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Deck 11: Translation and Consolidation of Foreign Operations
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On January 1, 2017, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000.
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Compute Martin's exchange gain or loss for 2017 if Martin is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent).
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Compute Martin's exchange gain or loss for 2017 if Martin is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent).
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On January 1, 2017, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000.
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Translate Martin's 2017 Income Statement into Canadian dollars if Martin is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent).
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Translate Martin's 2017 Income Statement into Canadian dollars if Martin is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent).
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On January 1, 2017, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000.
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Calculate Larmer's Consolidated Net Income for 2017 if Martin is considered to be a self-sustaining foreign subsidiary (i.e., the functional currency of the foreign operation is different than the parent).
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Calculate Larmer's Consolidated Net Income for 2017 if Martin is considered to be a self-sustaining foreign subsidiary (i.e., the functional currency of the foreign operation is different than the parent).
Question
On January 1, 2017, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000.
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Compute Martin's exchange gain or loss for 2017 if Martin is considered to be a self-sustaining foreign subsidiary (i.e., the functional currency of the foreign operation is different than the parent).
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Compute Martin's exchange gain or loss for 2017 if Martin is considered to be a self-sustaining foreign subsidiary (i.e., the functional currency of the foreign operation is different than the parent).
Question
On January 1, 2017, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000.
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Prepare Larmer's December 31, 2017 Consolidated Balance Sheet if Martin is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent).
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Prepare Larmer's December 31, 2017 Consolidated Balance Sheet if Martin is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent).
Question
On January 1, 2017, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000.
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Translate Martin's 2017 Income Statement into Canadian dollars if Martin is considered to be a self-sustaining foreign subsidiary (i.e., the functional currency of the foreign operation is different than the parent).
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Translate Martin's 2017 Income Statement into Canadian dollars if Martin is considered to be a self-sustaining foreign subsidiary (i.e., the functional currency of the foreign operation is different than the parent).
Question
On January 1, 2017, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000.
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Translate Martin's December 31, 2017 Balance Sheet into Canadian dollars if Martin is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent).
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Translate Martin's December 31, 2017 Balance Sheet into Canadian dollars if Martin is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent).
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Deck 11: Translation and Consolidation of Foreign Operations
1
Under the presentation currency translation (PCT) method, which of the following statements is correct?
A) All balance sheet items excluding shareholders equity are translated using the closing rate in effect at the balance sheet date.
B) All balance sheet items are translated using the closing rate in effect at the balance sheet date.
C) All balance sheet items are translated using the average rate in effect throughout the year.
D)Only non-current balance sheet items are translated using the closing rate in effect at the balance sheet date.
A) All balance sheet items excluding shareholders equity are translated using the closing rate in effect at the balance sheet date.
B) All balance sheet items are translated using the closing rate in effect at the balance sheet date.
C) All balance sheet items are translated using the average rate in effect throughout the year.
D)Only non-current balance sheet items are translated using the closing rate in effect at the balance sheet date.
A
2
Which of the following statements is correct?
A) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), dividends must be translated using closing rates.
B) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), dividends must be translated using average rates.
C) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), dividends must be translated using historical rates.
D)If an organization is considered an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent), dividends must be translated using average rates.
A) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), dividends must be translated using closing rates.
B) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), dividends must be translated using average rates.
C) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), dividends must be translated using historical rates.
D)If an organization is considered an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent), dividends must be translated using average rates.
C
3
Which of the following statements is correct?
A) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), monetary items must be translated using closing rates.
B) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), monetary items must be translated using average rates.
C) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), shareholders' equity must be translated using closing rates.
D)If an organization is considered an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent), non-monetary items recorded at cost must be translated using average rates.
A) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), monetary items must be translated using closing rates.
B) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), monetary items must be translated using average rates.
C) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), shareholders' equity must be translated using closing rates.
D)If an organization is considered an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent), non-monetary items recorded at cost must be translated using average rates.
A
4
Which of the following statements is correct with respect to the translation of cost of sales in an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent)?
A) Opening inventory is translated using an average rate.
B) Opening inventory is translated using closing rates.
C) Ending inventory is translated using an average rate.
D)Ending inventory is translated using the rate in effect when the inventory was acquired.
A) Opening inventory is translated using an average rate.
B) Opening inventory is translated using closing rates.
C) Ending inventory is translated using an average rate.
D)Ending inventory is translated using the rate in effect when the inventory was acquired.
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5
Which of the following statements is correct?
A) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), depreciation and amortization must be translated using closing rates.
B) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), depreciation and amortization must be translated using average rates.
C) If an organization is considered an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is different than the parent), depreciation and amortization must be translated using historical rates.
D)If an organization is considered an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent), depreciation and amortization must be translated using closing rates.
A) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), depreciation and amortization must be translated using closing rates.
B) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), depreciation and amortization must be translated using average rates.
C) If an organization is considered an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is different than the parent), depreciation and amortization must be translated using historical rates.
D)If an organization is considered an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent), depreciation and amortization must be translated using closing rates.
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6
Under the presentation currency translation (PCT) method, which of the following statements is correct?
A) Transaction exposure is greatest.
B) The relationship of balance sheet items is best preserved.
C) Income statement items are translated using a mix of rates.
D)Income statement items are translated using average rates.
A) Transaction exposure is greatest.
B) The relationship of balance sheet items is best preserved.
C) Income statement items are translated using a mix of rates.
D)Income statement items are translated using average rates.
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7
Which of the following statements is correct?
A) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), non-monetary items recorded at cost must be translated using historical rates.
B) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), non-monetary items recorded at cost must be translated using average rates.
C) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), non-monetary items recorded at cost must be translated using closing rates.
D)If an organization is considered an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent), non-monetary items recorded at cost must be translated using closing rates.
A) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), non-monetary items recorded at cost must be translated using historical rates.
B) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), non-monetary items recorded at cost must be translated using average rates.
C) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), non-monetary items recorded at cost must be translated using closing rates.
D)If an organization is considered an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent), non-monetary items recorded at cost must be translated using closing rates.
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8
Which of the following rates would be used to translate the company's income statement items?
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
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9
The risk exposure resulting from the translation of foreign-currency-denominated financial risks is referred to as:
A) translation (accounting) exposure.
B) transaction exposure.
C) economic exposure.
D)business risk.
A) translation (accounting) exposure.
B) transaction exposure.
C) economic exposure.
D)business risk.
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10
For a self-sustaining foreign operation (i.e., the functional currency of the foreign operation is different than the parent), exchange gains and losses are to be included in or along with:
A) other comprehensive income.
B) an exchange account.
C) non-controlling interest.
D)the acquisition differential amortization.
A) other comprehensive income.
B) an exchange account.
C) non-controlling interest.
D)the acquisition differential amortization.
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11
Which of the following rates would be used to translate the company's Assets and Liabilities?
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
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12
Which of the following rates would be used to translate the company's Retained Earnings at the start of the year?
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
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13
The risk exposure that occurs between the time of entering into a transaction and the time of settling it is referred to as:
A) translation (accounting) exposure.
B) transaction exposure.
C) economic exposure.
D)business risk.
A) translation (accounting) exposure.
B) transaction exposure.
C) economic exposure.
D)business risk.
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14
Which of the following statements is correct?
A) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), contributed capital must be translated using closing rates.
B) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), contributed capital must be translated using average rates.
C) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), contributed capital must be translated using historical rates.
D)If an organization is considered an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent), contributed capital must be translated using average rates.
A) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), contributed capital must be translated using closing rates.
B) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), contributed capital must be translated using average rates.
C) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), contributed capital must be translated using historical rates.
D)If an organization is considered an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent), contributed capital must be translated using average rates.
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15
If the functional currency of the foreign entity is the same as the parent's functional currency, which of the following statements is correct?
A) The foreign entity is classified as integrated.
B) The foreign entity is classified as self-sustaining.
C) The foreign entity is classified as a foreign affiliate.
D)The investment in the foreign entity is classified as a non-monetary asset.
A) The foreign entity is classified as integrated.
B) The foreign entity is classified as self-sustaining.
C) The foreign entity is classified as a foreign affiliate.
D)The investment in the foreign entity is classified as a non-monetary asset.
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16
Which of the following rates would be used to translate the company's Dividends paid during the year?
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8125
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8125
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
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17
Which of the following rates would be used to translate the company's Common Shares?
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
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18
Under the functional currency translation (FCT) method, which of the following statements is correct?
A) The relationship of balance sheet items is best preserved.
B) A single historic rate is used to translate all income statement items.
C) A net asset exposure is most likely.
D)Historic rates are used to translate most non-monetary items.
A) The relationship of balance sheet items is best preserved.
B) A single historic rate is used to translate all income statement items.
C) A net asset exposure is most likely.
D)Historic rates are used to translate most non-monetary items.
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19
Which of the following statements is correct?
A) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), non-monetary items recorded at closing values must be translated using closing rates.
B) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), non-monetary items recorded at closing values must be translated using average rates.
C) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), non-monetary items recorded at closing values must be translated using historical rates.
D)If an organization is considered an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent), non-monetary items recorded at closing values must be translated using average rates.
A) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), non-monetary items recorded at closing values must be translated using closing rates.
B) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), non-monetary items recorded at closing values must be translated using average rates.
C) If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), non-monetary items recorded at closing values must be translated using historical rates.
D)If an organization is considered an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent), non-monetary items recorded at closing values must be translated using average rates.
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20
The risk exposure resulting from the possible reduction in terms of the domestic reporting foreign currency, of the discounted future cash flows generated from foreign investments or operations due to real changes in exchange rates is referred to as:
A) translation (accounting) exposure.
B) transaction exposure.
C) economic exposure.
D)business risk.
A) translation (accounting) exposure.
B) transaction exposure.
C) economic exposure.
D)business risk.
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21
If the bonds were outstanding throughout the year, which of the following rates would be used to translate the company's bond interest expense for the year?
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
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22
Which of the following rates would be used to translate the company's other expenses?
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
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23
Which of the following rates would be used to translate the company's bonds payable?
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
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24
Which of the following statements is FALSE?
A) If a subsidiary is self-sustaining, the method of valuation of assets and liabilities is of no consequence in the translation because all of the assets are translated at the closing rate.
B) If a subsidiary is an integrated foreign subsidiary, the method of valuation of assets and liabilities is of no consequence in the translation because all of the assets are translated at the closing rate.
C) If a subsidiary is an integrated foreign subsidiary, a write-down to market may be required in the translated financial statements.
D)If a subsidiary is an integrated foreign subsidiary, no write-down is required in the foreign currency financial statements.
A) If a subsidiary is self-sustaining, the method of valuation of assets and liabilities is of no consequence in the translation because all of the assets are translated at the closing rate.
B) If a subsidiary is an integrated foreign subsidiary, the method of valuation of assets and liabilities is of no consequence in the translation because all of the assets are translated at the closing rate.
C) If a subsidiary is an integrated foreign subsidiary, a write-down to market may be required in the translated financial statements.
D)If a subsidiary is an integrated foreign subsidiary, no write-down is required in the foreign currency financial statements.
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25
According to IAS 29 Financial Reporting in Hyperinflationary Economies, the term "hyper-inflationary" means:
A) an annual inflation rate of 50%.
B) an annual inflation rate of 100%.
C) a cumulative inflation rate of 100% over a 3-5 year period.
D)it does not establish an absolute rate which is deemed to be hyper-inflation.
A) an annual inflation rate of 50%.
B) an annual inflation rate of 100%.
C) a cumulative inflation rate of 100% over a 3-5 year period.
D)it does not establish an absolute rate which is deemed to be hyper-inflation.
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26
For the sake of simplicity, assume once again that US1's cost of sales was calculated to be CDN$3,000,000. What is the amount (in Canadian dollars) of US1's net income?
A) $300,000.
B) $301,500.
C) $302,500.
D)$412,500.
A) $300,000.
B) $301,500.
C) $302,500.
D)$412,500.
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27
Which of the following rates would be used to translate the company's dividends?
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8125
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8125
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
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28
Which of the following rates would be used to translate the company's cash?
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
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29
Which of the following rates would be used to translate the company's sales?
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = $0.83 CDN
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = $0.83 CDN
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30
For the sake of simplicity, assume once again that US1's cost of sales was calculated to be CDN$3,000,000. What is the amount (in Canadian dollars) of US1's retained earnings at December 31, 2017?
A) $545,000.
B) $546,250.
C) $547,250.
D)$660,000.
A) $545,000.
B) $546,250.
C) $547,250.
D)$660,000.
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31
If the company had no capital asset additions or disposals in 2017, which of the following rates would be used to translate the company's depreciation expense for the year?
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
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32
Which of the following rates would be used to translate the company's current liabilities?
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
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33
Which of the following rates would be used to translate the company's beginning retained earnings?
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
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34
What is the amount of the gain or loss arising from translation?
A) A CDN$5,000 loss.
B) A CDN$750 loss.
C) A CDN$307 loss.
D)A CDN$3,750 gain.
A) A CDN$5,000 loss.
B) A CDN$750 loss.
C) A CDN$307 loss.
D)A CDN$3,750 gain.
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35
Which of the following is an indication that the functional currency of a foreign subsidiary is not the Canadian dollar?
A) Only goods imported from the parent are sold by the subsidiary.
B) The parent dictates the subsidiary's operating procedures.
C) Cash to pay obligations is generated by local operations or borrowed from local lenders.
D)Intercompany transactions account for a high proportion of the subsidiary's overall activities.
A) Only goods imported from the parent are sold by the subsidiary.
B) The parent dictates the subsidiary's operating procedures.
C) Cash to pay obligations is generated by local operations or borrowed from local lenders.
D)Intercompany transactions account for a high proportion of the subsidiary's overall activities.
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36
Which of the following rates would be used to translate the company's accounts receivable?
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
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37
If there were no additions or disposals of plant and equipment in 2017, which of the following rates would be used to translate the company's plant and equipment?
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
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38
Which of the following statements is correct?
A) If a foreign currency weakens with respect to the Canadian dollar, both self-sustaining and integrated foreign subsidiaries will show a foreign exchange gain.
B) If a foreign currency weakens with respect to the Canadian dollar, both self-sustaining and integrated foreign subsidiaries will show a foreign exchange loss.
C) If a foreign currency weakens with respect to the Canadian dollar, a self-sustaining subsidiary will show a foreign exchange gain while an integrated foreign subsidiary will show a foreign exchange loss.
D)If a foreign currency weakens with respect to the Canadian dollar, a self-sustaining subsidiary will show a foreign exchange loss while an integrated foreign subsidiary will show a foreign exchange gain.
A) If a foreign currency weakens with respect to the Canadian dollar, both self-sustaining and integrated foreign subsidiaries will show a foreign exchange gain.
B) If a foreign currency weakens with respect to the Canadian dollar, both self-sustaining and integrated foreign subsidiaries will show a foreign exchange loss.
C) If a foreign currency weakens with respect to the Canadian dollar, a self-sustaining subsidiary will show a foreign exchange gain while an integrated foreign subsidiary will show a foreign exchange loss.
D)If a foreign currency weakens with respect to the Canadian dollar, a self-sustaining subsidiary will show a foreign exchange loss while an integrated foreign subsidiary will show a foreign exchange gain.
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39
Which of the following rates would be used to translate the company's common shares?
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
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40
Which of the following rates would be used to translate the company's inventory?
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D)US$1 = CDN$0.83
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41
Translate Wilsen's December 31, 2017 Statement of Retained Earnings if Wilsen was considered to be a self-sustaining foreign operation (i.e., the functional currency of the foreign operation is different than the parent).
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42
On January 1, 2017, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000.
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Compute Martin's exchange gain or loss for 2017 if Martin is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent).
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Compute Martin's exchange gain or loss for 2017 if Martin is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent).
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43
If Maker is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent), what amount will be shown for capital assets (net) on its translated Canadian dollar financial statements as at December 31, 2016?
A) $168,000.
B) $169,600.
C) $170,000.
D)$170,400.
A) $168,000.
B) $169,600.
C) $170,000.
D)$170,400.
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44
If Maker is considered to be a self-sustaining foreign subsidiary (i.e., the functional currency of the foreign operation is different than the parent), what amount will be shown for capital assets (net) on its translated Canadian dollar financial statements as at December 31, 2017?
A) $212,500.
B) $224,430.
C) $225,830.
D)$228,438.
A) $212,500.
B) $224,430.
C) $225,830.
D)$228,438.
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45
If Maker is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent), what amount will be shown for amortization expense on Holdings consolidated income statements for the year ended on December 31, 2017?
A) $27,500.
B) $29,010.
C) $29,210.
D)$29,425.
A) $27,500.
B) $29,010.
C) $29,210.
D)$29,425.
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46
If Maker is considered to be a self-sustaining foreign subsidiary (i.e., the functional currency of the foreign operation is different than the parent), what amount will be shown for amortization expense on its translated Canadian dollar financial statements as at December 31, 2016?
A) $20,000.
B) $21,000.
C) $21,200.
D)$21,250.
A) $20,000.
B) $21,000.
C) $21,200.
D)$21,250.
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47
Calculate the exchange gain or loss that would result from the translation of Wilsen's Financial Statements if Wilsen was considered to be a self-sustaining foreign operation (i.e., the functional currency of the foreign operation is different than the parent).
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48
Translate Wilsen's 2017 Income Statement if Wilsen was considered to be a self-sustaining foreign operation (i.e., the functional currency of the foreign operation is different than the parent).
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49
On January 1, 2017, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000.
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Translate Martin's 2017 Income Statement into Canadian dollars if Martin is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent).
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Translate Martin's 2017 Income Statement into Canadian dollars if Martin is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent).
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50
Translate Wilsen's December 31, 2017 Balance Sheet if Wilsen is considered to be an integrated foreign operation (i.e., the functional currency of the foreign operation is the same as the parent).
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51
If Maker is considered to be a self-sustaining foreign subsidiary (i.e., the functional currency of the foreign operation is different than the parent), what amount will be shown for amortization expense on its translated Canadian dollar financial statements as at December 31, 2017?
A) $32,500.
B) $34,510.
C) $34,775.
D)$34,938.
A) $32,500.
B) $34,510.
C) $34,775.
D)$34,938.
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52
Compute Wilsen's exchange gain or loss for 2017 if Wilson is considered to be an integrated subsidiary (i.e., the functional currency of the foreign operation is the same as the parent).
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53
Translate Wilsen's December 31, 2017 Balance Sheet if Wilsen was considered to be a self-sustaining foreign operation (i.e., the functional currency of the foreign operation is different than the parent).
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54
Translate Wilsen's 2014 Income Statement if Wilsen is considered to be an integrated subsidiary (i.e., the functional currency of the foreign operation is the same as the parent).
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55
If Maker is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent), what amount will be shown for capital assets (net) on its translated Canadian dollar financial statements as at December 31, 2017?
A) $212,500.
B) $224,430.
C) $225,830.
D)$228,438.
A) $212,500.
B) $224,430.
C) $225,830.
D)$228,438.
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56
If Maker is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent), what amount will be shown for amortization expense on its translated Canadian dollar financial statements as at December 31, 2016?
A) $20,000.
B) $21,000.
C) $21,200.
D)$21,250.
A) $20,000.
B) $21,000.
C) $21,200.
D)$21,250.
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57
If Maker is considered to be a self-sustaining foreign subsidiary (i.e., the functional currency of the foreign operation is different than the parent), what amount will be shown for amortization expense on its translated Canadian dollar financial statements as at December 31, 2017?
A) $27,500.
B) $29,010.
C) $29,210.
D)$29,425.
A) $27,500.
B) $29,010.
C) $29,210.
D)$29,425.
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58
Translate Wilsen's December 31, 2017 Statement of Retained Earnings if Wilsen is considered to be an integrated subsidiary (i.e., the functional currency of the foreign operation is the same as the parent).
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59
If Maker is considered to be a self-sustaining foreign subsidiary (i.e., the functional currency of the foreign operation is different than the parent), what amount will be shown for capital assets (net) on its translated Canadian dollar financial statements as at December 31, 2016?
A) $168,000.
B) $169,600.
C) $170,000.
D)$170,400.
A) $168,000.
B) $169,600.
C) $170,000.
D)$170,400.
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60
A foreign subsidiary is considered to be an integrated foreign operation (i.e., the functional currency of the foreign operation is the same as the parent), and its income is earned evenly over the year. It paid its income taxes for the year in two instalments, half on June 30 and half on December 31. What rate(s) should be used to translate the company's income tax expense into Canadian dollars when preparing translated financial statements for the year?
A) Half at the rate at June 30 and half at the rate at December 31.
B) All at the average rate for the year.
C) All at the closing rate for the year.
D)All at the opening rate for the year.
A) Half at the rate at June 30 and half at the rate at December 31.
B) All at the average rate for the year.
C) All at the closing rate for the year.
D)All at the opening rate for the year.
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61
On January 1, 2017, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000.
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Calculate Larmer's Consolidated Net Income for 2017 if Martin is considered to be a self-sustaining foreign subsidiary (i.e., the functional currency of the foreign operation is different than the parent).
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Calculate Larmer's Consolidated Net Income for 2017 if Martin is considered to be a self-sustaining foreign subsidiary (i.e., the functional currency of the foreign operation is different than the parent).
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62
On January 1, 2017, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000.
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Compute Martin's exchange gain or loss for 2017 if Martin is considered to be a self-sustaining foreign subsidiary (i.e., the functional currency of the foreign operation is different than the parent).
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Compute Martin's exchange gain or loss for 2017 if Martin is considered to be a self-sustaining foreign subsidiary (i.e., the functional currency of the foreign operation is different than the parent).
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63
On January 1, 2017, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000.
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Prepare Larmer's December 31, 2017 Consolidated Balance Sheet if Martin is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent).
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Prepare Larmer's December 31, 2017 Consolidated Balance Sheet if Martin is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent).
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64
On January 1, 2017, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000.
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Translate Martin's 2017 Income Statement into Canadian dollars if Martin is considered to be a self-sustaining foreign subsidiary (i.e., the functional currency of the foreign operation is different than the parent).
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Translate Martin's 2017 Income Statement into Canadian dollars if Martin is considered to be a self-sustaining foreign subsidiary (i.e., the functional currency of the foreign operation is different than the parent).
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65
On January 1, 2017, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000.
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Translate Martin's December 31, 2017 Balance Sheet into Canadian dollars if Martin is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent).
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars): The following exchange rates were in effect during 2017:
Dividends declared and paid December 31, 2017.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
-Translate Martin's December 31, 2017 Balance Sheet into Canadian dollars if Martin is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent).
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