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

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 Perth's cost of goods sold remeasured in U.S.dollars?

Dover Company owns 90% of the capital stock of a foreign subsidiary located in Italy.Dover's accountant has just translated the accounts of the foreign subsidiary and determined that a debit translation adjustment of $80,000 exists.If Dover uses the fully adjusted equity method for its investment,what entry should Dover record in order to recognize the translation adjustment?

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:

Parisian Co.is a French company located in Paris.Yankee Corp. ,located in New York City,acquires Parisian Co.Parisian has the Euro as its local currency and the Swiss Franc as its functional currency.Yankee has the U.S.dollar as its local currency and the U.S.dollar as its functional currency. Required: a)The year-end consolidated financial statements will be prepared in which currency? b)Explain which method is appropriate to use at year-end: Translation or Remeasurement.

Mercury Company is a subsidiary of Neptune Company and is located in Valpara'so,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?

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?

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.

Dividends of a foreign subsidiary are translated at:

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 amount is the inventory shown on the consolidated balance sheet for the year?

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?

All of the following describe the International Accounting Standard Board (IASB)except for:

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.

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 LCU is the functional currency and the translation method is appropriate?

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 local currency of the country in which Perth Company is located is the functional currency,what are the translated amounts for the items below in U.S.dollars?

If the U.S.dollar is the currency in which the foreign affiliate's books and records are maintained,and the U.S.dollar is also the functional currency,

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

Mercury Company is a subsidiary of Neptune Company and is located in Valpara'so,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: -Based on the preceding information,the translation of cost of goods sold for 20X8,assuming that the Spanish peseta is the functional currency is:

Refer to the information in question 52.Assume the U.S.dollar is the functional currency,not the pound.Prepare a schedule providing a proof of the remeasurement gain or loss.Assume that the British subsidiary had the following monetary assets and liabilities at January 1,2008:

Use the information given in question 52 to prepare a schedule providing a proof of the translation adjustment.

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 Perth's net income for 20X8 in U.S.dollars (include the remeasurement gain or loss in Perth's net income)?