[QUESTION]
REFER TO: 10-11
74. Assume the functional currency is the U.S. Dollar; compute the U.S. statement of retained earnings
amount for dividends for 2018.
A) $19,000.
B) $20,200.
C) $18,600.
D) $19,400.
E) $19,600.
75. Assume the functional currency is the U.S. Dollar; compute the U.S. balance sheet amount for
accumulated depreciation for 2018.
A) $40,950.
B) $41,850.
C) $45,450.
D) $42,750.
E) $44,100.
76. Assume the functional currency is the U.S. Dollar; compute the U.S. income statement amount for
depreciation expense for 2018.
A) $8,190.
B) $8,370.
C) $8,820.
D) $9,090.
E) $8,550.
77. A foreign subsidiary was acquired on January 1, 2018. Determine the exchange rate used to restate
the following accounts at December 31, 2018. Land was purchased on October 1, 2018. Relevant
exchange dates follow:
(A) January 1, 2018
(B) October 1, 2018
(C) December 31, 2018
(D) Average, 2018
(E) Composite, using multiple dates.
Identify the exchange rate used to translate items 1-5 when the functional currency is the foreign
currency:
____ 1. Land.
____ 2. Equipment.
____ 3. Bonds payable.
____ 4. Common stock.
____ 5. Retained earnings.
Identify the exchange rate used to remeasure the items 6-10 when the functional currency is the U.S.
dollar:
____ 6. Land.
____ 7. Equipment.
____ 8. Bonds payable.
____ 9. Common stock.
____ 10. Retained earnings.
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Education.
Page 10-37
Difficulty: 2 Medium
Blooms: Remember
AACSB: Diversity
AACSB: Reflective Thinking
AICPA: BB Global
AICPA: FN Measurement
[QUESTION]
78. In translating a foreign subsidiary’s financial statements, what exchange rate should be used for the
subsidiary’s revenues and expenses?
79. How can a parent corporation determine the functional currency for a foreign subsidiary that
conducts business in more than one country?
80. What exchange rate should be used to translate (a) revenues and expenses that occur throughout the
year and (b) a gain or loss that occurs on a specific day?
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Education.
Page 10-38
AACSB: Diversity
AACSB: Reflective Thinking
AICPA: BB Global
AICPA: FN Measurement
[QUESTION]
81. Perkle Co. owned a subsidiary in Belgium; the subsidiary’s functional currency was the Belgian
franc. During 2018, Perkle engaged in hedging transactions to offset part of the subsidiary’s net asset
position. How should the effects of exchange rate fluctuations on the currency hedge be accounted for?
82. Under what circumstances would the remeasurement of a foreign subsidiary’s financial statements be
required?
83. A foreign subsidiary of a U.S. corporation purchased equipment on January 4, 2015.
(A.) How would depreciation expense on the equipment be translated for 2018?
(B.) How would depreciation expense on the equipment be remeasured for 2018?
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Page 10-39
Learning Objective: 10-01
Learning Objective: 10-02
Topic: Translation method―Choose the rate to use
Topic: Temporal method―Property and depreciation
Difficulty: 2 Medium
Blooms: Remember
AACSB: Diversity
AACSB: Reflective Thinking
AICPA: BB Global
AICPA: FN Measurement
[QUESTION]
84. What exchange rate would be used to translate the asset and liability account balances of a foreign
subsidiary when the local currency is the functional currency? What justification can be given for using
this exchange rate?
85. Farley Brothers, a U.S. company, had a subsidiary in Italy. Under what conditions would the U.S.
dollar be considered the functional currency for this subsidiary?
86. What is the justification for the remeasurement of foreign currency transactions?
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Page 10-40
Answer: Remeasurement is needed for transactions denominated in a currency other than the entity’s
functional currency. A U.S. company that engages in transactions in other countries may have to
remeasure some of its transactions. The implicit justification for remeasurement is that foreign currency
transactions affecting monetary assets and liabilities have a direct effect on the entity’s cash flows. There
will be direct effects on future cash flows in the functional currency, and thus an effect on net income.
Learning Objective: 10-01
Topic: Translation concepts―Temporal method
Difficulty: 2 Medium
Blooms: Evaluate
AACSB: Diversity
AACSB: Communication
AACSB: Analytical Thinking
AICPA: BB Global
AICPA: FN Decision Making
[QUESTION]
87. Contrast the purpose of remeasurement with the purpose of translation.
88. On January 1, 2018, Fandu Corp. began operations of a foreign subsidiary. On April 1, 2018, the
subsidiary purchased inventory costing 150,000 stickles. One-fourth of this inventory remained unsold at
the end of 2018 while 40% of the liability from the purchase had not yet been paid. The pertinent indirect
exchange rates were:
Required:
What should have been the December 31, 2018 inventory and accounts payable balances for this foreign
January 1, 2018
$1 = §3.0
April 1, 2018
$1 = §3.4
Average for 2018
$1 = §3.2
December 31, 2018
$1 = §3.6
subsidiary as translated into U.S. dollars? (Round your answers to the nearest whole dollar.)
89. On January 1, 2018, Veldon Co., a U.S. corporation with the U.S. dollar as its functional currency,
established Malont Co. as a subsidiary. Malont is located in the country of Sorania, and its functional
currency is the stickle (§). Malont engaged in the following transactions during 2018:
Required:
Calculate the translation adjustment for Malont. (Round your answers to the nearest whole dollar.)
January 1, 2018
Issued common stock for §500,000
July 14, 2018
Sold a patent at a gain of §40,000
October 1, 2018
Paid dividends of §60,000
Malont’
s operating revenues and expenses for 2018 were §800,000
and §650,000, respectively. The appropriate exchange rates were:
January 1, 2018
§1 = $2.5
July 14, 2018
§1 = $2.1
October 1, 2018
§1 = $2.6
December 31, 2018
§1 = $2.7
Average for 2018
§1 =
$2.4
Net assets, 12/31/18
§ 630,000
$1,538,000
Net assets, 12/31/18 at current
exchange rate
§ 630,000
§2.7C
1,701,000
Translation adjustment , 2018
(positive)
$ (163,000)
Learning Objective: 10-03
Topic: Prepare translation adjustment
Difficulty: 2 Medium
Blooms: Apply
AACSB: Diversity
AACSB: Knowledge Application
AICPA: BB Global
AICPA: FN Measurement
REFERENCE: 10-12
Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2018 by acquiring all of the
common stock for §50,000 Stickles, the local currency. This subsidiary immediately borrowed §120,000
on a five-year note with ten percent interest payable annually beginning on January 1, 2019. A building
was then purchased for §170,000 on January 1, 2018. This property had a ten-year anticipated life and no
salvage value and was to be depreciated using the straight-line method. The building was immediately
rented for three years to a group of local doctors for §6,000 per month. By year-end, payments totaling
§60,000 had been received. On October 1, §5,000 were paid for a repair made on that date and it was the
only transaction of this kind for the year. A cash dividend of §6,000 was transferred back to Ginvold on
December 31, 2018. The functional currency for the subsidiary was the Stickle (§). Currency exchange
rates were as follows:
[QUESTION]
REFER TO: 10-12
90. Prepare an income statement for this subsidiary in stickles and then translate these amounts into U.S.
dollars.
January 1, 2018
§1 = $2.40
October 1, 2018
§1 = $2.22
Average for 2018
§1 = $2.28
December 31, 2018
§1 = $2.16
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Page 10-43
Learning Objective: 10-01
Learning Objective: 10-03
Topic: Translation method―Choose the rate to use
Topic: Use current rate method for balances
Difficulty: 2 Medium
Blooms: Apply
AACSB: Diversity
AACSB: Knowledge Application
AICPA: BB Global
AICPA: FN Measurement
[QUESTION]
REFER TO: 10-12
91. Prepare a statement of retained earnings for this subsidiary in stickles and then translate the amounts
into U.S. dollars.
Ginvold Co. Subsidiary
Income Statement
For the Year Ended December 31, 2018
Stickles
Rate
U.S. Dollars
Rent revenue
§ 72,000
x $2.28 A =
$ 164,160
Interest expense
( 12,000)
x $2.28 A =
( 27,360)
Depreciation expense
( 17,000)
x $2.28 A =
( 38,760)
Repair expense
( 5,000)
x $2.22 H =
( 11,100)
Net income
§ 38,000
$ 86,940
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Education.
Page 10-44
[QUESTION]
REFER TO: 10-12
92. Prepare a balance sheet for this subsidiary in stickles and then translate the amounts into U.S. dollars.
93. Prepare a statement of cash flows for this subsidiary in stickles and then translate the amounts into
U.S. dollars.
April 4, 2015
§1 = $.28
January 1, 2018
§1 = $.29
May 1, 2018
§1 = $.30
October 1, 2018
§1 = $.31
December 31, 2018
§1 = $.35
[QUESTION]
REFER TO: 10-13
94. Assume that Boerkian was a foreign subsidiary of a U.S. multinational company and the stickle (§)
was the functional currency of the subsidiary. Calculate the translation adjustment for this subsidiary for
2018 and state whether this is a positive or a negative adjustment.
95. Assume Boerkian was a foreign subsidiary of a U.S. multinational company and the U.S. dollar was
the functional currency of the subsidiary. Prepare a schedule of changes in the net monetary assets of
Boerkian for the year 2018 and properly label the resulting gain or loss.
Learning Objective: 10-04
Topic: Prepare remeasurement gain or loss
Difficulty: 3 Hard
Blooms: Apply
AACSB: Diversity
AACSB: Knowledge Application
AICPA: BB Global
AICPA: FN Measurement
[QUESTION]
REFER TO: 10-13
96. Required:
Assume that Boerkian was a foreign subsidiary of a U.S. multinational company and the local currency of
the subsidiary (stickle) is the functional currency. On the December 31, 2018 balance sheet, what was the
translated value of the Land account?
The remeasurement gain or loss is based on changes in the net monetary assets of
the subsidiary
Net monetary assets, 1/1/18
§ 26,000
x $.29 =
$ 7,540
Change in net monetary assets, 2018:
Rendered services
36,000
x $.30 =
10,800
Incurred expense
( 22,000)
x $.31 =
( 6,820)
Net monetary assets, 12/31/18
§ 40,000
$ 11,520
Net monetary assets, 12/31/18 at
current exchange rate
§ 40,000
x $.35 =
14,000
Remeasurement gain
$ 2,480
97. Assume that Boerkian was a foreign subsidiary of a U.S. multinational company and the U.S. dollar
is the functional currency. On the December 31, 2018 balance sheet, what was the remeasured value of
the Land account?