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

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?

On January 2,20X8,Polaris Company acquired a 100% interest in the capital stock of Ski 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,Ski's balance sheet contained the following information: Ski's income statement for 20X8 is as follows: The balance sheet of Ski at December 31,20X8,is as follows: Ski declared and paid a dividend of 20,000 FCU on October 1,20X8.Spot rates at various dates for 20X8 follow: Assume Ski's revenues,purchases,operating expenses,depreciation expense,and income taxes were incurred evenly throughout 20X8. -Refer to the above information.Assuming Ski's FCU is the functional currency,what is the balance in Polaris's investment in foreign subsidiary account at December 31,2008?

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,what amount should Leo record as "income from subsidiary" based on the British subsidiary's reported net income?

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 foreign currency unit 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 supplier's foreign currency is the functional currency and the translation method is appropriate?

The gain or loss on the effective portion of a U.S.parent company's hedge of a net investment in a foreign entity should be treated as:

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?

Seattle,Inc.owns an 80 percent interest in a Portuguese subsidiary.For 20X8,Seattle reported income from operations of $2.0 million.The Portuguese company's income from operations,after foreign currency translation,was $1.1 million.The foreign currency translation adjustment was $120,000 (credit).Consolidated net income and consolidated comprehensive income for the year are:

Dividends of a foreign subsidiary are translated at:

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:

South Company is a subsidiary of Pole Company and is located in Malaysia,where the currency is the ringgit.Data on South's inventory and purchases are as follows: The beginning inventory was acquired during the fourth quarter of 20X3,and the ending inventory was acquired during the fourth quarter of 20X4.Purchases were made evenly during 20X4.Exchange rates were as follows: -Based on the preceding information,the translation of cost of goods sold for 20X4,assuming that the Malaysian ringgit is the function currency is

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 pound is the functional currency of the British subsidiary,the translated amount of cost of goods sold that should appear in the consolidated income statement is:

South Company is a subsidiary of Pole Company and is located in Malaysia,where the currency is the ringgit.Data on South's inventory and purchases are as follows: The beginning inventory was acquired during the fourth quarter of 20X3,and the ending inventory was acquired during the fourth quarter of 20X4.Purchases were made evenly during 20X4.Exchange rates were as follows: -Based on the preceding information and assuming the U.S.dollar is the functional currency,what is the amount of South's costs of goods sold remeasured in U.S.dollars?

On January 1,20X8,Pullman Corporation acquired 75 percent interest in Steamship Company for $300,000.Steamship is a Norwegian company.The recording 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.Pullman 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:

Which combination of accounts and exchange rates is correct for the translation of a foreign entity's financial statements from the functional currency to U.S.dollars?

On October 15,20X1,Planet Company sold inventory to Stars Corporation,its Mexican subsidiary.The goods cost Planet $2,700 and were sold to Stars for $3,500,payable in Mexican pesos.The goods are still on hand at the end of the year on December 31.The Mexican peso is the functional currency of Stars.The exchange rates follow: -Based on the preceding information,at what dollar amount is the ending inventory shown in the subsidiary's trial balance column of the consolidation worksheet?

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

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 recording 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?

On January 2,20X8,Polaris Company acquired a 100% interest in the capital stock of Ski 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,Ski's balance sheet contained the following information: Ski's income statement for 20X8 is as follows: The balance sheet of Ski at December 31,20X8,is as follows: Ski declared and paid a dividend of 20,000 FCU on October 1,20X8.Spot rates at various dates for 20X8 follow: Assume Ski's revenues,purchases,operating expenses,depreciation expense,and income taxes were incurred evenly throughout 20X8. -Refer to the above information.Assuming the FCU of the country in which Ski Company is located is the functional currency,what are the translated amounts for the items below in U.S.dollars?

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:

Saltaire Co.is a French company located in Paris.Primer Corp. ,located in New York City,acquires Saltaire Co.Saltaire has the Euro as its recording currency and the Swiss Franc as its functional currency.Primer has the U.S.dollar as its recording 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 to use at year-end: Translation or Remeasurement?