Exam 9: Multinational Accounting: Issues in Financial Reporting and Translation of Foreign Entity Statements

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 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?

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

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?

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.

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:

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)?

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:

Dividends of a foreign subsidiary are translated at:

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 adjustment that appears on Johnson's consolidated financial statements at December 31, 20X8?

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:

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?

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?

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 balance in Johnson's investment in foreign subsidiary account at December 31, 2008?

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?

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,

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?

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?

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?

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?