江西财经大学高级财务会计国际学院题库

AdvancedAccounting,11e(Beams/Anthony/Bettinghaus/Smith)Chapter14ForeignCurrencyFinancialStatementsMultipleChoiceQuestionsA.firmhasaBelgiansubsidiarythatusestheBritishpoundasitsfunctionalcurrency.AccordingtoGAAP,the.dollarfromBelgianunit'spointofviewwillbeitsonlyforeigncurrency.itslocalcurrency.itscurrentratemethodcurrency.itsreportingcurrency.Answer:DObjective: Difficulty:EasySelveyInc.isawholly-ownedsubsidiaryofParsfieldIncorporated,a.firm.ThecountrywhereSelveyoperatesisdeterminedtohaveahighlyinflationaryeconomyaccordingtoGAAPdefinitions.Therefore,forpurposesofpreparingconsolidatedfinancialstatements,thefunctionalcurrencyisitsreportingcurrency.itscurrentratemethodcurrency.theUSdollar.itslocalcurrency.Answer:CExplanation: C)Selveymustusethefunctionalcurrencyofthereportingentity.Objective: Difficulty:EasyAllofthefollowingfactorswouldbeusedtodefineaforeignentity'sfunctionalcurrency,excepthighvolumeofintercompanytransactions.expensesforforeignentityprimarilydrivenbylocalfactors.financingforforeignentitydenominatedinlocalcurrency.foreignentity'sstatusasalocaltaxhavenfortransferpricingpurposes.Answer:DObjective: Difficulty:EasyTheprimarygoalbehindconsolidatingfinancialstatementsofacontrolledsubsidiaryisassuringthatthesubsidiaryfinancialstatementsarethesameunderthetemporalmethodorthecurrentratemethod.assuringthattheindividualnatureofthesubsidiaryentityisnotlostintheconsolidation.representingtheconversionofstatementsatthehistoricalexchangerate.representingthecompany'sunderlyingeconomiccondition.Answer: DObjective: Difficulty:EasyPelmerhasaforeignsubsidiary,SappCorporationofGermany,whosefunctionalcurrencytheeuro.Sapp'sbooksaremaintainedineuros.OnDecember31,2011,SapphasanaccountreceivabledenominatedinBritishpounds.Whichoneofthefollowingstatementsistrue?Becauseallaccountsofthesubsidiaryaretranslatedinto.dollarsatthecurrentrate,theAccountReceivableisnotadjustedonthesubsidiary'sbooksbeforetranslation.TheAccountReceivableisremeasuredintothefunctionalcurrency,thuseliminatingtheneedfortranslation.TheAccountReceivableisfirstadjustedtoreflectthecurrentexchangerateineurosandthentranslatedatthecurrentexchangerateintodollars.TheAccountReceivableisadjustedtoeurosatthecurrentexchangerate,andanyresultinggainorlossisincludedasatranslationadjustmentinthestockholders'equitysectionofthesubsidiary'sseparatebalancesheet.Answer: CObjective: LO2Difficulty:ModeratePaskinCorporation'swholly-ownedCanadiansubsidiaryhasaCanadiandollarfunctionalcurrency.Intranslatingthesubsidiary'saccountbalancesinto.dollarsforreportingpurposes,whichoneofthefollowingaccountswouldbetranslatedathistoricalexchangerates?AccountsReceivableNotesPayableCapitalStockRetainedEarningsAnswer:Objective: Difficulty:EasyAforeignentityisasubsidiaryofa.parentcompanyandhasalwaysusedthecurrentratemethodtotranslateitsforeignfinancialstatementsonbehalfofitsparentcompany.Whichoneofthefollowingstatementsisfalse?The.dollaristhefunctionalcurrencyofthiscompany.Changesinexchangeratesbetweenthesubsidiary'scountryandtheparent'scountryarenotexpectedtoaffecttheforeignentity'scashflows.Translationadjustmentsareshowninstockholders'equityasincreasesordecreasesinothercomprehensiveincome.Translationadjustmentsarenotshownontheincomestatement.Answer: AObjective: Difficulty:EasyAssumethefunctionalcurrencyofaforeignentityisthe.dollar,butthebooksarekeptineuros.Theobjectiveofremeasurementofaforeignentity'saccountsistoproducethesameresultsasiftheforeignentity'sbooksweremaintainedinthecurrencyoftheducethesameresultsasiftheforeignentity'sbooksweremaintainedsolelyinthelocalducethesameresultsasiftheforeignentity'ducetheresultsreflectiveoftheforeignentity'seconomicsinthelocalcurrency.Answer: CObjective: Difficulty:EasyWhichofthefollowingassetsand/orliabilitiesareconsideredmonetary?IntangibleAssetsandPlant,Property,andEquipmentBondsPayableandCommonStockC)CashandAccountsPayableD)NotesReceivableandInventoriescarriedatAnswer: CObjective: Difficulty:EasyWhichofthefollowingstatementsabouttheCurrentRatemethodisfalse?Translationinvolvesrestatingthefunctionalcurrencyamountsintothereportingcurrency.Allassetsandliabilitiesaretranslatedatthecurrentrate.Ifthesubsidiarymaintainstheirbooksintheirfunctionalcurrency,thecurrentratemethodisused.Theeffectofexchangeratechangesarereportedontheincomestatementasaforeignexchangegainorloss.Answer: DObjective: Difficulty:EasyAccountsrepresentinganallowanceforuncollectibleaccountsareconvertedinto.dollarsatA)historicalrateswhenthe.dollaristhefunctionalcurrency.currentratesonlywhenthe.dollaristhefunctionalcurrency.historicalratesregardlessofthefunctionalcurrency.currentratesregardlessofthefunctionalcurrency.Answer:DObjective: Difficulty:EasyPalkCorporationhasaforeignsubsidiarylocatedinacountryexperiencinghighratesofinflation.Informationconcerningthiscountry'sinflationrateexperienceisgivenbelow.DateIndexChangeinindexAnnualrateofInflationJanuary1,200990January1,20101203030/100=%January1,20111503030/130=%January1,20122106060/160=%Theinflationratethatisusedindeterminingifthesubsidiaryisoperatinginahighlyinflationaryeconomyis%.%.%.%.Answer:Explanation: C)[(210-90)/90] ×100%=133%Objective: LO3Difficulty:ModerateAtthetimeofabusinessacquisition,identifiableassetsandliabilitiesareallocatedtheportionofthetranslationorremeasurementadjustmentthatexistedonthedateofacquisition.aforeignentity'sassetsandliabilitiesaretranslatedinto.dollarsusingthecurrentexchangerateineffectonthatdate.thedifferencebetweeninvestmentfairvalueandtranslatednetassetsacquiredistreatedasaremeasurementgainorlossontheincomestatement.thedifferencebetweeninvestmentfairvalueandtranslatednetassetsacquiredisrecordedasacumulativetranslationadjustmentonthebalancesheet.Answer: BObjective: Difficulty:EasyWhentranslatingforeignsubsidiaryincomestatementsusingthecurrentratemethod,whyaresomeaccountstranslatedatanaveragerate?Thisapproachimprovesmatching.Thisapproachaccentuatestheconservatismprinciple.Thisapproachsmoothesouthighlyvolatileexchangeratefluctuations.Thisapproachapproximatestheeffectoftransactionswhichoccurcontinuouslyduringtheperiod.Answer: DObjective: Difficulty:EasyThefollowingassetsofPooleCorporation'sRomaniansubsidiaryhavebeenconvertedinto.dollarsatthefollowingexchangerates:CurrentRatesHistoricalRatesAccountsreceivable$850,000$875,000Trademark600,000575,000Propertyplantandequipment1,200,000900,000Totals$2,650,000$2,350,000Assumethefunctionalcurrencyofthesubsidiaryisthe.dollarandthebooksarekeptinadifferentcurrency.TheassetsshouldbereportedintheconsolidatedfinancialstatementsofPooleCorporationandSubsidiaryinthetotalamountofA)$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:ModerateWhichofthefollowingforeignsubsidiaryaccountswillhavethesamevalueonconsolidatedfinancialstatements,regardlessofwhetherthestatementsareremeasuredortranslated?TrademarkDeferredIncomeAccountsReceivableD)GoodwillAnswer:CObjective: Difficulty:EasyExchangegainsorlossesfromremeasurementappearinthecontinuingoperationssectionoftheconsolidatedincomestatement.asanextraordinaryitemontheconsolidatedincomestatement.asothercomprehensiveincometypicallyreportedinastatementofstockholders'equity.asanadjustmenttothebeginningbalanceofretainedearningsontheconsolidatedStatementofretainedearnings.Answer: AObjective: Difficulty:EasyA.parentcorporationloansfundstoaforeignsubsidiarytobeusedtopurchaseequipment.Theloanisdenominatedin.dollarsandthefunctionalcurrencyofthesubsidiaryistheeuro.Thisintercompanytransactionisaforeigncurrencytransactionofneitherthesubsidiarynortheparent,asitiseliminatedaspartoftheconsolidationprocedure.thesubsidiarybutnottheparent.boththesubsidiaryandtheparent.theparentbutnotthesubsidiary.Answer: BObjective: LO7Difficulty:ModerateAforeignsubsidiary'saccountsreceivablebalanceshouldbetranslatedfortheconsolidatedfinancialstatementsattheappropriatehistoricalrate.theprioryear'sforecastrate.C)thefuturerateforthenextyear.thespotrateatyear-end.Answer:DObjective: Difficulty:EasyIpanywantstohedgeaprospectivelossonitsinvestmentinaforeignentitythatmayresultfromaforeigncurrencyfluctuation,panyshouldpurchaseaforwardtoswapcurrencyoftheforeignentity'slocalcountryfor.currency.purchaseacalloptiontobuycurrencyoftheforeignentity'slocalcountry.issuealoanintheforeignentity'slocalcountry.borrowmoneyintheforeignentity'slocalcountry.Answer:DObjective: Difficulty:EasyExercisesForeachofthe12accountslistedinthetablebelow,selectthecorrectexchangeratetousewheneitherremeasuringortranslatingaforeignsubsidiaryforits.parentcompany.CodesC=CurrentexchangerateH=HistoricalexchangeA=Averageexchangerate.dollaristhefunctionalTheforeigncurrencyisthecurrencyfunctionalcurrencyAccountsreceivableMarketabledebtsecurities carriedatcost 3.Inventoriescarriedatcost 4.Deferredincome 5.Goodwill 6.Otherpaid-incapital 7.Depreciationexpense 8.Refundabledeposits 9.Commonstock 10.Accumulateddepreciationonbuildings 11.Deferredincometaxliabilities 12.Accountspayable Answer: .dollarthefunctionalcurrency

TheforeigncurrencyisthefunctionalcurrencyAccountsreceivable C CMarketabledebtsecuritiescarriedatcost H CInventoriescarriedatcost H CDeferredincome H CGoodwill H COtherpaid-incapital H HDepreciationexpense H CRefundabledeposits C CCommonstock H HAccumulateddepreciationonbuildings H CDeferredincometaxliabilities C CAccountspayable C CObjective:LO2Difficulty:ModerateOnJanuary1,2012,PlanetCorporation,pany,acquired100%ofStarCorporationofBulgaria,payinganexcessof90,000BulgarianlevoverthebookvalueofStar'snetassets.Theexcesswasallocatedtoundervaluedequipmentwithathree-yearremainingusefullife.Star'sfunctionalcurrencyistheBulgarianlev.Star'sbooksaremaintainedinthefunctionalcurrency.ExchangeratesforBulgarianlevfor2012are:January1,2012$.77Averageratefor2012.75December31,2012.73Required:Determinethedepreciationexpensestatedin.dollarsontheexcessallocatedtoequipmentfor2012.DeterminetheunamortizedexcessallocatedtoequipmentonDecember31,2012in.dollars.IfStar'sfunctionalcurrencywasthe.dollar,whatwouldbethedepreciationexpenseontheexcessallocatedtotheequipmentfor2012?Answer:Requirement1Depreciationexpense201290,000lev/3years ×$.75/lev=$22,500depreciationexpenseRequirement2UnamortizedexcessatDecember31,201290,000lev×2/3×$.73/lev=$43,800unamortizedexcessonequipmentRequirement3Remeasureddepreciationexpense90,000lev ×$.77/lev=$69,300excess$69,300/3years=$23,100depreciationexpenseObjective: LO5Difficulty:ModeratePanCorporation,pany,formedaBritishsubsidiaryonJanuary1,2012byinvesting450,000Britishpounds(￡)inexchangeforallofthesubsidiary'sno-parcommonstock.Britishsubsidiary,SkilletCorporation,purchasedrealpropertyonApril1,2012atacostof￡500,000,with￡100,000allocatedtolandand ￡400,000allocatedtoabuilding.Thebuildingisdepreciatedovera40-yearestimatedusefullifeonastraight-linebasiswithnosalvagevalue.TheBritishpoundisSkillet'sfunctionalcurrencyanditsreportingcurrency.TheBritishdoesnothavehighratesofinflation.Exchangeratesforthepoundonvariousdateswere:January01,2012=1￡=$April01,2012=1￡=$December31,2012=1￡=$2012averagerate=1￡=$Skillet'sadjustedtrialbalanceispresentedbelowfortheyearendedDecember31,2012.InPoundsDebits:CashAccountsreceivable￡220,00052,000Inventory59,000Building400,000Land100,000Depreciationexpense7,500Otherexpenses110,000Costofgoodssold220,000Totaldebits￡1,168,500CreditsAccumulateddepreciation￡7,500Accountspayable111,000Commonstock450,000Retainedearnings0Equityadjustment0Salesrevenue600,000Totalcredits￡1,168,500Required:PrepareSkillet's:1.Translationworkingpapers;2.Translatedincomestatement;and3.Translatedbalancesheet.Answer:Requirement1

SkilletCorporationTranslationWorkingPapersDebitsCash220,000×$ =$369,600Accountsreceivable52,000×$ = 87,360Inventory59,000×$ = 99,120Building400,000×$=672,000Land100,000×$=168,000Depreciationexpense7,500×$ = 12,450Otherexpenses110,000×$=182,600Costofgoodssold220,000×$=365,200Totaldebits$1,956,330CreditsAccumulateddepreciation7,500×$=$12,600Accountspayable111,000×$=186,480Commonstock450,000×$=720,000Salesrevenue600,000×$=996,000Retainedearnings0Totalcredits$1,915,080Creditdifferential$41,250Requirement2SkilletCorporationTranslatedIncomeStatementFortheYearEndedDecember31,2012SalesrevenueExpenses:$996,000Costofgoodssold(365,200)Depreciationexpense(12,450)Otherexpenses(182,600)Netincome$435,750Requirement3

Cash$369,600Accountsreceivable87,360Inventory99,120Building-net659,400Land168,000Totalassets$1,383,480Cash$369,600Accountsreceivable87,360Inventory99,120Building-net659,400Land168,000Totalassets$1,383,480Accountspayable$186,480Commonstock720,000Retainedearnings435,750Accumulatedothercomprehensiveincome41,250Totalliabilities&equities$1,383,480Objective: LO5Difficulty: NotetoInstructor:ThisexamitemisacontinuationofExercise3andproceedswithSkillet'ssecondyearofoperations.SkilletCorporation,aBritishsubsidiaryofPanCorporation(pany)wasformedbyPanonJanuary1,2012inexchangeforallofthesubsidiary'scommonstock.SkillethasnowendedsecondyearofoperationsonDecember31,2013.Relevantexchangeratesare:January01,2013=1￡= $December31,2013 = 1￡ = 2013averagerate=1￡= $Skillet'sadjustedtrialbalanceispresentedbelowforthecalendaryear2013.Theamountofequityadjustmentcarriedoverfrom2012isacreditbalanceof$41,250(indollars).InPoundsDebits:CashAccountsreceivableInventoryBuildingLandDepreciationexpenseOtherexpensesCostofgoodssoldTotaldebitsCreditsAccumulateddepreciationAccountspayableCommonstockRetainedearningsSalesrevenueTotalcreditsTranslationworkingpapers;Translatedincomestatement;andTranslatedbalancesheet.

￡75,000362,00041,000400,000100,00010,000133,000380,000￡1,501,000￡17,500154,750450,000262,500616,250￡1,501,000Answer:Requirement1

SkilletCorporationTranslationWorkingDebitsCash75,000×$=$131,250Accountsreceivable 362,000 =633,500Inventory 41,000 =71,750Building 400,000 =700,000Land 100,000 =175,000Depreciationexpense 10,000 =17,300Otherexpenses 133,000 =230,090Costofgoodssold 380,000 =657,400Totaldebits$2,616,290CreditsAccumulateddepreciation 17,500 =$30,625Accountspayable 154,750 =270,812Commonstock 450,000 =720,000Salesrevenue 616,250 =1,066,113Retainedearnings 262,500435,750AccumulatedothercomprehensiveincomeTotalcredits$2,564,55041,250CreditdifferentialRequirement2$51,740SkilletCorporationTranslatedIncomeStatementfortheyearendedDecember31,2013SalesrevenueExpenses:$1,066,113Costofgoodssold(657,400)Depreciationexpense(17,300)Otherexpenses(230,090)Netincome$161,323Retainedearnings,January1,2013435,750Retainedearnings,December31,2013$597,073Requirement3

SkilletCorporationTranslatedBalanceDecember31,2013Cash$131,250Accountsreceivable633,500Inventory71,750Building-net669,375Land175,000Totalassets$1,680,875Accountspayable$270,812Commonstock720,000Retainedearnings597,073Accum.othercomprehensiveincome($41,250+$51,740)92,990Totalliabilities&equities$1,680,875Objective: LO5Difficulty: NotetoInstructor:ThisexamitemissimilartoExercise3exceptthattheexchangerateshavebeenchangedandthetemporalmethodisusedinsteadofthecurrentratemethod.ThePolkaCorporation,a.corporation,formedaBritishsubsidiaryonJanuary1,2011byinvesting550,000Britishpounds(￡)inexchangeforallofthesubsidiary'sno-parcommonstock.TheBritishsubsidiary,StripeCorporation,purchasedrealpropertyonApril1,2011atacostof￡500,000,with￡100,000allocatedtolandand ￡400,000allocatedtothebuilding.Thebuildingisdepreciatedovera40-yearestimatedusefullifeonastraight-linebasiswithnosalvagevalue.The.dollarisStripe'sfunctionalcurrency,butitkeepsitsrecordsinpounds.TheBritisheconomydoesnotexperiencehighratesofinflation.Exchangeratesforthepoundonvariousdatesare:January01,2011=1￡=April01,2011=1￡=December31,2011=1￡=2011averagerate=1￡=Stripe'sadjustedtrialbalanceispresentedbelowfortheyearendedDecember31,2011.InPoundsDebits:CashAccountsreceivable￡200,00072,000Notesreceivable99,000Building400,000Land100,000Depreciationexpense7,500Otherexpenses115,000Salaryexpense208,000Totaldebits￡1,201,500CreditsAccumulateddepreciation￡7,500Accountspayable100,000Commonstock550,000Retainedearnings0Equityadjustment0Salesrevenue544,000Totalcredits￡1,201,500Required:PrepareStripe's:1.Remeasurementworkingpapers;2.Remeasuredincomestatement;and3.Remeasuredbalancesheet.Answer:Requirement1

StripeCorporationRemeasurementWorkingPapersDebitsCash200,000×$=$330,000Accountsreceivable72,000×$=118,800Notesreceivable99,000×$=163,350Building400,000×$=648,000Land100,000×$=162,000Depreciationexpense7,500x$=12,150Otherexpenses115,000×$=188,600Salaryexpense208,000×$=341,120Totaldebits$1,964,020CreditsAccumulateddepreciation7,500×$=$12,150Accountspayable100,000×$=165,000Commonstock550,000×$=880,000Salesrevenue544,000×$=892,160Retainedearnings00Totalcredits$1,949,310Creditdifferential$14,710Requirement2StripeCorporationRemeasuredIncomeStatementFortheYearEndedDecember31,2011SalesrevenueExpenses:$892,160Salaryexpense(341,120)Depreciationexpense(12,150)Otherexpenses(188,600)Incomebeforeexchangegainsorlosses$350,290Exchangegains14,710Netincome$365,000Retainedearnings,January1,20110Retainedearnings,December31,2011$365,000Requirement3

Cash$330,000Accountsreceivable118,800Notesreceivable163,350Building-net635,850Land162,000Cash$330,000Accountsreceivable118,800Notesreceivable163,350Building-net635,850Land162,000Totalassets$1,410,000Accountspayable$165,000Commonstock880,000Retainedearnings365,000Totalliabilities&equities$1,410,000Objective: LO5Difficulty: ModerateNotetoInstructor:ThisexamitemisacontinuationofExercise5andproceedsforwardwithStripe'ssecondyearofoperations.StripeCorporation,aBritishsubsidiaryofPolkaCorporation(pany)wasformedbyPolkaonJanuary1,2011inexchangeforallofthesubsidiary'scommonstock.StripehasnowendeditssecondyearofoperationsonDecember31,2012.Relevantexchangeratesare:January01,2011=1￡=$April01,2011=1￡=$December31,2012=1 ￡=2012averagerate=1 ￡=$Stripe'sadjustedtrialbalanceispresentedbelowforthecalendaryear2012.InPoundsDebits:CashAccountsreceivable￡172,000Notesreceivable98,000Building400,000Land100,000Depreciationexpense10,000Otherexpenses117,000Salaryexpense376,000Totaldebits￡1,581,000CreditsAccumulateddepreciation￡17,500Accountspayable200,000Commonstock550,000Retainedearnings213,500Salesrevenue600,000Totalcredits￡1,581,000Required:PrepareStripe's:1.Remeasurementworkingpapers;2.Remeasuredincomestatement;and3.Remeasuredbalancesheet.Answer:RequirementDebits

StripeCorporationRemeasurementWorkingPapersCash

172,000

×$ =$270,040Accountsreceivable308,000×$=483,560Notesreceivable98,000×$=153,860Building400,000×$=648,000Land100,000×$=162,000Depreciationexpense10,000×$=16,200Otherexpenses117,000×$=182,520Salaryexpense376,000×$=586,560Totaldebits$2,502,740CreditsAccumulateddepreciation17,500×$= $28,350Accountspayable 200,000×$= 314,000Commonstock 550,000×$= 880,000Salesrevenue 600,000×$= 936,000Retainedearnings 213,500365,000Totalcredits$2,523,350Debitdifferential$20,610Requirement2StripeCorporationTranslatedIncomeStatementFortheYearEndedDecember31,2012SalesrevenueExpenses:$936,000Salaryexpense(586,560)Depreciationexpense(16,200)Otherexpenses182,520)Incomebeforeexchangegainsorlosses$150,720Exchangeloss(20,610)Netincome$130,110Retainedearnings,January1,2012365,000Retainedearnings,December31,2012$495,110Requirement3

Cash$270,040Accountsreceivable483,560Notesreceivable153,860Building-net619,650Land162,000Totalassets$1,689,110Cash$270,040Accountsreceivable483,560Notesreceivable153,860Building-net619,650Land162,000Totalassets$1,689,110Accountspayable$314,000Commonstock880,000Retainedearnings495,110Totalliabilities&equities$1,689,110Objective: LO5Difficulty: ModerateOnJanuary1,2011,PilgrimCorporation,a.firm,acquiredownershipofSettlementCorporation,aforeigncompany,for$168,000,whenSettlement'sstockholders'equityconsistedof300,000localcurrencyunits(LCU)andretainedearningsof100,000LCU.Atthetimeoftheacquisition,Settlement'sassetsandliabilitieswerefairlyvaluedexceptforapatentthatdidnothaveanyrecordedbookvalue.Allexcesspurchasecostwasattributedtothepatent,whichhadanestimatedeconomiclifeof10yearsatthedateofacquisition.TheexchangerateforLCUsonJanuary1,2011was$.40.ThefunctionalcurrencyforSettlementisLCU.Settlement'sbooksaremaintainedinLCU.AsummaryofchangesinSettlement'sstockholders'equityduring2011andtheexchangeratesforLCUsisasfollows:Stockholders'equityLCURatesDollars1/1/11400,000$.40H$160,000Netincome100,000.42A42,000Dividends12/1/11(50,000).43H(21,500)EquityadjustmentStockholders'equity 17,500 12/31/11450,000.44C$198,000FairvalueofthepatentfromPilgrim'sinvestmentinSettlementonJanuary1,2011in.dollars.Patentamortizationfor2011in.dollars.UnamortizedpatentatDecember31,2011in.dollars.Equityadjustmentfromthepatentin.dollars.IncomefromSettlementfor2011in.dollars.InvestmentinSettlementbalanceatDecember31,2011in.dollars.Answer:Requirement1PatentFairValue:Costofinvestment$168,000Bookvalueacquired400,000LCU×$.40(160,000)=Patentindollars$8,000PatentinLCU=$8,000/$.40perLCU=20,000Requirement22,000LCUperyear ×$.42equalsamortizationRequirement3Unamortizedpatent:Patent(20,000LCU-2,000LCU) ×$.44=$7,920Requirement4Equityadjustmentfrompatent:Beginningpatent(fromReq.1)$8,000Patentamortization(fromReq.2)(840)Subtotal7,160Endingpatent(fromReq.3)7,920EquityadjustmentRequirement5$760IncomefromSettlement:Equityinincome$42,000Less:Patentamortization(840)IncomefromSettlementRequirement6$41,160InvestmentinSettlementbalanceat12/31/11:Cost,January1,2011$168,000Add:Incomefor2011(fromReq.5)41,160Less:Dividends(21,500)Add:Equityadjustmentfrompatent(fromReq.4)760Add:Equityadjustmentfromtranslation17,500Investmentbalance,December31,2011Check:$205,920Bookvalue:$198,000Unamortizedpatent(fromReq.3)7,920Investmentbalance$205,920Objective: LO7Difficulty: ModeratePlateCorporation,aUScompany,acquiredownershipofSaucerCorporationofSwitzerlandonJanuary1,2011for$1,500,000whenSaucer'sstockholders'equityinSwissfrancs(SF)consistedof700,000SFCapitalStockand300,000SFRetainedEarnings.TheexchangerateforSwissfrancswas$onJanuary1.AllexcesspurchasecostwasattributedtoaTrademarkthatdidnothavearecordedbookvalue.Thetrademarkistobeamortizedover20years.Saucer'sfunctionalcurrencyisSwissfrancsandtherecordsarekeptinthesamecurrency.AsummaryofchangesinSaucer'sstockholders'equityduring2011andrelevantexchangeratesareasfollows:In Exchange InStockholders'equityFrancsRatesDollars1/1/11￡1,000,000$$1,200,000Netincome250,000287,500Dividends11/1/11(100,000)(110,000)EquityadjustmentStockholders'equity (170,000) 12/31/11￡1,150,000$1,207,500FairvalueoftheTrademarkfromPlate'sinvestmentinSauceronJanuary1,2011in.dollars.Trademarkamortizationfor2011in.dollars.UnamortizedTrademarkatDecember31,2011in.dollars.EquityadjustmentfromtheTrademarkin.dollars.IncomefromSaucerfor2011in.dollars.InvestmentinSaucerbalanceatDecember31,2011in.dollars.Answer:Requirement1Trademark:Costofinvestment$1,500,000Bookvalueacquired1,000,000 ×$(1,200,000)FairvalueofTrademarkindollars$300,000TrademarkinSwissfrancs=$300,000/$=250,000Requirement2Trademarkamortizationfor2011:Trademark:250,000/20yr. ×$averagerate=$14,375Requirement3UnamortizedTrademark:Trademark(250,000-12,500SF) ×$exchangerate$249,375Requirement4EquityadjustmentfromTrademark:BeginningTrademark(fromReq.1)$300,000Trademarkamortization(fromReq.2)(14,375)Less:EndingTrademark(237,500 ×$(249,375)Equityadjustment$ 36,250Requirement5IncomefromSaucer:Equityinincome$287,500Less:Trademarkamortization(14,375)IncomefromSaucer$273,125Requirement6InvestmentBalanceatDecember31,2011:Cost,January1,2011$1,500,000Add:IncomefromSaucer(fromReq.5)273,125Less:Dividends(110,000)Less:Equityadjustmentfromtranslation(170,000)Less:EquityadjustmentfromTrademark(fromReq.4)(36,250)Investmentbalance,December31,2011$1,456,875Check:ShareofSaucer'sequity$1,207,500Add:UnamortizedTrademark(fromReq.3)249,375Investmentbalance,December31,2011$1,456,875Objective: LO7Difficulty: ModeratePlaneCorporation,pany,owns100%ofShippCorporation,aLibyancompany.Shipp'sequipmentwasacquiredonthefollowingdates(amountsarestatedinLibyandinars):Jan.01,2011Purchasedequipmentfor40,000dinarsJul.01,2011Purchasedequipmentfor80,000dinarsJan.01,2012Purchasedequipmentfor50,000dinarsJul.01,2012SoldequipmentpurchasedonJan.01,2011for35,000dinarsExchangeratesfortheLibyandinarsonvariousdatesare:Jan.01,20111dinar=$.500Jan.01,20121dinar=$.530Jul.01,20111dinar=$.520Jul.01,20121dinar=$.505Dec.31,20111dinar=$.530Dec.31,20121dinar=$.4902011avg.rate1dinar=$.5152012avg.rate1dinar=$.510Shipp'sequipmenthasanestimated5-yearlifewithnosalvagevalueandisdepreciatedusingthestraight-linemethod,calculatingdepreciationexpenseonamonthlybasis.Shipp'sfunctionalcurrencyisthe.dollar,butthecompanyusestheLibyandinarasitsreportingcurrency.Required:DeterminethevalueofShipp'sequipmentaccountonDecember31,2012in.dollars.DetermineShipp'sdepreciationexpensefor2012in.dollars.DeterminethegainorlossfromthesaleofequipmentonJuly1,2012in.dollars.Answer:Requirement1Equipment:Jul.01,2011(80,000dinars ×$.520/dinar)$41,600=Jan.01,2012(50,000dinars ×$.530/dinar)26,500=Total $68,100[(40,000dinar×1/5x.5yr.)[(40,000dinar×1/5x.5yr.)×($.500/dinar)]$2,000=[(80,000dinar×1/5x1yr.)×($.520/dinar)]8,320=[(50,000dinar×1/5x1yr.)×($.530/dinar)]5,300=Total$15,620Requirement3Equipmentsold:(40,000dinar ×$.500/dinar)=AccumulatedDepreciationonequipment

$20,000[(40,000dinar×1/5yrs.)××($.500/dinar)]=6,000Netbookvalueofequipmentsold$14,000CashreceivedonJuly1,2012:(35,000dinar ×$.505/dinar)=17,675Gainonsaleofequipment$3,675Objective: LO7Difficulty: ModeratePhimInc.,pany,owns100%ofSeraCorporation,aNewZealandcompany.Sera'sequipmentwasacquiredonthefollowingdates(amountsarestatedinNewZealanddollarsasNZ$):Jan.01,2011PurchasedequipmentforNZ$40,000Jul.01,2011PurchasedequipmentforNZ$80,000Jan.01,2012PurchasedequipmentforNZ$50,000Jul.01,2012SoldequipmentpurchasedonJan.01,2011forNZ$35,000ExchangeratesfortheNewZealanddollaronvariousdatesare:Jan.01,20111NZ$=$.800 Jan.01,2012 1NZ$=$.830Jul.01,20111NZ$=$.820 Jul.01,2012 1NZ$=$.805Dec.31,20111NZ$=$.830 Dec.31,20121NZ$=$.7902011avg.rate1