83. A foreign subsidiary of a U.S. corporation purchased equipment on January 4,
2008.
(A.) How would depreciation expense on the equipment be translated for 2011?
(B.) How would depreciation expense on the equipment be remeasured for 2011?
84. What exchange rate would be used to translate the asset and liability account
balances of a foreign subsidiary? 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 the functional currency for this subsidiary?
86. What is the justification for the remeasurement of foreign currency
transactions?
87. Contrast the purpose of remeasurement with the purpose of translation.
88. On January 1, 2011, Fandu Corp. began operations of a foreign subsidiary. On
April 1, 2011, the subsidiary purchased inventory costing 150,000 stickles. One–
fourth of this inventory remained unsold at the end of 2011 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, 2011 inventory and accounts payable
balances for this foreign subsidiary as translated into U.S. dollars? (Round your
answers to the nearest whole dollar.)
89. On January 1, 2011, 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 2011:
Required:
Calculate the translation adjustment for Malont. (Round your answers to the nearest
whole dollar.)
90. Ginvold Co. began operating a subsidiary in a foreign country on January 1,
2011 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, 2012. A building was then
purchased for §170,000 on January 1, 2011. 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, 2011. The functional currency for the subsidiary was the
Stickle (§). Currency exchange rates were as follows:
91. Ginvold Co. began operating a subsidiary in a foreign country on January 1,
2011 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, 2012. A building was then
purchased for §170,000 on January 1, 2011. 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, 2011. The functional currency for the subsidiary was the
Stickle (§). Currency exchange rates were as follows:
Prepare a statement of retained earnings for this subsidiary in stickles and then
translate the amounts into U.S. dollars.
92. Ginvold Co. began operating a subsidiary in a foreign country on January 1,
2011 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, 2012. A building was then
purchased for §170,000 on January 1, 2011. 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, 2011. The functional currency for the subsidiary was the
Stickle (§). Currency exchange rates were as follows:
93. Ginvold Co. began operating a subsidiary in a foreign country on January 1,
2011 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, 2012. A building was then
purchased for §170,000 on January 1, 2011. 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, 2011. The functional currency for the subsidiary was the
Stickle (§). Currency exchange rates were as follows:
Prepare a statement of cash flows for this subsidiary in stickles and then translate the
amounts into U.S. dollars.
94. Boerkian Co. started 2011 with two assets: Cash of §26,000 (Stickles) and
Land that originally cost §72,000 when acquired on April 4, 2008. On May 1, 2011,
the company rendered services to a customer for §36,000, an amount immediately
paid in cash. On October 1, 2011, the company incurred an operating expense of
§22,000 that was immediately paid. No other transactions occurred during the year so
an average exchange rate is not necessary. Currency exchange rates were as follows:
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 2011 and state whether this is a positive or a
negative adjustment.
95. Boerkian Co. started 2011 with two assets: Cash of §26,000 (Stickles) and
Land that originally cost §72,000 when acquired on April 4, 2008. On May 1, 2011,
the company rendered services to a customer for §36,000, an amount immediately
paid in cash. On October 1, 2011, the company incurred an operating expense of
§22,000 that was immediately paid. No other transactions occurred during the year so
an average exchange rate is not necessary. Currency exchange rates were as follows:
96. Boerkian Co. started 2011 with two assets: Cash of §26,000 (Stickles) and
Land that originally cost §72,000 when acquired on April 4, 2008. On May 1, 2011,
the company rendered services to a customer for §36,000, an amount immediately
paid in cash. On October 1, 2011, the company incurred an operating expense of
§22,000 that was immediately paid. No other transactions occurred during the year so
an average exchange rate is not necessary. Currency exchange rates were as follows:
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, 2011 balance sheet, what was the translated value of the Land
account?
97. Boerkian Co. started 2011 with two assets: Cash of §26,000 (Stickles) and
Land that originally cost §72,000 when acquired on April 4, 2008. On May 1, 2011,
the company rendered services to a customer for §36,000, an amount immediately
paid in cash. On October 1, 2011, the company incurred an operating expense of
§22,000 that was immediately paid. No other transactions occurred during the year so
an average exchange rate is not necessary. Currency exchange rates were as follows:
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, 2011 balance sheet,
what was the remeasured value of the Land account?
