Exam 8: Translation of Foreign Currency Financial

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 cost of goods sold on Porter's consolidated income statement at December 31,2018?

Under what circumstances would the remeasurement of a foreign subsidiary's financial statements be required?

In accounting,the term translation refers to

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.Assuming that the foreign nation for the subsidiary had a highly inflationary economy,at what amount should that foreign subsidiary's purchases have been reflected in the 2018 U.S.dollar income statement?

If a subsidiary is operating in a highly inflationary economy,how are the financial statements to be restated?

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 accumulated depreciation for 2018.

REFERENCE: 8-02 Darron Co.was formed on January 1,2018 as a wholly owned foreign subsidiary of a U.S.corporation.Darron's functional currency was the stickle (§).The following transactions and events occurred during 2018: Jan. 1 Darron issued common stock for \ 1,000,000. June 30 Darron paid dividends of \S20,000. Dec. 31 Darron reported net income of \S80,000 for the year Exchange rates for 2018 were: Jan. 1 \ 1=\S.48 June 30 \ 1=\S.46 Dec. 31 \ 1=\S.42 Weighted average rate for the year \ 1=\ .44 -What was the amount of the translation adjustment for 2018?

REFERENCE: 8-07 A foreign subsidiary uses the first-in first-out inventory method.The following inventory balances are given at December 31,2018 in local currency units (LCU): Inventory at cost 320,000 LCU Inventory at net realizable value 420,000 LCU $\text { The following exchange rates are given for } 2018 \text { : }$ quarter average, 2018 \ 1.43=1 LCU December 31,2018 1.42=1 LCU -Compute the December 31,2018,inventory balance using the lower of cost or net realizable value method under the temporal method.

REFERENCE: 8-13 Boerkian Co.started 2018 with two assets: Cash of §26,000 (Stickles)and Land that originally cost §72,000 when acquired on April 4,2015.On May 1,2018,the company rendered services to a customer for §36,000,an amount immediately paid in cash.On October 1,2018,the company incurred an operating expense of §22,000 that was immediately paid.No other transactions occurred during the year so an average exchange rate is not necessary.Currency exchange rates were as follows: April 4, 2015 §1 =\ .28 January 1, 2018 \S1=\ .29 May 1, 2018 \S1=\ .30 October 1, 2018 \S1=\ .31 December 31, 2018 \S1=\ .35 -Required: Assume that Boerkian was a foreign subsidiary of a U.S.multinational company and the local currency of the subsidiary (stickle)is the functional currency.On the December 31,2018 balance sheet,what was the translated value of the Land account?

Sinkal Co.was formed on January 1,2018 as a wholly owned foreign subsidiary of a U.S.corporation.Sinkal's functional currency was the stickle (§).The following transactions and events occurred during 2018: Jan. 1 Sinkal issued common stock for \ 1,000,000. June 30 Sinkal paid dividends of \S20,000. Dec. 31 Sinkal reported net income of \S80,000 for the year Exchange rates for 2018 were: Jan. 1 \S1=\ .42 June 30 \S1=\ .46 Dec. 31 \S1=\ .48 Weighted average rate for the year \ 1=\ .44 What was the amount of the translation adjustment for 2018?

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.statement of retained earnings amount for dividends for 2018.

Under the current rate method,common stock would be translated at what rate?

A highly inflationary economy is defined as

REFERENCE: 8-13 Boerkian Co.started 2018 with two assets: Cash of §26,000 (Stickles)and Land that originally cost §72,000 when acquired on April 4,2015.On May 1,2018,the company rendered services to a customer for §36,000,an amount immediately paid in cash.On October 1,2018,the company incurred an operating expense of §22,000 that was immediately paid.No other transactions occurred during the year so an average exchange rate is not necessary.Currency exchange rates were as follows: April 4, 2015 §1 =\ .28 January 1, 2018 \S1=\ .29 May 1, 2018 \S1=\ .30 October 1, 2018 \S1=\ .31 December 31, 2018 \S1=\ .35 -Assume Boerkian was a foreign subsidiary of a U.S.multinational company and the U.S.dollar was the functional currency of the subsidiary.Prepare a schedule of changes in the net monetary assets of Boerkian for the year 2018 and properly label the resulting gain or loss.

REFERENCE: 8-06 Esposito is an Italian subsidiary of a U.S.company. Esposito's ending inventory is valued at the average cost for the last quarter of the year. The following account balances are available for Esposito for 2018: Beginning inventory 20,000 Purchases 400,000 Ending inventory 15,000 Relevant exchange rates follow: quarter average, 2017 \ .93=1 December 31,2017 .94=1 Average for 2018 .96=1 quarter average, 2018 .99=1 December 31, 2018 1.01=1 -Compute ending inventory for 2018 under the current rate method.

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 -Assuming the functional currency of the subsidiary is the local currency,what total should be included in Parker's consolidated balance sheet at December 31,2018,for the above items?