Question 1

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 U.S.dollar is the functional currency,what is Polaris's remeasurement gain (loss)for 20X8? (Assume the ending inventory was acquired on December 31,20X8. )

Accepted Answer

A) $31,000 gain 
B) $36,500 loss 
C) $22,000 gain 
D) $32,000 gain

Question 2

The Canadian subsidiary of a U.S.company reported cost of goods sold of 50,000 C$,for the current year ended December 31.The beginning inventory was 15,000 C$,and the ending inventory was 10,000 C$.Spot rates for various dates are as follows:

Assuming the Canadian dollar is the functional currency of the Canadian subsidiary,the translated amount of cost of goods sold that should appear in the consolidated income statement is

Accepted Answer

A) $50,000. 
B) $55,300. 
C) $56,000. 
D) $56,500.

Question 3

Barcode Corporation acquired 70% of the common stock of a Russian company on January 1,20X6.The goodwill associated with this acquisition was $12,520.Exchange rates at various dates during 20X6 follow:

Goodwill suffered an impairment of 25 percent during the year.If the functional currency is the U.S.dollar,how much goodwill impairment loss should be reported on Barcode's consolidated statement of income for 20X6?

Accepted Answer

A) $3,080 
B) $3,090 
C) $3,100 
D) $3,130

Question 4

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?

Accepted Answer

A) Option A 
B) Option B 
C) Option C 
D) Option D

Question 5

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,what amount of translation adjustment is required for increase in differential?

Accepted Answer

A) $3,000 
B) $5,500 
C) $4,500 
D) $5,000

Question 6

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

Accepted Answer

The answer of Briefly explain the following terms associated with...

Question 7

When the local currency of a foreign subsidiary is the functional currency,the foreign subsidiary's income statement accounts would be converted to U.S.dollars by:

Accepted Answer

A) translation using historical exchange rates. 
B) remeasurement using current exchange rates at the time of statement preparation. 
C) translation using average exchange rate for the period. 
D) remeasurement using the current exchange rate at the time of statement preparation.

Question 8

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,

Accepted Answer

A) the translation method should be used for restatement. 
B) the remeasurement method should be used for restatement. 
C) either translation or remeasurement could be used for restatement. 
D) no restatement is required.

Question 9

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?

Accepted Answer

A) Option A 
B) Option B 
C) Option C 
D) Option D

Question 10

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?

Accepted Answer

A) $36,845 
B) $39,286 
C) $36,905 
D) $36,607

Question 11

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 the receipt of dividend from Steamship,

Accepted Answer

A) Investment in Steamship Company will be credited for $3,450. 
B) Cash will be debited for $3,300. 
C) Investment in Steamship Company will be credited for $4,000. 
D) Cash will be debited for $3,600.

Question 12

Stack Company is a subsidiary of Pile Company and is located in Valparaíso,Chile,where the currency is the Chilean Peso.Data on Stack'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 Chilean peso is the functional currency is:

Accepted Answer

A) $1,700. 
B) $1,760. 
C) $1,680. 
D) $1,692.

Question 13

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

Accepted Answer

A) $2,700 
B) $3,200 
C) $3,500 
D) $4,000

Question 14

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 net translation adjustment that result from translating Ski's trial balance into U.S.dollars at December 31,20X8?

Accepted Answer

A) $396,500 debit 
B) $285,000 credit 
C) $405,000 credit 
D) $411,000 credit

Question 15

On January 1,20X8,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 (£).On January 1,20X8,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 1,20X8,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 31,20X8,in pounds,follows:
  
Additional Information
1.Spin uses the FIFO method for its inventory.The beginning inventory was acquired on December 31,20X7,and ending inventory was acquired on December 26,20X8.Purchases of £300,000 were made evenly throughout 20X8.
2.Spin acquired all of its property,plant,and equipment on March 1,20X6,and uses straight-line depreciation.
3.Spin's sales were made evenly throughout 20X8,and its operating expenses were incurred evenly throughout 20X8.
4.The dividends were declared and paid on November 1,20X8.
5.Pace's income from its own operations was $150,000 for 20X8,and its total stockholders' equity on January 1,20X8,was $1,000,000.Pace declared $50,000 of dividends during 20X8.
6.Exchange rates were as follows:
  
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 1,20X8:

Accepted Answer

The answer of On January 1,20X8,Pace Company acquired all of...

Question 16

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

Accepted Answer

A) $0 
B) $800 
C) $1,000 
D) $1,300

Question 17

Park Co.'s wholly-owned subsidiary,Schnell Corp. ,maintains its accounting records in German marks.Because all of Schnell's branch offices are in Switzerland,its functional currency is the Swiss franc.Remeasurement of Schnell's 20X1 financial statements resulted in a $7,600 gain,and translation of its financial statements resulted in an $8,100 gain.What amount should Park report as a foreign exchange gain in its income statement for the year ended December 31,20X1?

Accepted Answer

A) $15,700 
B) $0 
C) $8,100 
D) $7,600

Question 18

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 U.S.dollar is the functional currency and the remeasurement method is appropriate?

Accepted Answer

A) $15,000 
B) $10,000 
C) $25,000 
D) $28,000

Question 19

Prepare a schedule providing a proof of the translation adjustment using the information provided below.

Accepted Answer

The answer of Prepare a schedule providing a proof of...

Question 20

Which of the following describes a situation when a parent company would not consolidate a foreign subsidiary?

Accepted Answer

A) Restrictions on foreign exchange in the foreign country. 
B) Restrictions on transfers of property in the foreign country. 
C) Other governmentally imposed uncertainties. 
D) All of the choices are correct.

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

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?

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

When the local currency of a foreign subsidiary is the functional currency,the foreign subsidiary's income statement accounts would be converted to U.S.dollars by:

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,

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?

Prepare a schedule providing a proof of the translation adjustment using the information provided below.

Which of the following describes a situation when a parent company would not consolidate a foreign subsidiary?