Chapter 12 – MULTINATIONAL ACCOUNTING: ISSUES IN FINANCIAL REPORTING AND
TRANSLATION OF FOREIGN ENTITY STATEMENTS
E12-4
LO 12-4,
LO 12-5
25 min.
M
Multiple-Choice Questions on Translation and Remeasurement
Seven multiple-choice questions are presented which ask questions regarding
goodwill, income from subsidiary, and other items resulting from the acquisitions
of foreign subsidiaries.
E12-5
LO 12-4,
LO 12-5
25 min.
M
Translation
Students must translate the trial balance of a first-year foreign subsidiary located
in Switzerland. An intercorporate receivable and no beginning balance in
retained earnings require additional student insight.
E12-6
LO 12-4,
LO 12-5
30 min.
M
Proof of Translation Adjustment
A continuation of E12-5 requiring a schedule proving the translation adjustment
for the Swiss subsidiary.
E12-7
LO 12-6,
LO 12-7
30 min.
M
Remeasurement
Using the data in E12-5, students must prepare a schedule remeasuring the
financial statements of the Swiss subsidiary. This exercise is a good companion
to E12-5 for instructors who want students to compare and contrast the
translation method with the remeasurement method.
E12-8
LO 12-6,
LO 12-7
40 min.
H
Proof of Remeasurement Gain (Loss)
Continuing the data from E12-5 and the remeasurement schedule from E12-7,
students must now prepare a schedule proving the remeasurement gain. This
exercise should be assigned only if students are required to study the additional
considerations section of the chapter.
E12-9
LO 12-4,
LO 12-5
25 min.
M
Translation with Strengthening U.S. Dollar
Using the base data from E12-5 and changes in exchange rates to a strengthening
U.S. dollar, students are asked to prepare a translation schedule and compare the
results against E12-5 in which the dollar was weakening.
E12-10
LO 12-6,
LO 12-7
30 min.
M
Remeasurement with Strengthening U.S. Dollar
Using the base data from E12-5 and changes in the exchange rates to a
strengthening U.S. dollar, students are asked to prepare a remeasurement
schedule and compare the results against E12-7 in which the dollar was
weakening.
Chapter 12 – MULTINATIONAL ACCOUNTING: ISSUES IN FINANCIAL REPORTING AND
TRANSLATION OF FOREIGN ENTITY STATEMENTS
E12-11
LO 12-5,
LO 12-7
20 min.
E
Remeasurement and Translation of Cost of Goods Sold
Students must compute cost of goods sold under both the remeasurement and
translation methods.
E12-12
LO 12-4
25 min.
M
Equity-Method Entries for a Foreign Subsidiary
This exercise requires the journal entries that are made on the U.S. parent
company’s books for the dividend, recognition of income from the foreign
subsidiary, and the amortization of trademark related to the foreign subsidiary.
Students should also calculate the differential, the translation adjustment from
differential, and the amount of the translation adjustment reported on the
statement of comprehensive income as an element of other comprehensive
income.
E12-13
LO 12-5
20 min.
E
Effects of a Change in the Exchange Rate—Translation and Other
Comprehensive Income
Students must first prepare translated balance sheets for two separate years, and
then compute the amount that would be shown for the change in the translation
adjustment that would be reported as other comprehensive income.
E12-14
LO 12-4,
LO 12-6
30 min.
M
Computation of Gain or Loss on Sale of Asset by Foreign Subsidiary
Students must prepare entries for a Mexican subsidiary’s purchase and the
eventual sale of land. Then, the exercise requires the computation of the amount
of the gain or loss that would be reported on the subsidiary’s remeasured
statement of income and the amount of the gain or loss that would be shown on
the subsidiary’s translated statement of income.
E12-15
LO 12-8
15 min.
E
Intercompany Transactions
This exercise requires students to compute the appropriate amounts that should
be eliminated for unrealized intercorporate profit and for ending inventory from a
downstream sale to an English subsidiary.
P12-16
LO 12-4
40 min.
M
Parent Company Journal Entries and Translation
This problem requires students to analyze the differential allocation and
amortization, to prepare the journal entries on the U.S. parent company’s books
for its foreign investment, and then to prepare a schedule of proof for the
translation adjustment as a result of translating the subsidiary’s accounts.
Chapter 12 – MULTINATIONAL ACCOUNTING: ISSUES IN FINANCIAL REPORTING AND
TRANSLATION OF FOREIGN ENTITY STATEMENTS
P12-17
LO 12-4,
LO 12-5
50 min.
H
Translation, Journal Entries, Consolidated Comprehensive Income, and
Stockholders’ Equity
This problem requires a schedule to translate the trial balance from Norwegian
kroner (NKr) into U.S. dollars, journal entries for the basic equity method to
account for the foreign investment, and prepare schedules to compute
consolidated net income and consolidated stockholders’ equity.
P12-18
LO 12-6,
LO 12-7
50 min.
H
Remeasurement, Journal Entries, Consolidated Net Income, and
Stockholders’ Equity
Using the data from P12-17, students are required to remeasure the Norwegian
subsidiary’s trial balance, prepare journal entries to account for the foreign
investment, and prepare schedules to compute consolidated net income and
consolidated stockholders’ equity.
P12-19
LO 12-7
25 min.
M
Proof of Translation Adjustment
Using the data from P12-17, students must prepare a schedule of proof for the
translation adjustment.
P12-20
LO 12-8
25 min.
M
Remeasurement Gain or Loss
Using the data from P12-17 and the answer to part a of P12-18, students must
prepare a schedule to prove the remeasurement gain or loss.
P12-21
LO 12-4,
LO 12-5
50 min.
H
Translation and Calculation of Translation Adjustment
Both beginning of the year and end of the year trial balances are presented for the
student who must translate the end of the year trial balance that includes
inventory, prepaid insurance, plant and equipment acquired at various times,
intangible assets, and dividends. Students must also compute the amount of the
change in the cumulative translation adjustment occurring during the year.
P12-22
LO 12-6
LO 12-7
65 min.
H
Remeasurement and Proof of Remeasurement Gain or Loss
Using the data from P12-21, students must now remeasure the ending trial
balance. Instructors not assigning the additional considerations section of the
chapter may prefer having students do just part a of this problem. Part b requires
the proof of the remeasurement gain or loss.
P12-23
LO 12-4,
LO 12-5
35 min.
M
Translation
Students must translate a trial balance of an Australian subsidiary that includes
inventory, plant and equipment acquired at various times, long-term bonds, and
dividends.
Chapter 12 – MULTINATIONAL ACCOUNTING: ISSUES IN FINANCIAL REPORTING AND
TRANSLATION OF FOREIGN ENTITY STATEMENTS
P12-24
LO 12-4
40 min.
M
Parent Company Journal Entries and Translation
Using the data from P12-23, students are required to prepare the journal entries
on the U.S. parent company’s books for its foreign investment, including the
parent’s share of the translation adjustment resulting from the adjustment of the
differential and the translation adjustment resulting from the translation of the
subsidiary’s accounts.
P12-25
LO 12-5
50 min.
H
Consolidation Worksheet after Translation
Using the information from P12-23 and P12-24, students are asked to prepare the
consolidation worksheet using trial balance information for the parent and the
translated amounts for the subsidiary computed in P12-23.
P12-26
LO 12-7
45 min.
H
Remeasurement
This problem uses the data from P12-23 and requires the remeasurement of the
Australian subsidiary’s trial balance. Instructors not covering the additional
considerations section of the chapter may eliminate requirement b of this
problem which requires a proof of the remeasurement gain or loss.
P12-27
LO 12-6
20 min.
M
Parent Company Journal Entries and Remeasurement
Using the data from P12-23 and P12-26, students are required to prepare the
journal entries on the parent company’s books for its foreign investment which
has the U.S. dollar as its functional currency.
P12-28
LO 12-7
50 min.
H
Consolidation Worksheet after Remeasurement
Using the information from P12-23 and P12-27, students are asked to prepare the
consolidation worksheet using trial balance information for the parent and the
remeasured amounts for the subsidiary computed in requirement a of P12-26.
P12-29
LO 12-6,
LO 12-7
45 min.
M
Foreign Currency Remeasurement [AICPA Adapted]
This problem focuses on the remeasurement of accounts receivable, inventories,
property, plant and equipment, long-term debt, and common stock. Students are
required to provide a schedule remeasuring these accounts for both December 31,
20X1, and December 31, 20X2.
P12-30
LO 12-4,
LO 12-5
35 min.
M
Foreign Currency Translation
Using the data from P12-29, students must now translate the same accounts into
U.S. dollars.
P12-31
LO 12-1
through
LO 12-8
20 min.
M
Matching Terms
Using the information students should match the 10 items with
descriptions/explanations in the right-hand column.
Chapter 12 – MULTINATIONAL ACCOUNTING: ISSUES IN FINANCIAL REPORTING AND
TRANSLATION OF FOREIGN ENTITY STATEMENTS
P12-32
LO 12-4
30 min.
M
Translation Choices
This problem has three requirements utilizing the same data set. For requirement
one, students must select the appropriate exchange rates to be used by a U.S.
parent company in preparing eleven transactions and financial statement related
items. For requirement two, students must determine the direct exchange rate in
effect at the beginning of the current year. Finally, it must be determined whether
the U.S. dollar strengthened or declined during the year.
P12-33
LO 12-5
30 min.
M
Proof of Translation Adjustment
Students show proof of the accuracy of a given translation adjustment. Students
must also determine whether the U.S. dollar strengthened or weakened during the
year.
Chapter 12 – MULTINATIONAL ACCOUNTING: ISSUES IN FINANCIAL REPORTING AND
TRANSLATION OF FOREIGN ENTITY STATEMENTS
OTHER RESOURCES
CONSOLIDATION OF A FOREIGN SUBSIDIARY
ASC 810 and 840 requires consolidation of all foreign subsidiaries unless the foreign
government places restrictions on foreign subsidiaries so severe as to question U.S. parent
company’s ability to control financial and operating policies of the subsidiary.
Examples of severe restrictions include:
1. Severe restrictions on foreign exchange exist in the foreign country
2. Severe restrictions on transfers of property exist in the foreign country
3. Other severe governmentally imposed uncertainties exist
If it is determined that U.S. parent can control the policies of a foreign subsidiary, the
consolidation process is:
1. Determine functional currency (Local Currency Unit or U.S. dollar)
2. Restate subsidiary’s financial statements in conformity with GAAP used by U.S.
parent company
3. Translate or remeasure foreign subsidiary’s trial balance into U.S. dollars
(Depending on whether the U.S. dollar or the LCU is the functional currency)
4. Consolidate with U.S. parent company using normal consolidation worksheet
techniques
Chapter 12 – MULTINATIONAL ACCOUNTING: ISSUES IN FINANCIAL REPORTING AND TRANSLATION OF FOREIGN ENTITY
STATEMENTS
CONSOLIDATED FOREIGN OPERATIONS
– Same Consolidation Theory as for Domestic Subsidiaries.
– Will Consolidate as with domestic subsidiaries, except when:
1) Severe restrictions on foreign exchange exist
2) Severe restrictions on transfer of properties exist
DETERMINE FUNCTIONAL CURRENCY
Major currency used in operations (could be U.S. $ or LCU)
Depends on currency used for:
Sales, Financing, Sales Markets, Dependency on U.S. Parent
If US $ is Functional Currency
If LCU is Functional Currency
“Remeasure” into U.S. $
– Monetary/Nonmonetary method
– Remeasurement adjustment to income statement
“Translate” into U.S. $
– Current rate method
– Translation adjustment to AOCI in stockholders’
equity section of balance sheet
Exchange Rates Used
Balance Sheet:
Monetary assets and liabilities at current rate
Assets and liabilities at current rate
Non-monetary assets at historical rate
Stockholders’ equity at historical rate
Stockholders’ equity at historical rate
Income Statement:
Revenues and expenses at average rate except for
amortizations and allocations of nonmonetary items
Revenues and expenses at weighted average rate
(These at relevant historical rate)
Hyper-inflationary (>100% in 3 years) = use dollar as
functional currency
Chapter 12 – MULTINATIONAL ACCOUNTING: ISSUES IN FINANCIAL REPORTING AND TRANSLATION OF FOREIGN ENTITY
STATEMENTS