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

Michigan-based Leo Corporation acquired 100 percent of the common stock of a British company on January 1, 20X8, for $1,100,000. The British subsidiary's net assets amounted to 500,000 pounds on the date of acquisition. On January 1, 20X8, the book values of its identifiable assets and liabilities approximated their fair values. As a result of an analysis of functional currency indicators, Leo determined that the British pound was the functional currency. On December 31, 20X8, the British subsidiary's adjusted trial balance, translated into U.S. dollars, contained $17,000 more debits than credits. The British subsidiary reported income of 33,000 pounds for 20X8 and paid a cash dividend of 8,000 pounds on October 25, 20X8. Included on the British subsidiary's income statement was depreciation expense of 3,500 pounds. Leo uses the fully adjusted equity method of accounting for its investment in the British subsidiary and determined that goodwill in the first year had an impairment loss of 25 percent of its initial amount. Exchange rates at various dates during 20X8 follow: -Based on the preceding information,the receipt of the dividend will result in a credit to the investment account for:

Gains from remeasuring a foreign subsidiary's financial statements from the local currency,which is not the functional currency,into the company's functional currency should be reported as a(n)

Which of the following defines a foreign-based entity that uses a functional currency different from the local currency? I.A U.S.subsidiary in Britain maintains its accounting records in pounds sterling,with the majority of its transactions denominated in pounds sterling. II.A U.S.subsidiary in Peru conducts virtually all of its business in Latin America,and uses the U.S.dollar as its major currency.

Parent Company's wholly-owned subsidiary,Son Corporation,maintains its accounting records in Danish krone.However,because all of Son's branch offices are in Sweden,its functional currency is the Swedish krona.Remeasurement of Son's 20X3 financial statements resulted in a $3,200 loss,and translation of its financial statement resulted in a $2,600 loss.What amount should Parent report as a loss in its income statement for the year ended December 31,20X3?

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?

Mercury Company is a subsidiary of Neptune Company and is located in Valparaíso, Chile, where the currency is the Chilean Peso. Data on Mercury's inventory and purchases are as follows: The beginning inventory was acquired during the fourth quarter of 20X7, and the ending inventory was acquired during the fourth quarter of 20X8. Purchases were made evenly over the year. Exchange rates were as follows: -Refer the information provided above.Assuming the U.S.dollar is the functional currency,what is the amount of Mercury's cost of goods sold remeasured in U.S.dollars?

For each of the items listed below,state whether they increase or decrease the balance in cumulative translation adjustments (assuming a credit balance at the beginning of the year)when the foreign currency strengthened relative to the U.S.dollar during the year.

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 the U.S.dollar is the functional currency,what is the amount of patent amortization for 20X8 that results from Johnson's acquisition of Perth's stock on January 2,20X8?

If the functional currency is the local currency of a foreign subsidiary,what exchange rates should be used to translate the items below,assuming the foreign subsidiary is in a country which has not experienced hyperinflation over three years?

The balance in Newsprint Corp.'s foreign exchange loss account was $10,000 on December 31, 20X8, before any necessary year-end adjustment relating to the following: (1) Newsprint had a $15,000 debit resulting from the restatement in dollars of the accounts of its wholly owned foreign subsidiary for the year ended December 31, 20X8. (2) Newsprint had an account payable to an unrelated foreign supplier, payable in the supplier's local currency unit (LCU) on January 15, 20X9. The U.S. dollar-equivalent of the payable was $50,000 on the December 1, 20X8, invoice date and $53,000 on December 31, 20X8. -Based on the information provided,in Newsprint's 20X8 consolidated income statement,what amount should be included as foreign exchange loss in computing net income,if the U.S.dollar is the functional currency and the remeasurement method is appropriate?

Elan,a U.S.corporation,completed the December 31,20X8,foreign currency translation of its 70 percent owned Swiss subsidiary's trial balance using the current rate method.The translation resulted in a debit adjustment of $25,000.The subsidiary had reported net income of 800,000 Swiss francs for 20X8 and paid dividends of 50,000 Swiss francs on September 1,20X8.The translation rates for the year were: The January 1 balance of the Investment in the Swiss subsidiary account was $1,600,000.Elan acquired its interest in the Swiss subsidiary at book value with no differential or goodwill recorded at acquisition. Elan's Investment in Swiss subsidiary account at December 31,20X8,is:

Simon Company has two foreign subsidiaries.One is located in France,the other in England.Simon has determined the U.S.dollar is the functional currency for the French subsidiary,while the British pound is the functional currency for the English subsidiary.Both subsidiaries maintain their books and records in their respective local currencies.What methods will Simon use to convert each of the subsidiary's financial statements into U.S.dollars?

The British subsidiary of a U.S.company reported cost of goods sold of 75,000 pounds (sterling)for the current year ended December 31.The beginning inventory was 10,000 pounds,and the ending inventory was 15,000 pounds.Spot rates for various dates are as follows: Assuming the dollar is the functional currency of the British subsidiary,the remeasured amount of cost of goods sold that should appear in the consolidated income statement is:

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 dollar amount is the ending inventory shown in the trial balance of the consolidated worksheet?

Barcode Corporation acquired 70% of the common stock of a Russian company on January 1,20X6.The goodwill associated with this acquisition was $12,520.Exchange rates at various dates during 20X6 follow: Goodwill suffered an impairment of 25 percent during the year.If the functional currency is the Russian ruble,how much goodwill impairment loss should be reported on Barcode's consolidated statement of income for 20X6?

The assets listed below of a foreign subsidiary have been converted to U.S.dollars at both current and historical exchange rates.Assuming that the local currency of the foreign subsidiary is the functional currency,what total amount should appear for these assets on the U.S.company's consolidated balance sheet?

In cases of operations located in highly inflationary economies:

The Canadian subsidiary of a U.S.company reported cost of goods sold of 50,000 C$,for the current year ended December 31.The beginning inventory was 15,000 C$,and the ending inventory was 10,000 C$.Spot rates for various dates are as follows: Assuming the U.S.dollar is the functional currency of the Canadian subsidiary,the remeasured amount of cost of goods sold that should appear in the consolidated income statement is

If the restatement method for a foreign subsidiary involves remeasuring from the local currency into the functional currency,then translating from functional currency to U.S.dollars,the functional currency of the subsidiary is: I.U.S.dollar. II.Local currency unit. III.A third country's currency.

All of the following stockholders' equity accounts of a foreign subsidiary are translated at historical exchange rates except: