Deck 7: Consolidating Foreign Currency Financial Statements

Question 1

The currency in which an international subsidiary conducts most of its transactions is its

A) Local currency.
B) Functional currency.
C) Currency of the country where the subsidiary is incorporated.
D) Reporting currency.

Answer 1

Functional currency.

Question 2

The currency in which an international subsidiary's parent presents its consolidated financial statements is its

A) Local currency.
B) Functional currency.
C) Currency of the country where the parent is incorporated.
D) Reporting currency.

Answer 2

Reporting currency.

Question 3

A U.S. parent has a subsidiary in Singapore. If the parent's reporting currency is the U.S. dollar and the subsidiary's functional currency is the Singapore dollar, conversion of the subsidiary's accounts to U.S. dollars involves

A) Both remeasurement and translation
B) Only translation
C) Only remeasurement
D) No conversion to another currency

Answer 3

Only translation

Question 4

A U.S. parent has a subsidiary in Singapore. If the parent's functional currency is the U.S. dollar and the subsidiary's functional currency is the U.S. dollar, conversion of the subsidiary's accounts to U.S. dollars involves

A) Both remeasurement and translation
B) Only translation
C) Only remeasurement
D) No conversion to another currency

Question 5

A U.S. parent has a subsidiary in Singapore. If the parent's functional currency is the U.S. dollar and the subsidiary's functional currency is the Hong Kong dollar, conversion of the subsidiary's accounts to U.S. dollars involves

A) Both remeasurement and translation
B) Only translation
C) Only remeasurement
D) No conversion to another currency

Question 6

U.S. GAAP for converting an international subsidiary's accounts to the parent's currency follow from what basic objective?

A) Minimize the impact on consolidated net income
B) Minimize the complexity of consolidation eliminating entries required
C) Preserve the subsidiary's financial performance as depicted in the parent's currency
D) Preserve the subsidiary's financial performance as depicted in its functional currency

Question 7

An international subsidiary reports its accounts in pounds sterling. In the consolidation process, its accounts are remeasured into euros and then translated into U.S. dollars. What is the most accurate observation?

A) The parent company is incorporated in the U.S.
B) The subsidiary's local currency is the euro.
C) The subsidiary conducts most of its business in euros.
D) The parent company does most of its business in pounds sterling.

Question 8

A U.S. parent has a subsidiary located in Hong Kong. In which situation will the U.S. parent remeasure the accounts of the subsidiary from Hong Kong dollars to U.S. dollars?

A) The subsidiary's customers are mostly located in Hong Kong.
B) The subsidiary borrows money from Hong Kong banks.
C) The subsidiary buys most of its merchandise from Hong Kong suppliers.
D) The level of inflation in Hong Kong is extremely high.

Question 9

A U.S. parent has a subsidiary located in Hong Kong. In which situation will the U.S. parent translate the accounts of the subsidiary from Hong Kong dollars to U.S. dollars?

A) The subsidiary's customers are mostly located in Hong Kong.
B) The subsidiary's suppliers are mostly located in the U.S.
C) The parent's customers are mostly located in Hong Kong.
D) The level of inflation in Hong Kong is extremely high.

Question 10

When translating the subsidiary's accounts to the parent's reporting currency, which of the following transactions affect its exposure to translation gains and losses?

A) Sales revenue
B) Borrowing money from the bank
C) Purchases of inventory
D) Acquisition of plant assets

Question 11

When remeasuring a subsidiary's accounts to its functional currency, which of the following transactions affect its exposure to remeasurement gains and losses?

A) Borrowing money from the bank
B) Customer payments of accounts receivable
C) Purchases of inventory
D) Depreciation expense

Question 12

When translating a subsidiary's accounts to the parent's reporting currency, which of the following transactions or adjustments affect its exposure to translation gains and losses?

A) Refinancing existing notes payable by issuing more notes payable
B) Recording amortization expense on intangible assets
C) Borrowing money to invest in plant and equipment
D) Paying cash to invest in equity securities

Question 13

When remeasuring a subsidiary's accounts to its functional currency, which of the following transactions or adjustments affect its exposure to remeasurement gains and losses?

A) Equipment purchases
B) Impairment of goodwill
C) Receiving cash in payment of customer accounts receivable
D) Cost of sales

Question 14

A U.S. parent owns a subsidiary in the U.K. The subsidiary purchases equity securities for cash. How does this transaction affect the subsidiary's exposure to remeasurement or translation gains or losses?

A) Remeasurement exposure changes
B) Translation exposure changes
C) Neither remeasurement nor translation exposure changes
D) Both remeasurement and translation exposures change

Question 15

A U.S. parent owns a subsidiary in the U.K. The subsidiary purchases HTM debt securities for cash. How does this transaction affect the subsidiary's exposure to remeasurement or translation gains or losses?

A) Remeasurement exposure changes
B) Translation exposure changes
C) Neither remeasurement nor translation exposure changes
D) Both remeasurement and translation exposures change

Question 16

A U.S. parent owns a subsidiary in France, and the subsidiary's accounts are maintained in euros, its functional currency. During the year, the euro has weakened against the U.S. dollar (U.S.$/€ rate has declined). Which one of the subsidiary's transactions below increases the amount of translation losses reported when the subsidiary's accounts are translated to U.S. dollars?

A) Inventory purchases
B) Salaries expense
C) Other comprehensive loss
D) Sales revenue

Question 17

A U.S. parent owns a subsidiary in France, the subsidiary's accounts are maintained in euros, and its functional currency is the U.S. dollar. During the year, the euro has weakened against the U.S. dollar (U.S.$/€ rate has declined). Which one of the subsidiary's transactions below increases the amount of remeasurement losses reported when the subsidiary's accounts are translated to U.S. dollars?

A) Inventory purchases
B) Depreciation expense
C) Sale of equity securities
D) Sales revenue

Question 18

In the consolidated financial statements, remeasurement gains and losses for an international subsidiary are reported:

A) In consolidated income
B) As a direct adjustment to consolidated retained earnings
C) In consolidated other comprehensive income
D) As an adjustment to the investment in subsidiary account

Question 19

In the consolidated financial statements, translation gains and losses for an international subsidiary are reported:

A) In consolidated income
B) As a direct adjustment to consolidated retained earnings
C) In consolidated other comprehensive income
D) As an adjustment to the investment in subsidiary account

Question 20

Which account is always converted using the same rate, whether a subsidiary's accounts are remeasured or translated?

A) Equity investments
B) Inventory
C) Cost of goods sold
D) Equipment

Question 21

A U.S. parent has a wholly-owned subsidiary in Switzerland. The subsidiary's accounts are reported in Swiss francs. Under what circumstances will the U.S. parent translate the subsidiary's accounts from Swiss francs to U.S. dollars?

A) The subsidiary's functional currency is a currency other than the Swiss franc or the U.S. dollar.
B) The subsidiary's functional currency is the U.S. dollar.
C) Switzerland has a highly inflationary economy.
D) The subsidiary's functional currency is the Swiss franc.

Question 22

A U.S. company has several international subsidiaries, which it converts to U.S. dollars by remeasuring the subsidiaries' local currency accounts directly into U.S. dollars. Which statement is true concerning these subsidiaries?

A) Their local currency is their functional currency.
B) Their functional currency is the U.S. dollar.
C) Their functional currency is different from the parent's functional currency.
D) The subsidiaries report their accounts in U.S. dollars.

Question 23

How should a U.S. company with an international subsidiary decide whether to use remeasurement or translation to convert the accounts of the subsidiary to U.S. dollars?

A) Translate if the subsidiary does most of its business in its own country but remeasure if the country has hyperinflation.
B) Remeasure if the subsidiary does most of its business in U.S. dollars, but translate if the country has hyperinflation.
C) Translate if the subsidiary does most of its business in U.S. dollars, but remeasure if the country has hyperinflation.
D) Remeasure if the subsidiary does most of its business in its own country but translate if the country has hyperinflation.

Question 24

You are a U.S. parent and you have a subsidiary in Italy. The subsidiary's functional currency is the euro and it maintains its accounts in euros. When you consolidate the subsidiary, you will:

A) Remeasure the subsidiary's trial balance into U.S. dollars and then do the consolidation eliminating entries
B) Translate the subsidiary's trial balance into U.S. dollars and then do the consolidation eliminating entries
C) Put the subsidiary's trial balance, in euros, on the working paper and add the euro balances to the parent's U.S. dollar balances
D) Translate the subsidiary's trial balance into euros, then remeasure it into U.S. dollars, and then do the consolidation eliminating entries

Question 25

You are a U.S. parent and you have a subsidiary in Italy. The subsidiary's functional currency is the U.S. dollar and it maintains its accounts in euros. When you consolidate the subsidiary, you will:

A) Remeasure the subsidiary's trial balance into U.S. dollars and then do the consolidation eliminating entries
B) Translate the subsidiary's trial balance into U.S. dollars and then do the consolidation eliminating entries
C) Put the subsidiary's trial balance, in euros, on the working paper and add the euro balances to the parent's U.S. dollar balances
D) Translate the subsidiary's trial balance into euros, then remeasure it into U.S. dollars, and then do the consolidation eliminating entries

Question 26

You are a U.S. parent and you have a subsidiary in Italy. The subsidiary's functional currency is the Swiss franc, and it maintains its accounts in euros. When you consolidate the subsidiary, you will:

A) Remeasure the subsidiary's trial balance into U.S. dollars and then do the consolidation eliminating entries
B) Translate the subsidiary's trial balance into U.S. dollars and then do the consolidation eliminating entries
C) Remeasure the subsidiary's trial balance into Swiss francs and then translate it into U.S. dollars
D) Translate the subsidiary's trial balance into Swiss francs, then remeasure it into U.S. dollars, and then do the consolidation eliminating entries

Question 27

Use the following information to answer bellow Questions
A U.S. company acquired a Malaysian subsidiary at the beginning of the year. At the date of acquisition, the subsidiary reported plant assets of RM800,000. During the year, it acquired plant assets of RM300,000 and reported depreciation expense of RM100,000, of which RM40,000 related to plant assets acquired during the year. The U.S.$/RM exchange rate was $0.25 on the acquisition date, $0.22 when the new plant assets were acquired, $0.20 at the end of the year, and the average rate for the year was $0.23.

-What is the subsidiary's remeasured depreciation expense for the year?

A) $25,000
B) $23,800
C) $20,000
D) $23,000

Question 28

Use the following information to answer bellow Questions
A U.S. company acquired a Malaysian subsidiary at the beginning of the year. At the date of acquisition, the subsidiary reported plant assets of RM800,000. During the year, it acquired plant assets of RM300,000 and reported depreciation expense of RM100,000, of which RM40,000 related to plant assets acquired during the year. The U.S.$/RM exchange rate was $0.25 on the acquisition date, $0.22 when the new plant assets were acquired, $0.20 at the end of the year, and the average rate for the year was $0.23.

-What is the subsidiary's translated depreciation expense for the year?

A) $25,000
B) $23,800
C) $20,000
D) $23,000

Question 29

Use the following information to answer bellow Questions
At the beginning of the current year, a U.S. company established a subsidiary in Canada, having the following balance sheet (shown in Canadian dollars, or C$):
$\begin{array}{cccc} \text { Cash } & \mathrm{C} \$ 100,000 & \text { Liabilities } & \mathrm{C} \$ 200,000 \\ \text { Fixed assets, net } & \underline{300,000} & \text { Capital stock } &\underline{ 200,000} \\ \text { Total } & \mathrm{c} \$ 400,000 & \text { Total } & \mathrm{C} \$ 400,00 \\\end{array}$

$\text { At the end of the year, the subsidiary reported the following trial balance: }$

$\begin{array}{lr}&\operatorname{Dr}(\mathrm{Cr}) \\\hline\text { Cash } & \text { C\$ 200,000 } \\\text { Fixed assets, net } & 240,000 \\\text { Liabilities } & (220,000) \\\text { Capital stock } & (200,000) \\\text { Sales } & (500,000) \\\text { Depreciation expense } & 60,000 \\\text { Out-of-pocket expenses } & \underline{420,000 }\\&c\$0\end{array}$


$\text { Exchange rates are as follows: }$

$\begin{array}{lr}\text { Beginning of year } & \$ 0.85 \\\text { Average for year } & 0.82 \\\text { End of year } & 0.80\end{array}$


-What is the gain or loss that occurs when the subsidiary's trial balance is remeasured into U.S. dollars?

A) $3,400 loss
B) $2,600 gain
C) $2,600 loss
D) $3,400 gain

Question 30

Use the following information to answer bellow Questions
At the beginning of the current year, a U.S. company established a subsidiary in Canada, having the following balance sheet (shown in Canadian dollars, or C$):
$\begin{array}{cccc} \text { Cash } & \mathrm{C} \$ 100,000 & \text { Liabilities } & \mathrm{C} \$ 200,000 \\ \text { Fixed assets, net } & \underline{300,000} & \text { Capital stock } &\underline{ 200,000} \\ \text { Total } & \mathrm{c} \$ 400,000 & \text { Total } & \mathrm{C} \$ 400,00 \\\end{array}$

$\text { At the end of the year, the subsidiary reported the following trial balance: }$

$\begin{array}{lr}&\operatorname{Dr}(\mathrm{Cr}) \\\hline\text { Cash } & \text { C\$ 200,000 } \\\text { Fixed assets, net } & 240,000 \\\text { Liabilities } & (220,000) \\\text { Capital stock } & (200,000) \\\text { Sales } & (500,000) \\\text { Depreciation expense } & 60,000 \\\text { Out-of-pocket expenses } & \underline{420,000 }\\&c\$0\end{array}$


$\text { Exchange rates are as follows: }$

$\begin{array}{lr}\text { Beginning of year } & \$ 0.85 \\\text { Average for year } & 0.82 \\\text { End of year } & 0.80\end{array}$


-What is the gain or loss that occurs when the subsidiary's trial balance is translated into U.S. dollars?

A) $10,400 loss
B) $10,400 gain
C) $10,600 loss
D) $10,600 gain

Question 31

Use the following information to answer bellow Questions
A Belgium subsidiary's beginning and ending trial balances appear bellow:
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\underline{\quad\quad\mathrm{Dr}(\mathrm{Cr)}\quad\quad}$
$\begin{array}{|l|c|c|}\hline&\text { January } 1& \text { December } 31\\\hline \text { Cash, receivables } & € 1,500 & € 1,200 \\\hline \text { Inventories } & 3,000 & 3,500 \\\hline \text { Plant \& equipment, net } & 30,000 & 39,000 \\\hline \text { Liabilities } & (18,500) &(27,200) \\\hline \text { Capital stock } & (4,000)& (4,000) \\\hline \text { Retained earnings, beginning } &(12,000)& (12,000) \\\hline \text { Sales revenue } & - & (15,000) \\\hline \text { Cost of sales } & & 9,500 \\\hline \text { Out-of-pocket selling \& administrative expenses } & - & 4,000 \\\hline \text { Depreciation expense } & \text {-- } & 1,000 \\\hline \text { Total } & €\quad0 & €\quad0 \\\hline\end{array}$
Exchange rates ($/€) are:
$$\begin{array} { l r } \text { Beginning of year } & \$ 1.25 \\\text { Average for year } & 1.22 \\\text { End of year } & 1.20\end{array}$$ The subsidiary was acquired at the beginning of the year. Its sales, inventory purchases, and out-of-pocket selling and administrative expenses occurred evenly during the year. Equipment was purchased for €10,000 when the exchange rate was $1.23. Depreciation for the year includes €200 related to the equipment purchased during the year. The ending inventory was purchased at the end of the year, and the beginning inventory was purchased at the end of the previous year.

-If the subsidiary's functional currency is the euro, what is its exposure to translation gains and losses as of the beginning of the year?

A) € 16,000
B) €(17,000)
C) €(18,500)
D) € 1,500

Question 32

Use the following information to answer bellow Questions
A Belgium subsidiary's beginning and ending trial balances appear bellow:
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\underline{\quad\quad\mathrm{Dr}(\mathrm{Cr)}\quad\quad}$
$\begin{array}{|l|c|c|}\hline&\text { January } 1& \text { December } 31\\\hline \text { Cash, receivables } & € 1,500 & € 1,200 \\\hline \text { Inventories } & 3,000 & 3,500 \\\hline \text { Plant \& equipment, net } & 30,000 & 39,000 \\\hline \text { Liabilities } & (18,500) &(27,200) \\\hline \text { Capital stock } & (4,000)& (4,000) \\\hline \text { Retained earnings, beginning } &(12,000)& (12,000) \\\hline \text { Sales revenue } & - & (15,000) \\\hline \text { Cost of sales } & & 9,500 \\\hline \text { Out-of-pocket selling \& administrative expenses } & - & 4,000 \\\hline \text { Depreciation expense } & \text {-- } & 1,000 \\\hline \text { Total } & €\quad0 & €\quad0 \\\hline\end{array}$
Exchange rates ($/€) are:
$$\begin{array} { l r } \text { Beginning of year } & \$ 1.25 \\\text { Average for year } & 1.22 \\\text { End of year } & 1.20\end{array}$$ The subsidiary was acquired at the beginning of the year. Its sales, inventory purchases, and out-of-pocket selling and administrative expenses occurred evenly during the year. Equipment was purchased for €10,000 when the exchange rate was $1.23. Depreciation for the year includes €200 related to the equipment purchased during the year. The ending inventory was purchased at the end of the year, and the beginning inventory was purchased at the end of the previous year.

-If the subsidiary's functional currency is the U.S. dollar, what is its exposure to remeasurement gains and losses at the end of the year?

A) € 16,000
B) €(26,000)
C) €(27,200)
D) € 16,500

Question 33

Use the following information to answer bellow Questions
A Belgium subsidiary's beginning and ending trial balances appear bellow:
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\underline{\quad\quad\mathrm{Dr}(\mathrm{Cr)}\quad\quad}$
$\begin{array}{|l|c|c|}\hline&\text { January } 1& \text { December } 31\\\hline \text { Cash, receivables } & € 1,500 & € 1,200 \\\hline \text { Inventories } & 3,000 & 3,500 \\\hline \text { Plant \& equipment, net } & 30,000 & 39,000 \\\hline \text { Liabilities } & (18,500) &(27,200) \\\hline \text { Capital stock } & (4,000)& (4,000) \\\hline \text { Retained earnings, beginning } &(12,000)& (12,000) \\\hline \text { Sales revenue } & - & (15,000) \\\hline \text { Cost of sales } & & 9,500 \\\hline \text { Out-of-pocket selling \& administrative expenses } & - & 4,000 \\\hline \text { Depreciation expense } & \text {-- } & 1,000 \\\hline \text { Total } & €\quad0 & €\quad0 \\\hline\end{array}$
Exchange rates ($/€) are:
$$\begin{array} { l r } \text { Beginning of year } & \$ 1.25 \\\text { Average for year } & 1.22 \\\text { End of year } & 1.20\end{array}$$ The subsidiary was acquired at the beginning of the year. Its sales, inventory purchases, and out-of-pocket selling and administrative expenses occurred evenly during the year. Equipment was purchased for €10,000 when the exchange rate was $1.23. Depreciation for the year includes €200 related to the equipment purchased during the year. The ending inventory was purchased at the end of the year, and the beginning inventory was purchased at the end of the previous year.

-If the subsidiary's functional currency is the euro, what is translated depreciation expense for the year?

A) $1,250
B) $1,246
C) $1,220
D) $1,200

Question 34

Use the following information to answer bellow Questions
A Belgium subsidiary's beginning and ending trial balances appear bellow:
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\underline{\quad\quad\mathrm{Dr}(\mathrm{Cr)}\quad\quad}$
$\begin{array}{|l|c|c|}\hline&\text { January } 1& \text { December } 31\\\hline \text { Cash, receivables } & € 1,500 & € 1,200 \\\hline \text { Inventories } & 3,000 & 3,500 \\\hline \text { Plant \& equipment, net } & 30,000 & 39,000 \\\hline \text { Liabilities } & (18,500) &(27,200) \\\hline \text { Capital stock } & (4,000)& (4,000) \\\hline \text { Retained earnings, beginning } &(12,000)& (12,000) \\\hline \text { Sales revenue } & - & (15,000) \\\hline \text { Cost of sales } & & 9,500 \\\hline \text { Out-of-pocket selling \& administrative expenses } & - & 4,000 \\\hline \text { Depreciation expense } & \text {-- } & 1,000 \\\hline \text { Total } & €\quad0 & €\quad0 \\\hline\end{array}$
Exchange rates ($/€) are:
$$\begin{array} { l r } \text { Beginning of year } & \$ 1.25 \\\text { Average for year } & 1.22 \\\text { End of year } & 1.20\end{array}$$ The subsidiary was acquired at the beginning of the year. Its sales, inventory purchases, and out-of-pocket selling and administrative expenses occurred evenly during the year. Equipment was purchased for €10,000 when the exchange rate was $1.23. Depreciation for the year includes €200 related to the equipment purchased during the year. The ending inventory was purchased at the end of the year, and the beginning inventory was purchased at the end of the previous year.

-If the subsidiary's functional currency is the U.S. dollar, what is remeasured depreciation expense for the year?

A) $1,250
B) $1,246
C) $1,220
D) $1,200

Question 35

Use the following information to answer bellow Questions
A Belgium subsidiary's beginning and ending trial balances appear bellow:
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\underline{\quad\quad\mathrm{Dr}(\mathrm{Cr)}\quad\quad}$
$\begin{array}{|l|c|c|}\hline&\text { January } 1& \text { December } 31\\\hline \text { Cash, receivables } & € 1,500 & € 1,200 \\\hline \text { Inventories } & 3,000 & 3,500 \\\hline \text { Plant \& equipment, net } & 30,000 & 39,000 \\\hline \text { Liabilities } & (18,500) &(27,200) \\\hline \text { Capital stock } & (4,000)& (4,000) \\\hline \text { Retained earnings, beginning } &(12,000)& (12,000) \\\hline \text { Sales revenue } & - & (15,000) \\\hline \text { Cost of sales } & & 9,500 \\\hline \text { Out-of-pocket selling \& administrative expenses } & - & 4,000 \\\hline \text { Depreciation expense } & \text {-- } & 1,000 \\\hline \text { Total } & €\quad0 & €\quad0 \\\hline\end{array}$
Exchange rates ($/€) are:
$$\begin{array} { l r } \text { Beginning of year } & \$ 1.25 \\\text { Average for year } & 1.22 \\\text { End of year } & 1.20\end{array}$$ The subsidiary was acquired at the beginning of the year. Its sales, inventory purchases, and out-of-pocket selling and administrative expenses occurred evenly during the year. Equipment was purchased for €10,000 when the exchange rate was $1.23. Depreciation for the year includes €200 related to the equipment purchased during the year. The ending inventory was purchased at the end of the year, and the beginning inventory was purchased at the end of the previous year.

-If the subsidiary's functional currency is the U.S. dollar, what is remeasured cost of sales for the year?

A) $11,750
B) $11,590
C) $11,425
D) $10,530

Question 36

Use the following information to answer bellow Questions
A Belgium subsidiary's beginning and ending trial balances appear bellow:
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\underline{\quad\quad\mathrm{Dr}(\mathrm{Cr)}\quad\quad}$
$\begin{array}{|l|c|c|}\hline&\text { January } 1& \text { December } 31\\\hline \text { Cash, receivables } & € 1,500 & € 1,200 \\\hline \text { Inventories } & 3,000 & 3,500 \\\hline \text { Plant \& equipment, net } & 30,000 & 39,000 \\\hline \text { Liabilities } & (18,500) &(27,200) \\\hline \text { Capital stock } & (4,000)& (4,000) \\\hline \text { Retained earnings, beginning } &(12,000)& (12,000) \\\hline \text { Sales revenue } & - & (15,000) \\\hline \text { Cost of sales } & & 9,500 \\\hline \text { Out-of-pocket selling \& administrative expenses } & - & 4,000 \\\hline \text { Depreciation expense } & \text {-- } & 1,000 \\\hline \text { Total } & €\quad0 & €\quad0 \\\hline\end{array}$
Exchange rates ($/€) are:
$$\begin{array} { l r } \text { Beginning of year } & \$ 1.25 \\\text { Average for year } & 1.22 \\\text { End of year } & 1.20\end{array}$$ The subsidiary was acquired at the beginning of the year. Its sales, inventory purchases, and out-of-pocket selling and administrative expenses occurred evenly during the year. Equipment was purchased for €10,000 when the exchange rate was $1.23. Depreciation for the year includes €200 related to the equipment purchased during the year. The ending inventory was purchased at the end of the year, and the beginning inventory was purchased at the end of the previous year.

-If the subsidiary's functional currency is the euro, what is translated cost of sales for the year?

A) $11,750
B) $11,590
C) $11,425
D) $10,530

Question 37

Use the following information to answer bellow Questions
A Belgium subsidiary's beginning and ending trial balances appear bellow:
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\underline{\quad\quad\mathrm{Dr}(\mathrm{Cr)}\quad\quad}$
$\begin{array}{|l|c|c|}\hline&\text { January } 1& \text { December } 31\\\hline \text { Cash, receivables } & € 1,500 & € 1,200 \\\hline \text { Inventories } & 3,000 & 3,500 \\\hline \text { Plant \& equipment, net } & 30,000 & 39,000 \\\hline \text { Liabilities } & (18,500) &(27,200) \\\hline \text { Capital stock } & (4,000)& (4,000) \\\hline \text { Retained earnings, beginning } &(12,000)& (12,000) \\\hline \text { Sales revenue } & - & (15,000) \\\hline \text { Cost of sales } & & 9,500 \\\hline \text { Out-of-pocket selling \& administrative expenses } & - & 4,000 \\\hline \text { Depreciation expense } & \text {-- } & 1,000 \\\hline \text { Total } & €\quad0 & €\quad0 \\\hline\end{array}$
Exchange rates ($/€) are:
$$\begin{array} { l r } \text { Beginning of year } & \$ 1.25 \\\text { Average for year } & 1.22 \\\text { End of year } & 1.20\end{array}$$ The subsidiary was acquired at the beginning of the year. Its sales, inventory purchases, and out-of-pocket selling and administrative expenses occurred evenly during the year. Equipment was purchased for €10,000 when the exchange rate was $1.23. Depreciation for the year includes €200 related to the equipment purchased during the year. The ending inventory was purchased at the end of the year, and the beginning inventory was purchased at the end of the previous year.

-If the subsidiary's functional currency is the U.S. dollar, what is the remeasurement gain or loss for the year?

A) $ 810 loss
B) $1,030 gain
C) $1,130 gain
D) $2,020 loss

Question 38

Use the following information to answer bellow Questions
A Belgium subsidiary's beginning and ending trial balances appear bellow:
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\underline{\quad\quad\mathrm{Dr}(\mathrm{Cr)}\quad\quad}$
$\begin{array}{|l|c|c|}\hline&\text { January } 1& \text { December } 31\\\hline \text { Cash, receivables } & € 1,500 & € 1,200 \\\hline \text { Inventories } & 3,000 & 3,500 \\\hline \text { Plant \& equipment, net } & 30,000 & 39,000 \\\hline \text { Liabilities } & (18,500) &(27,200) \\\hline \text { Capital stock } & (4,000)& (4,000) \\\hline \text { Retained earnings, beginning } &(12,000)& (12,000) \\\hline \text { Sales revenue } & - & (15,000) \\\hline \text { Cost of sales } & & 9,500 \\\hline \text { Out-of-pocket selling \& administrative expenses } & - & 4,000 \\\hline \text { Depreciation expense } & \text {-- } & 1,000 \\\hline \text { Total } & €\quad0 & €\quad0 \\\hline\end{array}$
Exchange rates ($/€) are:
$$\begin{array} { l r } \text { Beginning of year } & \$ 1.25 \\\text { Average for year } & 1.22 \\\text { End of year } & 1.20\end{array}$$ The subsidiary was acquired at the beginning of the year. Its sales, inventory purchases, and out-of-pocket selling and administrative expenses occurred evenly during the year. Equipment was purchased for €10,000 when the exchange rate was $1.23. Depreciation for the year includes €200 related to the equipment purchased during the year. The ending inventory was purchased at the end of the year, and the beginning inventory was purchased at the end of the previous year.

-If the subsidiary's functional currency is the euro, what is the translation gain or loss for the year?

A) $ 810 loss
B) $1,030 gain
C) $1,130 gain
D) $2,020 loss

Question 39

Use the following information to answer bellow Questions
A Belgium subsidiary's beginning and ending trial balances appear bellow:
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\underline{\quad\quad\mathrm{Dr}(\mathrm{Cr)}\quad\quad}$
$\begin{array}{|l|c|c|}\hline&\text { January } 1& \text { December } 31\\\hline \text { Cash, receivables } & € 1,500 & € 1,200 \\\hline \text { Inventories } & 3,000 & 3,500 \\\hline \text { Plant \& equipment, net } & 30,000 & 39,000 \\\hline \text { Liabilities } & (18,500) &(27,200) \\\hline \text { Capital stock } & (4,000)& (4,000) \\\hline \text { Retained earnings, beginning } &(12,000)& (12,000) \\\hline \text { Sales revenue } & - & (15,000) \\\hline \text { Cost of sales } & & 9,500 \\\hline \text { Out-of-pocket selling \& administrative expenses } & - & 4,000 \\\hline \text { Depreciation expense } & \text {-- } & 1,000 \\\hline \text { Total } & €\quad0 & €\quad0 \\\hline\end{array}$
Exchange rates ($/€) are:
$$\begin{array} { l r } \text { Beginning of year } & \$ 1.25 \\\text { Average for year } & 1.22 \\\text { End of year } & 1.20\end{array}$$ The subsidiary was acquired at the beginning of the year. Its sales, inventory purchases, and out-of-pocket selling and administrative expenses occurred evenly during the year. Equipment was purchased for €10,000 when the exchange rate was $1.23. Depreciation for the year includes €200 related to the equipment purchased during the year. The ending inventory was purchased at the end of the year, and the beginning inventory was purchased at the end of the previous year.

-If the subsidiary's functional currency is the U.S. dollar, what is the remeasured plant & equipment, net balance at year-end?

A) $48,456
B) $47,580
C) $46,800
D) $48,554

Question 40

Use the following information to answer bellow Questions
A Belgium subsidiary's beginning and ending trial balances appear bellow:
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\underline{\quad\quad\mathrm{Dr}(\mathrm{Cr)}\quad\quad}$
$\begin{array}{|l|c|c|}\hline&\text { January } 1& \text { December } 31\\\hline \text { Cash, receivables } & € 1,500 & € 1,200 \\\hline \text { Inventories } & 3,000 & 3,500 \\\hline \text { Plant \& equipment, net } & 30,000 & 39,000 \\\hline \text { Liabilities } & (18,500) &(27,200) \\\hline \text { Capital stock } & (4,000)& (4,000) \\\hline \text { Retained earnings, beginning } &(12,000)& (12,000) \\\hline \text { Sales revenue } & - & (15,000) \\\hline \text { Cost of sales } & & 9,500 \\\hline \text { Out-of-pocket selling \& administrative expenses } & - & 4,000 \\\hline \text { Depreciation expense } & \text {-- } & 1,000 \\\hline \text { Total } & €\quad0 & €\quad0 \\\hline\end{array}$
Exchange rates ($/€) are:
$$\begin{array} { l r } \text { Beginning of year } & \$ 1.25 \\\text { Average for year } & 1.22 \\\text { End of year } & 1.20\end{array}$$ The subsidiary was acquired at the beginning of the year. Its sales, inventory purchases, and out-of-pocket selling and administrative expenses occurred evenly during the year. Equipment was purchased for €10,000 when the exchange rate was $1.23. Depreciation for the year includes €200 related to the equipment purchased during the year. The ending inventory was purchased at the end of the year, and the beginning inventory was purchased at the end of the previous year.

-If the subsidiary's functional currency is the euro, what is the translated plant & equipment, net balance at year-end?

A) $48,456
B) $47,580
C) $46,800
D) $48,554

Question 41

Use the following information to answer bellow Questions
A U.S. company acquired a Turkish subsidiary at the beginning of the current year. The subsidiary's trial balances for January 1 and December 31 are presented bellow, in Turkish lira.
$\begin{array}{|l|c|c|}\hline & \begin{array}{c}\text { January } 1 \\\text { Dr (Cr) }\end{array} & \begin{array}{c}\text { December } 31 \\\text { Dr (Cr) } \\\end{array} \\\hline \text { Cash, receivables } & \text { ? } 40,000 & \text { ? } 20,000 \\ \hline \text { Plant \& equipment, net } & 400,000 & 435,000 \\\hline \text { Liabilities } & \{175,000\} & \{170,000\} \\\hline \text { Capital stock } & \{115,000\} & \{115,000\} \\\hline \text { Retained earnings, January } 1 & \{150,000\} & \{150,000\} \\\hline \text { Dividends } & & 15,000 \\\hline \text { Sales revenue } & & \{800,000\} \\\hline \text { Operating expenses } & & 765,000 \\\hline \text { Total } &\underline{ ? \quad0} &\underline{ ? \quad0} \\ \hline\end{array}$
New plant & equipment of ?100,000 was acquired during the year. Operating expenses include ?65,000 of depreciation on plant & equipment, of which ?10,000 is related to plant & equipment purchased during the year. Exchange rates (U.S.$/?) are as follows:
$$\begin{array} { l r } \text { January 1 } & \$ 0.24 \\\text { Average for year } & 0.25 \\\text { Plant \& equipment acquired } & 0.26 \\\text { Dividends declared } & 0.27 \\\text { December 31 } & 0.30\end{array}$$

-Assume that the subsidiary's functional currency is the Turkish lira. What is the translation gain or loss for the year?

A) $15,800 gain
B) $13,150 loss
C) $17,200 gain
D) $14,600 loss

Question 42

Use the following information to answer bellow Questions
A U.S. company acquired a Turkish subsidiary at the beginning of the current year. The subsidiary's trial balances for January 1 and December 31 are presented bellow, in Turkish lira.
$\begin{array}{|l|c|c|}\hline & \begin{array}{c}\text { January } 1 \\\text { Dr (Cr) }\end{array} & \begin{array}{c}\text { December } 31 \\\text { Dr (Cr) } \\\end{array} \\\hline \text { Cash, receivables } & \text { ? } 40,000 & \text { ? } 20,000 \\ \hline \text { Plant \& equipment, net } & 400,000 & 435,000 \\\hline \text { Liabilities } & \{175,000\} & \{170,000\} \\\hline \text { Capital stock } & \{115,000\} & \{115,000\} \\\hline \text { Retained earnings, January } 1 & \{150,000\} & \{150,000\} \\\hline \text { Dividends } & & 15,000 \\\hline \text { Sales revenue } & & \{800,000\} \\\hline \text { Operating expenses } & & 765,000 \\\hline \text { Total } &\underline{ ? \quad0} &\underline{ ? \quad0} \\ \hline\end{array}$
New plant & equipment of ?100,000 was acquired during the year. Operating expenses include ?65,000 of depreciation on plant & equipment, of which ?10,000 is related to plant & equipment purchased during the year. Exchange rates (U.S.$/?) are as follows:
$$\begin{array} { l r } \text { January 1 } & \$ 0.24 \\\text { Average for year } & 0.25 \\\text { Plant \& equipment acquired } & 0.26 \\\text { Dividends declared } & 0.27 \\\text { December 31 } & 0.30\end{array}$$

-Assume that the subsidiary's functional currency is the U.S. dollar. What is the remeasurement gain or loss for the year?

A) $ 3,500 loss
B) $ 7,550 loss
C) $ 6,250 gain
D) $ 7,890 gain

Question 43

Use the following information to answer bellow Questions
A U.S. company acquired a Turkish subsidiary at the beginning of the current year. The subsidiary's trial balances for January 1 and December 31 are presented bellow, in Turkish lira.
$\begin{array}{|l|c|c|}\hline & \begin{array}{c}\text { January } 1 \\\text { Dr (Cr) }\end{array} & \begin{array}{c}\text { December } 31 \\\text { Dr (Cr) } \\\end{array} \\\hline \text { Cash, receivables } & \text { ? } 40,000 & \text { ? } 20,000 \\ \hline \text { Plant \& equipment, net } & 400,000 & 435,000 \\\hline \text { Liabilities } & \{175,000\} & \{170,000\} \\\hline \text { Capital stock } & \{115,000\} & \{115,000\} \\\hline \text { Retained earnings, January } 1 & \{150,000\} & \{150,000\} \\\hline \text { Dividends } & & 15,000 \\\hline \text { Sales revenue } & & \{800,000\} \\\hline \text { Operating expenses } & & 765,000 \\\hline \text { Total } &\underline{ ? \quad0} &\underline{ ? \quad0} \\ \hline\end{array}$
New plant & equipment of ?100,000 was acquired during the year. Operating expenses include ?65,000 of depreciation on plant & equipment, of which ?10,000 is related to plant & equipment purchased during the year. Exchange rates (U.S.$/?) are as follows:
$$\begin{array} { l r } \text { January 1 } & \$ 0.24 \\\text { Average for year } & 0.25 \\\text { Plant \& equipment acquired } & 0.26 \\\text { Dividends declared } & 0.27 \\\text { December 31 } & 0.30\end{array}$$

-Assume that the subsidiary's functional currency is the Turkish lira. What are translated total assets for the subsidiary at the end of the year?

A) $136,500
B) $113,750
C) $109,200
D) $126,450

Question 44

Use the following information to answer bellow Questions
A U.S. company acquired a Turkish subsidiary at the beginning of the current year. The subsidiary's trial balances for January 1 and December 31 are presented bellow, in Turkish lira.
$\begin{array}{|l|c|c|}\hline & \begin{array}{c}\text { January } 1 \\\text { Dr (Cr) }\end{array} & \begin{array}{c}\text { December } 31 \\\text { Dr (Cr) } \\\end{array} \\\hline \text { Cash, receivables } & \text { ? } 40,000 & \text { ? } 20,000 \\ \hline \text { Plant \& equipment, net } & 400,000 & 435,000 \\\hline \text { Liabilities } & \{175,000\} & \{170,000\} \\\hline \text { Capital stock } & \{115,000\} & \{115,000\} \\\hline \text { Retained earnings, January } 1 & \{150,000\} & \{150,000\} \\\hline \text { Dividends } & & 15,000 \\\hline \text { Sales revenue } & & \{800,000\} \\\hline \text { Operating expenses } & & 765,000 \\\hline \text { Total } &\underline{ ? \quad0} &\underline{ ? \quad0} \\ \hline\end{array}$
New plant & equipment of ?100,000 was acquired during the year. Operating expenses include ?65,000 of depreciation on plant & equipment, of which ?10,000 is related to plant & equipment purchased during the year. Exchange rates (U.S.$/?) are as follows:
$$\begin{array} { l r } \text { January 1 } & \$ 0.24 \\\text { Average for year } & 0.25 \\\text { Plant \& equipment acquired } & 0.26 \\\text { Dividends declared } & 0.27 \\\text { December 31 } & 0.30\end{array}$$

-Assume that the subsidiary's functional currency is the U.S. dollar. What are remeasured total assets for the subsidiary at the end of the year?

A) $112,200
B) $114,750
C) $136,500
D) $126,450

Question 45

Use the following information to answer bellow Questions
A U.S. company acquired a Turkish subsidiary at the beginning of the current year. The subsidiary's trial balances for January 1 and December 31 are presented bellow, in Turkish lira.
$\begin{array}{|l|c|c|}\hline & \begin{array}{c}\text { January } 1 \\\text { Dr (Cr) }\end{array} & \begin{array}{c}\text { December } 31 \\\text { Dr (Cr) } \\\end{array} \\\hline \text { Cash, receivables } & \text { ? } 40,000 & \text { ? } 20,000 \\ \hline \text { Plant \& equipment, net } & 400,000 & 435,000 \\\hline \text { Liabilities } & \{175,000\} & \{170,000\} \\\hline \text { Capital stock } & \{115,000\} & \{115,000\} \\\hline \text { Retained earnings, January } 1 & \{150,000\} & \{150,000\} \\\hline \text { Dividends } & & 15,000 \\\hline \text { Sales revenue } & & \{800,000\} \\\hline \text { Operating expenses } & & 765,000 \\\hline \text { Total } &\underline{ ? \quad0} &\underline{ ? \quad0} \\ \hline\end{array}$
New plant & equipment of ?100,000 was acquired during the year. Operating expenses include ?65,000 of depreciation on plant & equipment, of which ?10,000 is related to plant & equipment purchased during the year. Exchange rates (U.S.$/?) are as follows:
$$\begin{array} { l r } \text { January 1 } & \$ 0.24 \\\text { Average for year } & 0.25 \\\text { Plant \& equipment acquired } & 0.26 \\\text { Dividends declared } & 0.27 \\\text { December 31 } & 0.30\end{array}$$

-Assume that the subsidiary's functional currency is the Turkish lira. What are translated operating expenses for the subsidiary for the year?

A) $190,800
B) $191,900
C) $229,500
D) $191,250

Question 46

Use the following information to answer bellow Questions
A U.S. company acquired a Turkish subsidiary at the beginning of the current year. The subsidiary's trial balances for January 1 and December 31 are presented bellow, in Turkish lira.
$\begin{array}{|l|c|c|}\hline & \begin{array}{c}\text { January } 1 \\\text { Dr (Cr) }\end{array} & \begin{array}{c}\text { December } 31 \\\text { Dr (Cr) } \\\end{array} \\\hline \text { Cash, receivables } & \text { ? } 40,000 & \text { ? } 20,000 \\ \hline \text { Plant \& equipment, net } & 400,000 & 435,000 \\\hline \text { Liabilities } & \{175,000\} & \{170,000\} \\\hline \text { Capital stock } & \{115,000\} & \{115,000\} \\\hline \text { Retained earnings, January } 1 & \{150,000\} & \{150,000\} \\\hline \text { Dividends } & & 15,000 \\\hline \text { Sales revenue } & & \{800,000\} \\\hline \text { Operating expenses } & & 765,000 \\\hline \text { Total } &\underline{ ? \quad0} &\underline{ ? \quad0} \\ \hline\end{array}$
New plant & equipment of ?100,000 was acquired during the year. Operating expenses include ?65,000 of depreciation on plant & equipment, of which ?10,000 is related to plant & equipment purchased during the year. Exchange rates (U.S.$/?) are as follows:
$$\begin{array} { l r } \text { January 1 } & \$ 0.24 \\\text { Average for year } & 0.25 \\\text { Plant \& equipment acquired } & 0.26 \\\text { Dividends declared } & 0.27 \\\text { December 31 } & 0.30\end{array}$$

-Assume that the subsidiary's functional currency is the U.S. dollar. What are remeasured operating expenses for the subsidiary for the year?

A) $190,800
B) $191,900
C) $229,500
D) $191,250

Question 47

Use the following information to answer bellow Questions
A U.S. company acquired a Turkish subsidiary at the beginning of the current year. The subsidiary's trial balances for January 1 and December 31 are presented bellow, in Turkish lira.
$\begin{array}{|l|c|c|}\hline & \begin{array}{c}\text { January } 1 \\\text { Dr (Cr) }\end{array} & \begin{array}{c}\text { December } 31 \\\text { Dr (Cr) } \\\end{array} \\\hline \text { Cash, receivables } & \text { ? } 40,000 & \text { ? } 20,000 \\ \hline \text { Plant \& equipment, net } & 400,000 & 435,000 \\\hline \text { Liabilities } & \{175,000\} & \{170,000\} \\\hline \text { Capital stock } & \{115,000\} & \{115,000\} \\\hline \text { Retained earnings, January } 1 & \{150,000\} & \{150,000\} \\\hline \text { Dividends } & & 15,000 \\\hline \text { Sales revenue } & & \{800,000\} \\\hline \text { Operating expenses } & & 765,000 \\\hline \text { Total } &\underline{ ? \quad0} &\underline{ ? \quad0} \\ \hline\end{array}$
New plant & equipment of ?100,000 was acquired during the year. Operating expenses include ?65,000 of depreciation on plant & equipment, of which ?10,000 is related to plant & equipment purchased during the year. Exchange rates (U.S.$/?) are as follows:
$$\begin{array} { l r } \text { January 1 } & \$ 0.24 \\\text { Average for year } & 0.25 \\\text { Plant \& equipment acquired } & 0.26 \\\text { Dividends declared } & 0.27 \\\text { December 31 } & 0.30\end{array}$$

-Assume that the subsidiary's functional currency is the Turkish lira. What is translated net income for the subsidiary for the year?

A) $ 6,000
B) $ 5,000
C) $10,500
D) $ 8,750

Question 48

Use the following information to answer bellow Questions
A U.S. company acquired a Turkish subsidiary at the beginning of the current year. The subsidiary's trial balances for January 1 and December 31 are presented bellow, in Turkish lira.
$\begin{array}{|l|c|c|}\hline & \begin{array}{c}\text { January } 1 \\\text { Dr (Cr) }\end{array} & \begin{array}{c}\text { December } 31 \\\text { Dr (Cr) } \\\end{array} \\\hline \text { Cash, receivables } & \text { ? } 40,000 & \text { ? } 20,000 \\ \hline \text { Plant \& equipment, net } & 400,000 & 435,000 \\\hline \text { Liabilities } & \{175,000\} & \{170,000\} \\\hline \text { Capital stock } & \{115,000\} & \{115,000\} \\\hline \text { Retained earnings, January } 1 & \{150,000\} & \{150,000\} \\\hline \text { Dividends } & & 15,000 \\\hline \text { Sales revenue } & & \{800,000\} \\\hline \text { Operating expenses } & & 765,000 \\\hline \text { Total } &\underline{ ? \quad0} &\underline{ ? \quad0} \\ \hline\end{array}$
New plant & equipment of ?100,000 was acquired during the year. Operating expenses include ?65,000 of depreciation on plant & equipment, of which ?10,000 is related to plant & equipment purchased during the year. Exchange rates (U.S.$/?) are as follows:
$$\begin{array} { l r } \text { January 1 } & \$ 0.24 \\\text { Average for year } & 0.25 \\\text { Plant \& equipment acquired } & 0.26 \\\text { Dividends declared } & 0.27 \\\text { December 31 } & 0.30\end{array}$$

-Assume that the subsidiary's functional currency is the U.S. dollar. What is remeasured net income for the subsidiary for the year?

A) $9,400
B) $8,750
C) $6,000
D) $9,200

Question 49

Use the following information to answer bellow Questions
A U.S. company acquired a Turkish subsidiary at the beginning of the current year. The subsidiary's trial balances for January 1 and December 31 are presented bellow, in Turkish lira.
$\begin{array}{|l|c|c|}\hline & \begin{array}{c}\text { January } 1 \\\text { Dr (Cr) }\end{array} & \begin{array}{c}\text { December } 31 \\\text { Dr (Cr) } \\\end{array} \\\hline \text { Cash, receivables } & \text { ? } 40,000 & \text { ? } 20,000 \\ \hline \text { Plant \& equipment, net } & 400,000 & 435,000 \\\hline \text { Liabilities } & \{175,000\} & \{170,000\} \\\hline \text { Capital stock } & \{115,000\} & \{115,000\} \\\hline \text { Retained earnings, January } 1 & \{150,000\} & \{150,000\} \\\hline \text { Dividends } & & 15,000 \\\hline \text { Sales revenue } & & \{800,000\} \\\hline \text { Operating expenses } & & 765,000 \\\hline \text { Total } &\underline{ ? \quad0} &\underline{ ? \quad0} \\ \hline\end{array}$
New plant & equipment of ?100,000 was acquired during the year. Operating expenses include ?65,000 of depreciation on plant & equipment, of which ?10,000 is related to plant & equipment purchased during the year. Exchange rates (U.S.$/?) are as follows:
$$\begin{array} { l r } \text { January 1 } & \$ 0.24 \\\text { Average for year } & 0.25 \\\text { Plant \& equipment acquired } & 0.26 \\\text { Dividends declared } & 0.27 \\\text { December 31 } & 0.30\end{array}$$

-Assume that the subsidiary's functional currency is the Turkish lira. What is the subsidiary's translated retained earnings balance at year-end?

A) $42,200
B) $49,700
C) $44,750
D) $40,700

Question 50

Use the following information to answer bellow Questions
A U.S. company acquired a Turkish subsidiary at the beginning of the current year. The subsidiary's trial balances for January 1 and December 31 are presented bellow, in Turkish lira.
$\begin{array}{|l|c|c|}\hline & \begin{array}{c}\text { January } 1 \\\text { Dr (Cr) }\end{array} & \begin{array}{c}\text { December } 31 \\\text { Dr (Cr) } \\\end{array} \\\hline \text { Cash, receivables } & \text { ? } 40,000 & \text { ? } 20,000 \\ \hline \text { Plant \& equipment, net } & 400,000 & 435,000 \\\hline \text { Liabilities } & \{175,000\} & \{170,000\} \\\hline \text { Capital stock } & \{115,000\} & \{115,000\} \\\hline \text { Retained earnings, January } 1 & \{150,000\} & \{150,000\} \\\hline \text { Dividends } & & 15,000 \\\hline \text { Sales revenue } & & \{800,000\} \\\hline \text { Operating expenses } & & 765,000 \\\hline \text { Total } &\underline{ ? \quad0} &\underline{ ? \quad0} \\ \hline\end{array}$
New plant & equipment of ?100,000 was acquired during the year. Operating expenses include ?65,000 of depreciation on plant & equipment, of which ?10,000 is related to plant & equipment purchased during the year. Exchange rates (U.S.$/?) are as follows:
$$\begin{array} { l r } \text { January 1 } & \$ 0.24 \\\text { Average for year } & 0.25 \\\text { Plant \& equipment acquired } & 0.26 \\\text { Dividends declared } & 0.27 \\\text { December 31 } & 0.30\end{array}$$

-Assume that the subsidiary's functional currency is the U.S. dollar. What is the subsidiary's remeasured retained earnings balance at year-end?

A) $41,150
B) $45,200
C) $40,700
D) $44,750

Question 51

Use the following information to answer bellow Questions
A U.S. company acquired a Turkish subsidiary at the beginning of the current year. The subsidiary's trial balances for January 1 and December 31 are presented bellow, in Turkish lira.
$\begin{array}{|l|c|c|}\hline & \begin{array}{c}\text { January } 1 \\\text { Dr (Cr) }\end{array} & \begin{array}{c}\text { December } 31 \\\text { Dr (Cr) } \\\end{array} \\\hline \text { Cash, receivables } & \text { ? } 40,000 & \text { ? } 20,000 \\ \hline \text { Plant \& equipment, net } & 400,000 & 435,000 \\\hline \text { Liabilities } & \{175,000\} & \{170,000\} \\\hline \text { Capital stock } & \{115,000\} & \{115,000\} \\\hline \text { Retained earnings, January } 1 & \{150,000\} & \{150,000\} \\\hline \text { Dividends } & & 15,000 \\\hline \text { Sales revenue } & & \{800,000\} \\\hline \text { Operating expenses } & & 765,000 \\\hline \text { Total } &\underline{ ? \quad0} &\underline{ ? \quad0} \\ \hline\end{array}$
New plant & equipment of ?100,000 was acquired during the year. Operating expenses include ?65,000 of depreciation on plant & equipment, of which ?10,000 is related to plant & equipment purchased during the year. Exchange rates (U.S.$/?) are as follows:
$$\begin{array} { l r } \text { January 1 } & \$ 0.24 \\\text { Average for year } & 0.25 \\\text { Plant \& equipment acquired } & 0.26 \\\text { Dividends declared } & 0.27 \\\text { December 31 } & 0.30\end{array}$$

-A U.S. parent has a subsidiary in Hong Kong. The Hong Kong dollar has strengthened against the U.S. dollar ($/HK$ rate has increased). Which statement is true concerning conversion of an international subsidiary's statement of cash flows to its parent's currency?

A) If the subsidiary's functional currency is the U.S. dollar, the effect of rate changes on cash is a higher loss than if the subsidiary's functional currency is the Hong Kong dollar.
B) If the subsidiary's functional currency is the Hong Kong dollar, the effect of rate changes on cash is a higher gain than if the subsidiary's functional currency is the U.S. dollar.
C) If the subsidiary's functional currency is the U.S. dollar, the effect of rate changes on cash is a higher gain than if the subsidiary's functional currency is the Hong Kong dollar.
D) The effect of rate changes on cash is the same whether the subsidiary's accounts are remeasured or translated.

Question 52

A Spanish subsidiary of a U.S. parent reports the following information on its statement of cash flows:
•Beginning cash balance, €10,000
•Cash from operating activities, €500,000
•Cash used for investing activities, €650,000
•Cash from financing activities, €160,000
•Beginning rate, €1.24; average rate, €1.26; ending rate, €1.30
•Operating, investing, and financing cash flows were incurred evenly over the year.
What is the effect of exchange rate changes on cash?

A) $1,000 gain
B) $1,000 loss
C) $ 800 gain
D) $ 800 loss

Question 53

Which financial ratio is always the same whether computed using local currency balances or translated balances?

A) Receivables turnover (credit sales/average receivables)
B) Total assets turnover (sales/average assets)
C) Return on assets (profit/average assets)
D) Gross margin percentage (gross margin/sales)

Question 54

A U.S. company has a subsidiary in Mexico. If the company's statement of comprehensive income reports a gain for conversion of subsidiary accounts to U.S. dollars in other comprehensive income, the most likely explanation is that:

A) The peso has strengthened against the U.S. dollar and the subsidiary's functional currency is the peso.
B) The peso has weakened against the U.S. dollar and the subsidiary's functional currency is the U.S. dollar.
C) The peso has strengthened against the U.S. dollar and the subsidiary's functional currency is the U.S. dollar.
D) The peso has weakened against the U.S. dollar and the subsidiary's functional currency is the peso.

Question 55

A U.S. company has a subsidiary in Mexico. If the company's income statement reports a loss for conversion of subsidiary accounts to U.S. dollars, the most likely explanation is that:

A) The peso has strengthened against the U.S. dollar and the subsidiary's functional currency is the peso.
B) The peso has weakened against the U.S. dollar and the subsidiary's functional currency is the U.S. dollar.
C) The peso has strengthened against the U.S. dollar and the subsidiary's functional currency is the U.S. dollar.
D) The peso has weakened against the U.S. dollar and the subsidiary's functional currency is the peso.

Question 56

Assume the U.S. dollar has been steadily strengthening against the euro, and operating profit excludes remeasurement gains and losses. Which statement is most likely to be true concerning translation and remeasurement of the accounts of a U.S. parent's subsidiary in Portugal?

A) Remeasured operating profit as a percent of assets will be the same as local currency operating profit as a percent of assets.
B) Remeasured operating expenses will be higher than translated operating expenses.
C) Translated total assets will be higher than remeasured total assets.
D) Remeasured operating profit as a percent of assets will be higher than translated operating profit as a percent of assets.

Question 57

The U.S. dollar has been steadily strengthening with respect to the Canadian dollar. A U.S. parent has a subsidiary in Canada. Which statement is most likely to be true concerning the subsidiary's leverage, calculated as ending total liabilities divided by ending total assets?
(Use T to represent translated leverage, R to represent remeasured leverage, and L to represent leverage calculated using local currency balances.)

A) R > T = L
B) R > T > L
C) L = T > R
D) R > L > T

Question 58

The U.S. dollar has been steadily weakening with respect to the Hong Kong dollar. A U.S. parent has a Hong Kong subsidiary. The subsidiary uses FIFO. Which statement is most likely to be true concerning the subsidiary's gross margin percentage, calculated as [(Sales revenue - Cost of goods sold)/Sales revenue]?
(Use T to represent translated leverage, R to represent remeasured leverage, and L to represent leverage calculated using local currency balances.)

A) R > T = L
B) R > T > L
C) L = T > R
D) R > L > T

Question 59

The U.S. dollar has been steadily strengthening with respect to the Singapore dollar. A U.S. parent has a Singapore subsidiary. Which statement is most likely to be true concerning the subsidiary's operating profit (excluding remeasurement gain or loss) as a percentage of average assets?
(Use T to represent translated leverage, R to represent remeasured leverage, and L to represent leverage calculated using local currency balances.)

A) R > T = L
B) R > T > L
C) L = T > R
D) R > L > T

Question 60

The U.S. dollar has been steadily strengthening with respect to the Hong Kong dollar. A U.S. parent has a Hong Kong subsidiary. The subsidiary has positive net assets and its monetary assets are less than its liabilities. The subsidiary's functional currency is the U.S. dollar. Which statement is most likely to be true concerning the gain or loss resulting from conversion of the subsidiary's accounts to U.S. dollars?

A) A gain will be reported in income.
B) A loss will be reported in income.
C) A gain will be reported in other comprehensive income.
D) A loss will be reported in other comprehensive income.

Question 61

A U.S. company reports a remeasurement loss on its Mexican subsidiary and a translation gain on its Swiss subsidiary. Which is most likely true?

A) The U.S. dollar weakened against the Mexican peso and strengthened against the Swiss franc.
B) The U.S. dollar weakened against both the Mexican peso and the Swiss franc.
C) The U.S. dollar strengthened against the Mexican peso and weakened against the Swiss franc.
D) The U.S. dollar strengthened against both the Mexican peso and the Swiss franc.

Question 62

Use the following information to answer bellow Questions
Parkin Industries, a U.S. company, acquired a wholly-owned subsidiary, located in Italy, at the beginning of the current year, for €200,000. The subsidiary's functional currency is the euro. The balance sheet of the subsidiary at the date of acquisition was as follows:
$\begin{array}{ll}\text { Assets }\\\text { Current assets } & € 50,000 \\\text { Plant and equipment, net } & \underline{200,000} \\\text { Total assets } & € 250,000\\\\\text { Liabilities and Equity } & \\\text { Liabilities } & € 160,000 \\\text { Capital stock } & 20,000 \\\text { Retained earnings } & 70,000 \\\quad \text { Total liabilities and equity } & € 250,000\end{array}$ Appropriate revaluations of the subsidiary's assets at the date of acquisition are as follows:
•Inventories are undervalued by €1,000. The subsidiary sold the inventory during the current year.
•Equipment is undervalued by €15,000. The equipment has a 10-year remaining life, straight-line.
•Identifiable indefinite life intangible assets, previously unreported, have a fair value of €40,000.
During the current year, there was no impairment of either identifiable intangible assets or goodwill. The exchange rate at the beginning of the year was $1.20/€. The average rate for the year was $1.22/€, and the rate at the end of the year was $1.25/€.

-The excess of acquisition cost over book value for this acquisition, in U.S. dollars, is:

A) $110,000
B) $132,000
C) $134,200
D) $137,500

Question 63

Use the following information to answer bellow Questions
Parkin Industries, a U.S. company, acquired a wholly-owned subsidiary, located in Italy, at the beginning of the current year, for €200,000. The subsidiary's functional currency is the euro. The balance sheet of the subsidiary at the date of acquisition was as follows:
$\begin{array}{ll}\text { Assets }\\\text { Current assets } & € 50,000 \\\text { Plant and equipment, net } & \underline{200,000} \\\text { Total assets } & € 250,000\\\\\text { Liabilities and Equity } & \\\text { Liabilities } & € 160,000 \\\text { Capital stock } & 20,000 \\\text { Retained earnings } & 70,000 \\\quad \text { Total liabilities and equity } & € 250,000\end{array}$ Appropriate revaluations of the subsidiary's assets at the date of acquisition are as follows:
•Inventories are undervalued by €1,000. The subsidiary sold the inventory during the current year.
•Equipment is undervalued by €15,000. The equipment has a 10-year remaining life, straight-line.
•Identifiable indefinite life intangible assets, previously unreported, have a fair value of €40,000.
During the current year, there was no impairment of either identifiable intangible assets or goodwill. The exchange rate at the beginning of the year was $1.20/€. The average rate for the year was $1.22/€, and the rate at the end of the year was $1.25/€.

-The entries required to consolidate the balance sheets of Parkin Industries and its subsidiary at the date of acquisition include recognition of goodwill of:

A) $0
B) $ 64,800
C) $132,000
D) $103,200

Question 64

Use the following information to answer bellow Questions
Parkin Industries, a U.S. company, acquired a wholly-owned subsidiary, located in Italy, at the beginning of the current year, for €200,000. The subsidiary's functional currency is the euro. The balance sheet of the subsidiary at the date of acquisition was as follows:
$\begin{array}{ll}\text { Assets }\\\text { Current assets } & € 50,000 \\\text { Plant and equipment, net } & \underline{200,000} \\\text { Total assets } & € 250,000\\\\\text { Liabilities and Equity } & \\\text { Liabilities } & € 160,000 \\\text { Capital stock } & 20,000 \\\text { Retained earnings } & 70,000 \\\quad \text { Total liabilities and equity } & € 250,000\end{array}$ Appropriate revaluations of the subsidiary's assets at the date of acquisition are as follows:
•Inventories are undervalued by €1,000. The subsidiary sold the inventory during the current year.
•Equipment is undervalued by €15,000. The equipment has a 10-year remaining life, straight-line.
•Identifiable indefinite life intangible assets, previously unreported, have a fair value of €40,000.
During the current year, there was no impairment of either identifiable intangible assets or goodwill. The exchange rate at the beginning of the year was $1.20/€. The average rate for the year was $1.22/€, and the rate at the end of the year was $1.25/€.

-Consolidation elimination entry (R), at the date of acquisition, includes a credit to investment in subsidiary in the amount of:

A) $0
B) $108,000
C) $240,000
D) $132,000

Question 65

At the end of the year, consolidation eliminating entry (R) includes a debit to current assets in the amount of:

A) $0
B) $1,220
C) $1,250
D) $1,200

Question 66

At the end of the year, consolidation eliminating entry (O) includes a debit to depreciation expense in the amount of:

A) $1,830
B) $1,500
C) $1,875
D) $1,800

Question 67

At the end of the year, consolidation eliminating entry (R) has what effect on consolidated other comprehensive income?

A) $6,600 gain
B) $5,500 gain
C) No effect
D) $4,500 loss

Question 68

At the end of the year, consolidation eliminating entry (O) has what effect on consolidated other comprehensive income?

A) $85 gain
B) $125 loss
C) No effect
D) $75 loss

Question 69

Use the following information to answer bellow Questions
Parex Corporation, a U.S. company, acquired a wholly-owned subsidiary, located in Hong Kong, at the beginning of the current year, for HK$100,000. The subsidiary's functional currency is the Hong Kong dollar. The balance sheet of the subsidiary at the date of acquisition was as follows:
$\begin{array}{l}\text { Ass ets } \\\text { Tangible assets }&H K \$ 300,000\\\\\text { Liabilities and Equity }\\\text { Liabilities } & \text { HK\$260,000 } \\\text { Capital stock } & 10,000 \\\text { Retained earnings } & 30,000 \\\quad \text { Total liabilities and equity } & \text { HK } \$ 300,000\end{array}$ The HK$60,000 excess paid above book value is attributed to goodwill, which is not impaired during the current year. The exchange rate was $0.14/HK$ at the date of acquisition and $0.12/HK$ at the end of the current year.

-At the end of the year, what is the translated balance for goodwill?

A) $7,800
B) $8,400
C) $7,200
D) $6,000

Question 70

Use the following information to answer bellow Questions
Parex Corporation, a U.S. company, acquired a wholly-owned subsidiary, located in Hong Kong, at the beginning of the current year, for HK$100,000. The subsidiary's functional currency is the Hong Kong dollar. The balance sheet of the subsidiary at the date of acquisition was as follows:
$\begin{array}{l}\text { Ass ets } \\\text { Tangible assets }&H K \$ 300,000\\\\\text { Liabilities and Equity }\\\text { Liabilities } & \text { HK\$260,000 } \\\text { Capital stock } & 10,000 \\\text { Retained earnings } & 30,000 \\\quad \text { Total liabilities and equity } & \text { HK } \$ 300,000\end{array}$ The HK$60,000 excess paid above book value is attributed to goodwill, which is not impaired during the current year. The exchange rate was $0.14/HK$ at the date of acquisition and $0.12/HK$ at the end of the current year.

-The consolidation process has what effect on consolidated other comprehensive income?

A) $1,200 gain
B) $2,000 gain
C) $2,000 loss
D) $1,200 loss

Question 71

A U.S. company consolidates a subsidiary whose accounts are reported in euros. The subsidiary's functional currency is the euro. During the consolidation eliminating entries, consolidated other comprehensive income changes because:

A) Revaluation and subsequent write-off of the subsidiary's assets and liabilities change its exposure to translation gains and losses.
B) The subsidiary now has additional AFS debt securities which change in value.
C) Elimination of the investment account on the parent's books reduces the subsidiary's assets.
D) The noncontrolling interest in the subsidiary must share in the subsidiary's equity.

Question 72

A U.S. company has a subsidiary in the U.K., acquired at a cost in excess of the subsidiary's book value. The U.S. dollar has steadily weakened with respect to the British pound. The subsidiary's functional currency is the pound. Which statement is true concerning the effects of consolidation eliminations (R) and (O), recognizing beginning-of-year revaluations and write-offs for the current year?

A) Additional net losses will be reported in net income.
B) Additional net losses will be reported in other comprehensive income.
C) Additional net gains will be reported in net income.
D) Additional net gains will be reported in other comprehensive income.

Question 73

You are doing the consolidation working paper for a U.S. company and its U.K. subsidiary. The U.S. dollar has steadily strengthened against the pound. When you do eliminating entries (R) and (O) to recognize and write off previously unrecorded intangible assets for the subsidiary, what is the net effect?

A) Gain in other comprehensive income
B) Loss in other comprehensive income
C) No effect because you don't convert the subsidiary's trial balance to US dollars
D) Loss in income

Question 74

IFRS for converting the account balances of an international subsidiary in a hyperinflationary country to the parent's presentation currency requires:

A) Remeasurement of the subsidiary's accounts to the parent's presentation currency
B) Translation of the subsidiary's accounts to the parent's presentation currency
C) Price-level adjustment of the subsidiary's accounts, and then translation of the accounts to the parent's presentation currency
D) Price-level adjustment of the subsidiary's accounts, and then remeasurement of the accounts to the parent's presentation currency

Question 75

Ukraine is designated as a highly inflationary country. A Ukrainian subsidiary of a German company owns land that it bought for 40,000 hryvnia (?), when the €/? rate was €0.15, and the price level index was 100. It is now the end of the current year. In which situation below will IFRS and U.S. GAAP report the same end-of-year amount for the land, in euros?

A) The end of year exchange rate is €0.02, and the end of year price level index is 800.
B) The average exchange rate for the year is €0.02, and the average price level index is 800.
C) The end of year exchange rate is €0.025, and the end of year price level index is 600.
D) The average exchange rate for the year is €0.025, and the average price level index is 600.

Question 76

A French company has a subsidiary in Argentina, which is designated as a highly inflationary country. The subsidiary's functional currency is the Argentine peso. The subsidiary reports land on its books at cost, 25,000 pesos. The price level index was 200 when the land was purchased and is 1,200 now. The €/peso rate was €0.05 when the land was purchased and is €0.008 now.
At what amount, in euros, is the land reported using U.S. GAAP and IFRS?

A) €1,250 €1,200
B) €1,200 € 200
C) €1,200 €2,400
D) €1,200 €1,250

Question 77

A French company has a subsidiary in Venezuela, which is designated as a highly inflationary country. The subsidiary's functional currency is the Venezuelan bolivar. The subsidiary reports land on its books at cost, 10,000 bolivars. The price level index was 100 when the land was purchased and is 900 now. The €/bolivar rate was €0.90 when the land was purchased and is €0.10 now. At what amount, in euros, is the land reported using U.S. GAAP and IFRS?

A) €9,000 € 1,000
B) €9,000 € 9,000
C) €9,000 €11,100
D) €1,000 € 9,000

Question 78

A subsidiary of a U.S. parent is in a highly inflationary country, and its functional currency is its local currency. The subsidiary purchased land when the U.S. dollar price of the local currency was $5.00, and the price level index was 100. Currently the U.S. dollar price of the local currency is $0.10, and the price level index is 4,800. Which is true regarding U.S. GAAP and IFRS computation of the U.S. dollar amount for the land?

A) The U.S. GAAP value is higher.
B) The IFRS value is higher.
C) US GAAP and IFRS give you the same amount because they are converged.
D) The relationship between the two amounts depends on the depreciation method used by the subsidiary.

Question 79

What is "presentation currency," as used in IFRS?

A) The subsidiary's functional currency
B) The parent company's reporting currency
C) The currency in which the subsidiary reports its accounts
D) The currency into which the subsidiary's accounts are remeasured, prior to translation

Question 80

When converting the trial balance of an international subsidiary to the parent's currency, IFRS and U.S. GAAP are converged, except for:

A) Remeasurement procedures
B) Translation procedures
C) Conversion when the subsidiary is in a highly inflationary country
D) Choice of whether to use remeasurement or translation for a specific subsidiary