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.balance sheet amount for inventory at December 31,2018.

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: 8-04 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 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. A) $609,000. B) $658,000. C) $602,000. D) $630,000. E) $616,000.

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 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. 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 Euro;compute the U.S.Statement of Retained Earnings amount reported for Dividends in 2018.

A) $19,000. B) $20,200. C) $18,600. D) $19,400. E) $19,600. A) $19,000. B) $20,200. C) $18,600. D) $19,400. E) $19,600.

REFERENCE: 8-01 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 2018: \[\begin{array} { l l } \text { Jan. } 1 & £ 1 = \$ 1.60 \\ \text { June 3C } & £ 1 = \$ 1.64 \\ \text { Dec. 31 } & £ 1 = \$ 1.61 \\ \text { Weighted average rate for the year } & £ 1 = \$ 1.59 \end{array}\] -Westmore reported sales of £1,500,000 during 2018.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. A) $2,415,000. B) $2,400,000. C) $2,385,000. D) $ 943,396. E) $ 931,677.

REFERENCE: 8-05 A subsidiary of Porter Inc. ,a U.S.company,was located in a foreign country.The functional currency of this subsidiary was the Stickle (§)which is the local currency where the subsidiary is located.The subsidiary acquired inventory on credit on November 1,2017,for §120,000 that was sold on January 17,2018 for §156,000.The subsidiary paid for the inventory on January 31,2018.Currency exchange rates between the dollar and the Stickle were as follows: \[\begin{array} { l l } \text { November 1, 2017 } & \$ .19 = \S 1 \\ \text { December } 31.2017 & \$ .20 = \S 1 \\ \text { January 1. 2018 } & \$ .22 = \S 1 \\ \text { January 31. 2018 } & \$ .23 = \S 1 \\ \text { Average for 2018 } & \$ .24 = \S 1 \end{array}\] -A U.S.company's foreign subsidiary had the following amounts in stickles (§)in 2018: \[\begin{array} { l r } \text { Cost of goods sold } & \S 12,000,000 \\ \text { Ending inventory } & 600,000 \\ \text { Beginning inventory } & 240,000 \end{array}\] 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.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 2018 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. A) $11,253,600. B) $11,577,600. C) $11,649,600. D) $11,613,600. E) $11,523,600.

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 equipment for 2018.

A) $81,900. B) $90,900. C) $83,700. D) $88,200. E) $85,500. A) $81,900. B) $90,900. C) $83,700. D) $88,200. E) $85,500.

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.balance sheet amount for inventory at December 31,2018.

(Multiple Choice)

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Question 61

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 subsidiary's local currency is its functional currency,what total amount should be included in Tulip's balance sheet in U.S.dollars?

(Multiple Choice)

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Question 62

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 translated 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 63

REFERENCE: 8-05 A subsidiary of Porter Inc. ,a U.S.company,was located in a foreign country.The functional currency of this subsidiary was the Stickle (§)which is the local currency where the subsidiary is located.The subsidiary acquired inventory on credit on November 1,2017,for §120,000 that was sold on January 17,2018 for §156,000.The subsidiary paid for the inventory on January 31,2018.Currency exchange rates between the dollar and the Stickle were as follows: November 1, 2017 \ .19=\S1 December 31.2017 \ .20=\S1 January 1. 2018 \ .22=\S1 January 31. 2018 \ .23=\S1 Average for 2018 \ .24=\S1 -What amount would have been reported for this inventory in Porter's consolidated balance sheet at December 31,2017?

(Multiple Choice)

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Question 64

Under the temporal method,depreciation expense would be remeasured at what rate?

(Multiple Choice)

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Question 65

When preparing a consolidated statement of cash flows,which of the following statements is false?

(Multiple Choice)

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Question 66

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.Statement of Retained Earnings amount reported for Dividends in 2018.

(Multiple Choice)

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Question 67

Under the current rate method,depreciation expense would be translated at what rate?

(Multiple Choice)

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Question 68

Where is the translation adjustment reported in the parent company's financial statements?

(Multiple Choice)

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Question 69

In translating a foreign subsidiary's financial statements,which exchange rate does the current method require for the subsidiary's assets and liabilities?

(Multiple Choice)

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Question 70

REFERENCE: 8-10 Kennedy Company acquired all of the outstanding common stock of Hastie Company of Canada for U.S.$350,000 on January 1,2018,when the exchange rate for the Canadian dollar (CAD)was U.S.$.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 31,2018,Hastie's trial balance net income was translated at U.S.$25,000.The average exchange rate for the Canadian dollar during 2018 was U.S.$.68,and the 2018 year-end exchange rate was U.S.$.65. -Compute the amount of the patent reported in the consolidated balance sheet at December 31,2018.

(Multiple Choice)

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Question 71

A net asset balance sheet exposure exists and the foreign currency depreciates.Which of the following statements is true?

(Multiple Choice)

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Question 72

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 balance sheet for this subsidiary in stickles and then translate the amounts into U.S.dollars.

(Essay)

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Question 73

A net liability balance sheet exposure exists and the foreign currency depreciates.Which of the following statements is true?

(Multiple Choice)

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Question 74

Under the temporal method,which accounts are remeasured using current exchange rates?

(Multiple Choice)

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Question 75

REFERENCE: 8-01 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 2018: Jan. 1 £1=\ 1.60 June 3C £1=\ 1.64 Dec. 31 £1=\ 1.61 Weighted average rate for the year £1=\ 1.59 -Westmore reported sales of £1,500,000 during 2018.What amount (rounded)would have been included for this subsidiary in calculating consolidated sales?

(Multiple Choice)

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Question 76

REFERENCE: 8-05 A subsidiary of Porter Inc. ,a U.S.company,was located in a foreign country.The functional currency of this subsidiary was the Stickle (§)which is the local currency where the subsidiary is located.The subsidiary acquired inventory on credit on November 1,2017,for §120,000 that was sold on January 17,2018 for §156,000.The subsidiary paid for the inventory on January 31,2018.Currency exchange rates between the dollar and the Stickle were as follows: November 1, 2017 \ .19=\S1 December 31.2017 \ .20=\S1 January 1. 2018 \ .22=\S1 January 31. 2018 \ .23=\S1 Average for 2018 \ .24=\S1 -A U.S.company's foreign subsidiary had the following amounts in stickles (§)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.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 2018 U.S.dollar income statement?

(Multiple Choice)

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Question 77

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 equipment for 2018.

(Multiple Choice)

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Question 78

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

(Multiple Choice)

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Question 79

How can a parent corporation determine the functional currency for a foreign subsidiary that conducts business in more than one country?

(Essay)

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Question 80

Under the temporal method,depreciation expense would be remeasured at what rate?

When preparing a consolidated statement of cash flows,which of the following statements is false?

Under the current rate method,depreciation expense would be translated at what rate?

Where is the translation adjustment reported in the parent company's financial statements?

In translating a foreign subsidiary's financial statements,which exchange rate does the current method require for the subsidiary's assets and liabilities?

A net asset balance sheet exposure exists and the foreign currency depreciates.Which of the following statements is true?

A net liability balance sheet exposure exists and the foreign currency depreciates.Which of the following statements is true?

Under the temporal method,which accounts are remeasured using current exchange rates?

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

How can a parent corporation determine the functional currency for a foreign subsidiary that conducts business in more than one country?

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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