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

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,in the journal entry to record the receipt of dividend from Steamship,

In cases of operations located in highly inflationary economies:

Under the temporal method,which of the following is usually used to translate monetary amounts to the functional currency? I.The current exchange rate II The historical exchange rate III.Average exchange rate

When the local currency of the foreign subsidiary is the functional currency,a foreign subsidiary's inventory carried at cost would be converted to U.S.dollars by:

All of the following are benefits the U.S.will gain from the adoption of globally consistent accounting standards except for:

Nichols Company owns 90% of the capital stock of a foreign subsidiary located in Ireland.As a result of translating the subsidiary's accounts,a debit of $160,000 was needed in the translation adjustments account so that the foreign subsidiary's debits and credits were equal in U.S.dollars.How should Nichols report its translation adjustments on its consolidated financial statements?

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:

Briefly explain the following terms associated with accounting for foreign entities: a)Functional Currency b)Translation c)Remeasurement

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 Perth's local currency is the functional currency,what is the balance in Johnson's investment in foreign subsidiary account at December 31,2008?

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,what amount of unrealized intercompany gross profit is eliminated in preparing the consolidated financial statements for the year?

On January 1,2008,Pace Company acquired all of the outstanding stock of Spin PLC,a British Company,for $350,000.Spin's net assets on the date of acquisition were 250,000 pounds ( $\le$ ).On January 1,2008,the book and fair values of the Spin's identifiable assets and liabilities approximated their fair values except for property,plant,and equipment and trademarks.The fair value of Spin's property,plant,and equipment exceeded its book value by $25,000.The remaining useful life of Spin's equipment at January 1,2008,was 10 years.The remainder of the differential was attributable to a trademark having an estimated useful life of 5 years.Spin's trial balance on December 31,2008,in pounds,follows: Additional Information 1.Spin uses the FIFO method for its inventory.The beginning inventory was acquired on December 31,2007,and ending inventory was acquired on December 26,2008.Purchases of $\le$ 300,000 were made evenly throughout 2008. 2.Spin acquired all of its property,plant,and equipment on March 1,2006,and uses straight-line depreciation. 3.Spin's sales were made evenly throughout 2008,and its operating expenses were incurred evenly throughout 2008. 4.The dividends were declared and paid on November 1,2008. 5.Pace's income from its own operations was $150,000 for 2008,and its total stockholders' equity on January 1,2008,was $1,000,000.Pace declared $50,000 of dividends during 2008. 6.Exchange rates were as follows: Required: 1)Prepare a schedule translating the trial balance from British pounds into U.S.dollars.Assume the pound is the functional currency. 2)Assume that Pace uses the fully adjusted equity method.Record all journal entries that relate to its investment in the British subsidiary during 2008.Provide the necessary documentation and support for the amounts in the journal entries,including a schedule of the translation adjustment related to the differential. 3)Prepare a schedule that determines Pace's consolidated comprehensive income for 2008.

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 Johnson's remeasurement gain (loss)for 20X8? (Assume the ending inventory was acquired on December 31,20X8. )

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,in the stockholders' equity section of Leo's consolidated balance sheet at December 31,20X8,Leo should report the translation adjustment as a component of other comprehensive income of:

Infinity Corporation acquired 80 percent of the common stock of an Egyptian company on January 1,20X8.The goodwill associated with this acquisition was $18,350.Exchange rates at various dates during 20X8 follow: Goodwill suffered an impairment of 20 percent during the year.If the functional currency is the Egyptian Pound,how much goodwill impairment loss should be reported on Infinity's consolidated statement of income for 20X8?

Which of the following statements is true regarding the SEC's timeline for convergence?

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,in the journal entry to record parent's share of subsidiary's 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,on Leo's consolidated balance sheet at December 31,20X8,what amount should be reported for the goodwill acquired on January 1,20X8?

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 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 Perth's local currency 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? Round your answer to the nearest dollar.

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 Perth's local currency is the functional currency,what is the amount of translation adjustments that result from translating Perth's trial balance into U.S.dollars at December 31,20X8?