ADVANCED ACCOUNTING II - Chap 12

Alpha Manufacturers is a U.S.-based company with a German subsidiary (Omega Equipments). Alpha borrows €25,000 at 4 percent interest to hedge its equity investment in Omega. The principal and the interest are due and payable on January 1, 20X2. The beginning spot rate is $1.10, the ending spot rate is $1.40, and the average spot rate is $1.30. Determine the amount of foreign currency transaction gain or loss on interest payable in 20X1. $1,300 gain $100 loss $1,300 loss $100 gain

$100 loss

Thistle Global Corporation, a U.S.-based parent company, has a subsidiary (Sienna Solutions) in Sweden. At the beginning of the year, the differential was €4,000 and the translation rate was $1.20 = €1 resulting in a differential of $4,800. The amortization of the differential in this period was €800 and the translation rate was $1.35 = €1, resulting in amortization during the period of $1,080. The remaining balances at the end of the year were €3,200 and $3,720. What is the translation adjustment if the translation rate is $1.45 = €1 at the end of the year? $4,640 $960 $3,720 $920

$920

Which of the following items are included in the aggregate foreign transaction gain or loss? Multiple select question. Amortization of gain or loss on effective portion of the hedge Remeasurement gain or loss Gains or losses on foreign currency forward exchange contracts Foreign currency transaction gains or losses

- Remeasurement gain or loss - Gains or losses on foreign currency forward exchange contracts - Foreign currency transaction gains or losses

Which of the following occur when remeasurement is used under the equity method for reporting investment in an unconsolidated foreign subsidiary? The investor records its percentage of the investee's income. The foreign entity's statements are remeasured in dollars, when the U.S. dollar is the functional currency. Total assets measured in foreign currency units is multiplied by the average exchange rate. The investor makes necessary amortizations or impairments of any differential.

-The investor records its percentage of the investee's income. -The foreign entity's statements are remeasured in dollars, when the U.S. dollar is the functional currency. -The investor makes necessary amortizations or impairments of any differential.

A parent company has no requirement to prepare separate financial statements for its subsidiaries when it owns

100 percent of its foreign subsidiaries.

Which of the following is true of ASC 220? It requires the reporting of comprehensive income as part of the entity's primary financial statements. It prohibits the reporting of comprehensive income as part of the entity's primary financial statements. It requires the reporting of comprehensive income separate from the entity's primary financial statements. It does not require the reporting of comprehensive income.

It requires the reporting of comprehensive income as part of the entity's primary financial statements.

Identify the account credited in an entry to record the borrowing of a foreign currency loan to hedge net investment in a foreign subsidiary. Multiple choice question. Loan Payable (Foreign currency) Loan Receivable (Dollar) Loan Receivable (Foreign currency) Loan Payable (Dollar)

Loan Payable (Foreign currency)

A U.S. investor company must use the equity method for reporting an unconsolidated foreign subsidiary when the Multiple choice question. unconsolidated foreign subsidiary has more equity share capital than long-term debts. foreign subsidiary issues equity shares to finance expansion during the year. U.S. company has the ability to exercise "significant influence" over the foreign subsidiary's financial and operating policies. U.S. company lacks the ability to exercise "significant influence" over the foreign subsidiary's financial and operating policies.

U.S. company has the ability to exercise "significant influence" over the foreign subsidiary's financial and operating policies.

Under which of the following conditions will a foreign subsidiary not be consolidated with its parent company? When the foreign country imposes restrictions on foreign exchange When the U.S. government promotes trade with the countries with stronger economies When the foreign country imposes restrictions on transfers of property in the U.S. When the U.S. government promotes plans for expansion in other foreign countries with more markets

When the foreign country imposes restrictions on foreign exchange

Exchange gains and losses from foreign currency transactions included in income, but not recognized for tax purposes in the same period, require the recognition of undistributed earnings indefinitely reinvested in a subsidiary. a larger income for tax in the same year. a deferred revenue expense. a deferred tax asset or liability.

a deferred tax asset or liability.

After a foreign affiliate's statements have been translated or remeasured, the intercompany payable and receivable should be Multiple choice question. deducted from the balances of the payable and receivable accounts balances in the individual company records. adjusted for the exchange rate differences in the other comprehensive income. added to the monetary accounts and disclosed on the consolidated balance sheet. at the same U.S. dollar value and can be eliminated.

at the same U.S. dollar value and can be eliminated.

The differential's periodic amortization is measured at the: current exchange rate used to translate other income statement accounts. current exchange rate used to translate other balance sheet accounts. average exchange rate used to translate other income statement accounts. average exchange rate used to translate other balance sheet accounts.

average exchange rate used to translate other income statement accounts.

The restatement process shows the expected impact of the change in the historical exchange rate on the value of the nonmonetary assets of the parent company. volatility in the global economy. changing exchange rates on the parent company's cash flows and equity. exchange rate fluctuations on the translation adjustment in the parent company.

changing exchange rates on the parent company's cash flows and equity.

A parent company will not consolidate a subsidiary when certain circumstances prevent the parent from being able to exercise the necessary level of economic ____ over the subsidiary.

control

ASC 815 states that the gain or loss on the effective portion of a net investment hedge is taken to accumulated retained earnings as part of the translation adjustment. net investment as part of the translation adjustment. other comprehensive income as part of the translation adjustment. net income as part of the translation adjustment.

other comprehensive income as part of the translation adjustment.

The primary objective of the restatement process is to ensure the selection of exchange rates that will maximize the value of the U.S. company's cash flows and equity. eliminate any losses that result from the impact of exchange rate changes on the U.S. company's cash flows and equity. ensure the selection of exchange rates that will minimize the tax liability of the U.S. company. provide information that shows the expected impact of exchange rate changes on the U.S. company's cash flows and equity.

provide information that shows the expected impact of exchange rate changes on the U.S. company's cash flows and equity.

The financial statements are translated from the recording currency to the reporting currency when the financial statements are remeasured from the recording currency to the functional currency. functional currency is the reporting currency. financial statements are consolidated and presented in the functional currency. recording currency is the functional currency.

recording currency is the functional currency.

Accounts reported in the statement of cash flows should be restated in U.S. dollars using the same rates as those used for income statement purposes. simple average exchange rate for the current year. spot exchange rate on the balance sheet date. historical exchange rate on the date of the transaction.

same rates as those used for income statement purposes.

The foreign currency transaction loss is a component of the - subsidiary's net income. - current assets on the subsidiary's balance sheet. - subsidiary's other comprehensive income. - cost of goods sold on the subsidiary's income statement.

subsidiary's net income.

Trita Financials Corporation is a U.S.-based parent company with a subsidiary (Movile Enterprises) based in France. In Movile's trial balance on December 31, 20X1, there are foreign currency units worth $2,800 USD. When the US dollars are received, the spot exchange rate is $1.40 = €1. What is the foreign currency transaction loss in euros on the trial balance on December 31, 20X1, if the current exchange rate is $1.80 = €1?

€444.44

Identify the exchange rate used to translate the beginning and ending cash balances in the statement of cash flows. Weighted average exchange rate Average exchange rate Respective spot exchange rate Historical exchange rate

Respective spot exchange rate

Rubidium Investments Corporation is a U.S.-based parent company with a French subsidiary (Bisque Solutions). Rubidium wants to hedge its investment in Bisque. Which of the following statements are true about Rubidium's net investment hedge? Multiple select question. Rubidium should take the gain or loss on the effective portion of the hedge of the net investment in Bisque to other comprehensive income. Rubidium could hedge its net asset investment by contracting for a forward exchange contract to sell euros. Rubidium could incur a euro-based liability to hedge the investment in Bisque. Rubidium should recognize the excess on the ineffective portion of the hedge in the balance sheet.

Rubidium should take the gain or loss on the effective portion of the hedge of the net investment in Bisque to other comprehensive income. Rubidium could hedge its net asset investment by contracting for a forward exchange contract to sell euros. Rubidium could incur a euro-based liability to hedge the investment in Bisque.

Which of the following are factors that can influence the development of accounting principles in a country? The information needs of the taxing authorities The needs of the central government economic planners The country's economic, legal, educational, and political systems The needs of the competitor companies in the global market

The information needs of the taxing authorities The needs of the central government economic planners The country's economic, legal, educational, and political systems

Identify features of the temporal method. The temporal method requires additional adjustments if the functional currency is the U.S. dollar. The temporal method remeasures the financial statements from the recording currency to the functional currency. The temporal method converts the recording currency to the functional currency. The temporal method uses the current rate to translate the monetary assets to the functional currency.

The temporal method remeasures the financial statements from the recording currency to the functional currency. The temporal method converts the recording currency to the functional currency. The temporal method uses the current rate to translate the monetary assets to the functional currency.

ASC 830 requires that if an investor sells a substantial portion of its investment in a foreign entity, the pro rata portion of the accumulated translation adjustment should be Multiple choice question. added to the other comprehensive income of the foreign entity. included in computing the gain or loss on the disposition. deducted from the amortization adjustment account to compute net income. added to the common stock of the foreign entity.

included in computing the gain or loss on the disposition.

The reporting currency is the currency proposed by the SEC to record all the financial transactions. that is used by a local company as a legal tender currency. in which the financial reports are presented to the shareholders. in which a company records its transactions in its general ledger.

in which the financial reports are presented to the shareholders.