currency is the Euro;compute the U.S.income statement amount for depreciation expense for 2018.

A) $8,190. B) $8,370. C) $8,820. D) $9,090. E) $8,550. A) $8,190. B) $8,370. C) $8,820. D) $9,090. E) $8,550.

REFERENCE: 8-04 Certain balance sheet accounts of a foreign subsidiary of the Tulip Co.had been stated in U.S.dollars as follows: $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { Stated at }$ $\begin{array}{llrr} &&\text { Current } & \text { Historical } \\ &&\text { Rates } & \text { Rates }\\ \text { Accounts receivable } & - \text { current } & \$ 280,000 & \$ 308,000 \\ \text { Accounts receivable } & - \text { long -term } & 140,000 & 154,000 \\ \text { Prepaid insurance } & & 70,000 & 77,000 \\ \text { Goodwill } & & 112,000 & 119,000\\ \text { Totals }&& \$ 602,000 &\$ 658,000 \end{array}$ -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. A) $609,000. B) $658,000. C) $602,000. D) $630,000. E) $616,000.

Exam 8: Translation of Foreign Currency Financial

REFERENCE: 8-11 Quadros Inc. ,a Portuguese firm was acquired by a U.S.company on January 1,2017.Selected account balances are available for the year ended December 31,2018,and are stated in Euro,the local currency. Sales £400,000 Inventory (bought on February 1, 2018) 20,000 Equipment (bought on January 1, 2017) 90,000 Dividends (paid on September 1, 2018) 20,000 Accumulated depreciation -Equipment 12/31/18 45,000 Depreciation expense - Equipment, 2018 9,000 $\text { Relevant exchange rates for } 1 \text { Euro are given below: }$ January 1, 2017 \ .91 January 1, 2018 .93 February 1, 2018 .94 September 1, 2018 .97 December 31, 2018 1.01 4 th quarter average, 2017 .90 4 th quarter average, 2018 .98 Average, 2018 .95 -Assume the functional currency is the Euro;compute the U.S.income statement amount for sales for 2018.

(Multiple Choice)

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Question 41

REFERENCE: 8-09 Certain balance sheet accounts of a foreign subsidiary of Parker Company at December 31,2018,have been restated into U.S.dollars as follows: \ Restated at Current Rates Historical Rates Cash \ 47,500 \ 45,000 Accounts receivable 95,000 90,000 Marketable securities, at fair value 76,000 72,000 Land 57,000 54,000 Equipment (net) 142,500 135,000 Total \ 418,000 \ 396,000 -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?

(Multiple Choice)

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Question 42

REFERENCE: 8-12 Ginvold Co.began operating a subsidiary in a foreign country on January 1,2018 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 1,2019.A building was then purchased for §170,000 on January 1,2018.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 31,2018.The functional currency for the subsidiary was the Stickle (§).Currency exchange rates were as follows: January 1,2018 \S1=\ 2.40 October 1,2018 \S1=\ 2.22 Average for 2018 \S1=\ 2.28 December 31,2018 \S1=\ 2.16 -Prepare a statement of retained earnings for this subsidiary in stickles and then translate the amounts into U.S.dollars.

(Essay)

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Question 43

Gunther Co.established a subsidiary in Mexico on January 1,2018.The subsidiary engaged in the following transactions during 2018: What amount of foreign exchange gain or loss would have been recognized in Gunther's consolidated income statement for 2018?

(Multiple Choice)

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Question 44

In translating a foreign subsidiary's financial statements,what exchange rate should be used for the subsidiary's revenues and expenses?

(Essay)

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Question 45

Contrast the purpose of remeasurement with the purpose of translation.

(Essay)

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Question 46

REFERENCE: 8-11 Quadros Inc. ,a Portuguese firm was acquired by a U.S.company on January 1,2017.Selected account balances are available for the year ended December 31,2018,and are stated in Euro,the local currency. Sales £400,000 Inventory (bought on February 1, 2018) 20,000 Equipment (bought on January 1, 2017) 90,000 Dividends (paid on September 1, 2018) 20,000 Accumulated depreciation -Equipment 12/31/18 45,000 Depreciation expense - Equipment, 2018 9,000 $\text { Relevant exchange rates for } 1 \text { Euro are given below: }$ January 1, 2017 \ .91 January 1, 2018 .93 February 1, 2018 .94 September 1, 2018 .97 December 31, 2018 1.01 4 th quarter average, 2017 .90 4 th quarter average, 2018 .98 Average, 2018 .95 -Assume the functional currency is the U.S.Dollar;compute the U.S.balance sheet amount for inventory,at cost,for 2018.

(Multiple Choice)

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Question 47

Which method is used for remeasuring a foreign subsidiary's financial statements?

(Multiple Choice)

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Question 48

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?

(Multiple Choice)

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Question 49

Farley Brothers,a U.S.company,had a subsidiary in Italy.Under what conditions would the U.S.dollar be considered the functional currency for this subsidiary?

(Essay)

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Question 50

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

(Multiple Choice)

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Question 51

A U.S.company's foreign subsidiary had the following amounts in stickles (§),the functional currency,in 2018: Cost of goods sold \S12,000,000 Ending inventory 600,000 Beginning inventory 240,000 The average exchange rate during 2018 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 31,2018 was §1 = $.84.At what amount should the foreign subsidiary's cost of goods sold have been reflected in the 2018 U.S.dollar income statement?

(Multiple Choice)

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Question 52

What is a company's functional currency?

(Multiple Choice)

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Question 53

REFERENCE: 8-08 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 1,2018.The equipment was purchased on January 1,2017.Relevant exchange rates for the peso are as follows: January 1,2017 \ .110 March 1,2018 .106 December 31, 2018 .102 Average, 2018 .105 -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?

(Multiple Choice)

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Question 54

Under the temporal method,common stock would be remeasured at what rate?

(Multiple Choice)

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Question 55

REFERENCE: 8-11 Quadros Inc. ,a Portuguese firm was acquired by a U.S.company on January 1,2017.Selected account balances are available for the year ended December 31,2018,and are stated in Euro,the local currency. Sales £400,000 Inventory (bought on February 1, 2018) 20,000 Equipment (bought on January 1, 2017) 90,000 Dividends (paid on September 1, 2018) 20,000 Accumulated depreciation -Equipment 12/31/18 45,000 Depreciation expense - Equipment, 2018 9,000 $\text { Relevant exchange rates for } 1 \text { Euro are given below: }$ January 1, 2017 \ .91 January 1, 2018 .93 February 1, 2018 .94 September 1, 2018 .97 December 31, 2018 1.01 4 th quarter average, 2017 .90 4 th quarter average, 2018 .98 Average, 2018 .95 -Assume the functional currency is the U.S.Dollar;compute the U.S.income statement amount for sales for 2018.

(Multiple Choice)

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Question 56

REFERENCE: 8-11 Quadros Inc. ,a Portuguese firm was acquired by a U.S.company on January 1,2017.Selected account balances are available for the year ended December 31,2018,and are stated in Euro,the local currency. Sales £400,000 Inventory (bought on February 1, 2018) 20,000 Equipment (bought on January 1, 2017) 90,000 Dividends (paid on September 1, 2018) 20,000 Accumulated depreciation -Equipment 12/31/18 45,000 Depreciation expense - Equipment, 2018 9,000 $\text { Relevant exchange rates for } 1 \text { Euro are given below: }$ January 1, 2017 \ .91 January 1, 2018 .93 February 1, 2018 .94 September 1, 2018 .97 December 31, 2018 1.01 4 th quarter average, 2017 .90 4 th quarter average, 2018 .98 Average, 2018 .95 -Assume the functional currency is the Euro;compute the U.S.income statement amount for depreciation expense for 2018.

(Multiple Choice)

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Question 57

Under the current rate method,inventory at net realizable value would be translated for the balance sheet at what rate?

(Multiple Choice)

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Question 58

When using the current rate method,the translation adjustment from translating a foreign subsidiary's financial statements should be shown as

(Multiple Choice)

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Question 59

REFERENCE: 8-04 Certain balance sheet accounts of a foreign subsidiary of the Tulip Co.had been stated in U.S.dollars as follows: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\text { Stated at }$ Current Historical Rates Rates Accounts receivable - current \ 280,000 \ 308,000 Accounts receivable - long -term 140,000 154,000 Prepaid insurance 70,000 77,000 Goodwill 112,000 119,000 Totals \ 602,000 \ 658,000 -If the U.S.dollar is the functional currency of this subsidiary,what total amount should be included in Tulip's balance sheet in U.S.dollars?

(Multiple Choice)

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Question 60

Gunther Co.established a subsidiary in Mexico on January 1,2018.The subsidiary engaged in the following transactions during 2018: What amount of foreign exchange gain or loss would have been recognized in Gunther's consolidated income statement for 2018?

In translating a foreign subsidiary's financial statements,what exchange rate should be used for the subsidiary's revenues and expenses?

Contrast the purpose of remeasurement with the purpose of translation.

Which method is used for remeasuring a foreign subsidiary's financial statements?

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?

Farley Brothers,a U.S.company,had a subsidiary in Italy.Under what conditions would the U.S.dollar be considered the functional currency for this subsidiary?

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

What is a company's functional currency?

Under the temporal method,common stock would be remeasured at what rate?

Under the current rate method,inventory at net realizable value would be translated for the balance sheet at what rate?

When using the current rate method,the translation adjustment from translating a foreign subsidiary's financial statements should be shown as

The Equity Method of Accounting for Investments

Consolidation of Financial Information

Consolidations - Subsequent to the Date of Acquisition

Consolidated Financial Statements and Outside Ownership

Consolidated Financial Statements Intra-Entity Asset Transactions

Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows, and Other Issues

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Partnerships: Formation and Operation

Partnerships: Termination and Liquidation

Accounting for State and Local Governments, part I

Accounting for State and Local Governments, part II

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