江西财经大学高级财务会计国际学院题库

Advanced Accounting, 11e (Beams/Anthony/Bettinghaus/Smith)Chapter 14 Foreign Currency Financial StatementsMultiple Choice Questions1) A U.S. firm has a Belgian subsidiary that uses the British pound as its functional currency. According to GAAP, the U.S. dollar from Belgian units point of view will beA) its only foreign currency.B) its local currency.C) its current rate method currency.D) its reporting currency.Answer: DObjective: LO1Difficulty: Easy2) Selvey Inc. is a wholly-owned subsidiary of Parsfield Incorporated, a U.S. firm. The country where Selvey operates is determined to have a highly inflationary economy according to GAAP definitions. Therefore, for purposes of preparing consolidated financial statements, the functional currency isA) its reporting currency.B) its current rate method currency.C) the US dollar.D) its local currency.Answer: CExplanation: C) Selvey must use the functional currency of the reporting entity.Objective: LO3Difficulty: Easy3) All of the following factors would be used to define a foreign entitys functional currency, exceptA) high volume of intercompany transactions.B) expenses for foreign entity primarily driven by local factors.C) financing for foreign entity denominated in local currency.D) foreign entitys status as a local tax haven for transfer pricing purposes.Answer: DObjective: LO1Difficulty: Easy4) The primary goal behind consolidating financial statements of a controlled subsidiary isA) assuring that the subsidiary financial statements are the same under the temporal method or the current rate method.B) assuring that the individual nature of the subsidiary entity is not lost in the consolidation.C) representing the conversion of statements at the historical exchange rate.D) representing the companys underlying economic condition.Answer: DObjective: LO2Difficulty: Easy5) Pelmer has a foreign subsidiary, Sapp Corporation of Germany, whose functional currency is the euro. Sapps books are maintained in euros. On December 31, 2011, Sapp has an account receivable denominated in British pounds. Which one of the following statements is true?A) Because all accounts of the subsidiary are translated into U.S. dollars at the current rate, the Account Receivable is not adjusted on the subsidiarys books before translation.B) The Account Receivable is remeasured into the functional currency, thus eliminating the need for translation.C) The Account Receivable is first adjusted to reflect the current exchange rate in euros and then translated at the current exchange rate into dollars.D) The Account Receivable is adjusted to euros at the current exchange rate, and any resulting gain or loss is included as a translation adjustment in the stockholders equity section of the subsidiarys separate balance sheet.Answer: CObjective: LO2Difficulty: Moderate6) Paskin Corporations wholly-owned Canadian subsidiary has a Canadian dollar functional currency. In translating the subsidiarys account balances into U.S. dollars for reporting purposes, which one of the following accounts would be translated at historical exchange rates?A) Accounts ReceivableB) Notes PayableC) Capital StockD) Retained EarningsAnswer: CObjective: LO2Difficulty: Easy7) A foreign entity is a subsidiary of a U.S. parent company and has always used the current rate method to translate its foreign financial statements on behalf of its parent company. Which one of the following statements is false?A) The U.S. dollar is the functional currency of this company.B) Changes in exchange rates between the subsidiarys country and the parents country are not expected to affect the foreign entitys cash flows.C) Translation adjustments are shown in stockholders equity as increases or decreases in other comprehensive income.D) Translation adjustments are not shown on the income statement.Answer: AObjective: LO2Difficulty: Easy8) Assume the functional currency of a foreign entity is the U.S. dollar, but the books are kept in euros. The objective of remeasurement of a foreign entitys accounts is toA) produce the same results as if the foreign entitys books were maintained in the currency of the largest customer.B) produce the same results as if the foreign entitys books were maintained solely in the local currency.C) produce the same results as if the foreign entitys books were maintained solely in the U.S. dollar.D) produce the results reflective of the foreign entitys economics in the local currency.Answer: CObjective: LO2Difficulty: Easy9) Which of the following assets and/or liabilities are considered monetary?A) Intangible Assets and Plant, Property, and EquipmentB) Bonds Payable and Common StockC) Cash and Accounts PayableD) Notes Receivable and Inventories carried at costAnswer: CObjective: LO2Difficulty: Easy10) Which of the following statements about the Current Rate method is false?A) Translation involves restating the functional currency amounts into the reporting currency.B) All assets and liabilities are translated at the current rate.C) If the subsidiary maintains their books in their functional currency, the current rate method is used.D) The effect of exchange rate changes are reported on the income statement as a foreign exchange gain or loss.Answer: DObjective: LO2Difficulty: Easy11) Accounts representing an allowance for uncollectible accounts are converted into U.S. dollars atA) historical rates when the U.S. dollar is the functional currency.B) current rates only when the U.S. dollar is the functional currency.C) historical rates regardless of the functional currency.D) current rates regardless of the functional currency.Answer: DObjective: LO2Difficulty: Easy12) Palk Corporation has a foreign subsidiary located in a country experiencing high rates of inflation. Information concerning this countrys inflation rate experience is given below.ChangeAnnual rateDateIndexin indexof InflationJanuary 1, 200990January 1, 20101203030/100 = 30.00%January 1, 20111503030/130 = 23.08%January 1, 20122106060/160 = 37.50%The inflation rate that is used in determining if the subsidiary is operating in a highly inflationary economy isA) 37.50%.B) 90.58%.C) 133.33%.D) 350.00%.Answer: CExplanation: C) (210 - 90)/90 100% = 133%Objective: LO3Difficulty: Moderate13) At the time of a business acquisition,A) identifiable assets and liabilities are allocated the portion of the translation or remeasurement adjustment that existed on the date of acquisition.B) a foreign entitys assets and liabilities are translated into U.S. dollars using the current exchange rate in effect on that date.C) the difference between investment fair value and translated net assets acquired is treated as a remeasurement gain or loss on the income statement.D) the difference between investment fair value and translated net assets acquired is recorded as a cumulative translation adjustment on the balance sheet.Answer: BObjective: LO4Difficulty: Easy14) When translating foreign subsidiary income statements using the current rate method, why are some accounts translated at an average rate?A) This approach improves matching.B) This approach accentuates the conservatism principle.C) This approach smoothes out highly volatile exchange rate fluctuations.D) This approach approximates the effect of transactions which occur continuously during the period.Answer: DObjective: LO5Difficulty: Easy15) The following assets of Poole Corporations Romanian subsidiary have been converted into U.S. dollars at the following exchange rates:CurrentHistorical Rates RatesAccounts receivable$850,000$875,000Trademark600,000575,000Property plant and equipment1,200,000900,000Totals$2,650,000$2,350,000Assume the functional currency of the subsidiary is the U.S. dollar and the books are kept in a different currency. The assets should be reported in the consolidated financial statements of Poole Corporation and Subsidiary in the total amount ofA) $2,325,000.B) $2,350,000.C) $2,375,000.D) $2,650,000.Answer: AExplanation: A) A/R $850,000 + Trademark $575,000 + Plant $900,000Objective: LO5Difficulty: Moderate16) Which of the following foreign subsidiary accounts will have the same value on consolidated financial statements, regardless of whether the statements are remeasured or translated?A) TrademarkB) Deferred IncomeC) Accounts ReceivableD) GoodwillAnswer: CObjective: LO2Difficulty: Easy17) Exchange gains or losses from remeasurement appearA) in the continuing operations section of the consolidated income statement.B) as an extraordinary item on the consolidated income statement.C) as other comprehensive income typically reported in a statement of stockholders equity.D) as an adjustment to the beginning balance of retained earnings on the consolidated Statement of retained earnings.Answer: AObjective: LO6Difficulty: Easy18) A U.S. parent corporation loans funds to a foreign subsidiary to be used to purchase equipment. The loan is denominated in U.S. dollars and the functional currency of the subsidiary is the euro. This intercompany transaction is a foreign currency transaction ofA) neither the subsidiary nor the parent, as it is eliminated as part of the consolidation procedure.B) the subsidiary but not the parent.C) both the subsidiary and the parent.D) the parent but not the subsidiary.Answer: BObjective: LO7Difficulty: Moderate19) A foreign subsidiarys accounts receivable balance should be translated for the consolidated financial statements atA) the appropriate historical rate.B) the prior years forecast rate.C) the future rate for the next year.D) the spot rate at year-end.Answer: DObjective: LO8Difficulty: Easy20) If a U.S. company wants to hedge a prospective loss on its investment in a foreign entity that may result from a foreign currency fluctuation, the U.S. company shouldA) purchase a forward to swap currency of the foreign entitys local country for U.S. currency.B) purchase a call option to buy currency of the foreign entitys local country.C) issue a loan in the foreign entitys local country.D) borrow money in the foreign entitys local country.Answer: DObjective: LO9Difficulty: EasyExercises1) For each of the 12 accounts listed in the table below, select the correct exchange rate to use when either remeasuring or translating a foreign subsidiary for its U.S. parent company.CodesC = Current exchange rateH = Historical exchange rateA = Average exchange rateU.S. dollar isThe foreignthe functionalcurrency is thecurrencyfunctional currency1.Accounts receivable_2.Marketable debt securitiescarried at cost_3.Inventories carried at cost_4.Deferred income_5.Goodwill_6.Other paid-in capital_7.Depreciation expense_8.Refundable deposits_9.Common stock_10.Accumulated depreciation onbuildings_11.Deferred income tax liabilities_12.Accounts payable_Answer: U.S. dollar isThe foreignthe functionalcurrency is thecurrencyfunctional currency1.Accounts receivableCC2.Marketable debt securitiescarried at costHC3.Inventories carried at costHC4.Deferred incomeHC5.GoodwillHC6.Other paid-in capitalHH7.Depreciation expenseHC8.Refundable depositsCC9.Common stockHH10.Accumulated depreciation onbuildingsHC11.Deferred income tax liabilitiesCC12.Accounts payableCCObjective: LO2Difficulty: Moderate2) On January 1, 2012, Planet Corporation, a U.S. company, acquired 100% of Star Corporation of Bulgaria, paying an excess of 90,000 Bulgarian lev over the book value of Stars net assets. The excess was allocated to undervalued equipment with a three-year remaining useful life. Stars functional currency is the Bulgarian lev. Stars books are maintained in the functional currency. Exchange rates for Bulgarian lev for 2012 are:January 1, 2012$.77Average rate for 2012.75December 31, 2012.73Required:1. Determine the depreciation expense stated in U.S. dollars on the excess allocated to equipment for 2012.2. Determine the unamortized excess allocated to equipment on December 31, 2012 in U.S. dollars.3. If Stars functional currency was the U.S. dollar, what would be the depreciation expense on the excess allocated to the equipment for 2012?Answer: Requirement 1Depreciation expense in 201290,000 lev/3 years $.75/lev = $22,500 depreciation expenseRequirement 2Unamortized excess at December 31, 201290,000 lev 2/3 $.73/lev = $43,800 unamortized excess on equipmentRequirement 3Remeasured depreciation expense90,000 lev $.77/lev = $69,300 excess$69,300/3 years = $23,100 depreciation expenseObjective: LO5Difficulty: Moderate3) Pan Corporation, a U.S. company, formed a British subsidiary on January 1, 2012 by investing 450,000 British pounds () in exchange for all of the subsidiarys no-par common stock. The British subsidiary, Skillet Corporation, purchased real property on April 1, 2012 at a cost of 500,000, with 100,000 allocated to land and 400,000 allocated to a building. The building is depreciated over a 40-year estimated useful life on a straight-line basis with no salvage value. The British pound is Skillets functional currency and its reporting currency. The British economy does not have high rates of inflation. Exchange rates for the pound on various dates were:January 01, 2012=1 =$1.60April 01, 2012=1 =$1.61December 31, 2012=1=$1.682012 average rate=1=$1.66Skillets adjusted trial balance is presented below for the year ended December 31, 2012.In PoundsDebits:Cash 220,000Accounts receivable52,000Inventory59,000Building400,000Land100,000Depreciation expense7,500Other expenses110,000Cost of goods sold220,000Total debits 1,168,500CreditsAccumulated depreciation7,500Accounts payable111,000Common stock450,000Retained earnings0Equity adjustment0Sales revenue600,000Total credits1,168,500Required: Prepare Skillets:1. Translation working papers;2. Translated income statement; and3. Translated balance sheet.Answer: Requirement 1Skillet CorporationTranslation Working PapersDebitsCash220,000 $1.68=$369,600Accounts receivable52,000 $1.68=87,360Inventory59,000 $1.68=99,120Building400,000 $1.68=672,000Land100,000 $1.68=168,000Depreciation expense7,500 $1.66=12,450Other expenses110,000 $1.66=182,600Cost of goods sold220,000 $1.66=365,200_Total debits$1,956,330CreditsAccumulated depreciation7,500 $1.68=$12,600Accounts payable111,000 $1.68=186,480Common stock450,000 $1.60=720,000Sales revenue600,000 $1.66=996,000Retained earnings0Total credits$1,915,080Credit differential$41,250Requirement 2Skillet CorporationTranslated Income StatementFor the Year Ended December 31, 2012Sales revenue$996,000Expenses:Cost of goods sold(365,200)Depreciation expense(12,450)Other expenses(182,600)_Net income$435,750Requirement 3Skillet CorporationTranslated Balance SheetDecember 31, 2012Cash$369,600Accounts receivable87,360Inventory99,120Building-net659,400Land 168,000Total assets$1,383,480Accounts payable$186,480Common stock720,000Retained earnings435,750Accumulated other comprehensive income 41,250Total liabilities & equities$1,383,480Objective: LO5Difficulty: Moderate4) Note to Instructor: This exam item is a continuation of Exercise 3 and proceeds forward with Skillets second year of operations.Skillet Corporation, a British subsidiary of Pan Corporation (a U.S. company) was formed by Pan on January 1, 2012 in exchange for all of the subsidiarys common stock. Skillet has now ended its second year of operations on December 31, 2013. Relevant exchange rates are:January 01, 2013=1=$1.60December 31, 2013=1=$1.752013 average rate=1=$1.73Skillets adjusted trial balance is presented below for the calendar year 2013. The amount of equity adjustment carried over from 2012 is a credit balance of $41,250 (in dollars).In PoundsDebits:Cash75,000Accounts receivable362,000Inventory41,000Building400,000Land100,000Depreciation expense10,000Other expenses133,000Cost of goods sold380,000Total debits1,501,000CreditsAccumulated depreciation17,500Accounts payable154,750Common stock450,000Retained earnings262,500Sales revenue616,250Total credits1,501,000Required: For Skillets second year of operations, prepare the:1. Translation working papers;2. Translated income statement; and3. Translated balance sheet.Answer: Requirement 1Skillet CorporationTranslation Working PapersDebitsCash75,000 $1.75=$131,250Accounts receivable362,000 $1.75=633,500Inventory41,000 $1.75=71,750Building400,000 $1.75=700,000Land100,000 $1.75=175,000Depreciation expense10,000 $1.73=17,300Other expenses133,000 $1.73=230,090Cost of goods sold380,000 $1.73=657,400Total debits$2,616,290CreditsAccumulate