Ch 10 MC

Exchange rates for 2018 were: $1 = 1/1 .48 stickles 6/30 .46 stickles 12/31 .42 stickles Weighted average rate for the year .44 stickles What exchange rate should have been used in translating revenues and expenses for 2018?

$1 = .44 stickles

In accounting, the term translation refers to

A procedure to prepare a foreign subsidiary's financial statements for consolidation.

Under the temporal method, depreciation expense would be remeasured at what rate?

historical rate

For a foreign subsidiary that uses the U.S. dollar as its functional currency, what method is required to ready the financial statements for consolidation?

temporal method

If a subsidiary is operating in a highly inflationary economy, how are the financial statements to be restated?

temporal method

Which method is used for remeasuring a foreign subsidiary's financial statements?

temporal method

In translating a foreign subsidiary's financial statements, which exchange rate does the current method require for the subsidiary's assets and liabilities?

the exchange rate in effect as of the balance sheet date

A net asset balance sheet exposure exists and the foreign currency depreciates. Which of the following statements is true?

there is a negative translation adjustment

What is a company's functional currency?

The currency of the primary economic environment in which it operates.

Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1, 2017. Selected account balances are available for the year ended December 31, 2018, and are stated in Euro, the local currency. Euros Sales 400,000 Inventory (bought on 2/1/18) 20,000 Equipment (bought on 1/1/17) 90,000 Dividends (paid on 9/1/18) 20,000 Accumulated depreciation, equipment (at 12/31/18) 45,000 Depreciation expense, equipment (for 2018) 9,000 Relevant exchange rates for 1 Euro are given below: 1/1/17 $.91 1/1/18 .93 2/1/18 .94 9/1/18 .97 12/31/18 1.01 4th quarter average, 2017 .90 4th quarter average, 2018 .98 Average, 2018 .95 Assume the functional currency is the U.S. Dollar; compute the U.S. balance sheet amount for inventory, at cost, for 2018. Selected Answer: Correct $18,800. Correct Answer: Correct $18,800. Response Feedback: 20,000 euros × $.94 = $18,800

$18,800 20,000 x .94 = $18,800

Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1, 2017. Selected account balances are available for the year ended December 31, 2018, and are stated in Euro, the local currency. Assume the functional currency is the U.S. Dollar; compute the U.S. statement of retained earnings amount for dividends for 2018. Dividends: $20,000 Relevant exchange rates for 1 Euro are given below: 1/1/17 $.91 1/1/18 .93 2/1/18 .94 9/1/18 .97 12/31/18 1.01 4th quarter average, 2017 .90 4th quarter average, 2018 .98 Average, 2018 .95

$19,400 20,000 x .97

Under the temporal method, retained earnings would be remeasured at what rate?

Composite amount

A highly inflationary economy is defined as

Cumulative 3-year inflation in excess of 100%.

Under the current rate method, property, plant & equipment would be translated at what rate?

Current rate

Westmore, Ltd. is a British subsidiary of a U.S. company. Westmore's functional currency is the pound sterling. The following exchange rates were in effect during 2018: 1 pound sterling = 1/1 $1.60 6/30 $1.64 12/31 $1.61 Weighted average rate for the year $1.59 Westmore reported sales of 1,500,000 pound sterling during 2018. What amount (rounded) would have been included for this subsidiary in calculating consolidated sales?

2,385,000 1,500,000 x 1.59 (avg rate) = $2,385,000

Under the current rate method, common stock would be translated at what rate?

Historical rate

Under the temporal method, property, plant & equipment would be remeasured at what rate?

Historical rate

Under the temporal method, how would cost of goods sold be remeasured?

Historical rates

Dilty Corp. owned a subsidiary in France. Dilty concluded that the subsidiary's functional currency was the U.S. dollar. Which one of the following statements would justify this conclusion?

Most of the subsidiary's sales and purchases were with companies in the U.S.

An historical exchange rate for common stock of a foreign subsidiary is best described as

The rate when the common stock was originally issued for the acquisition transaction.

A net liability balance sheet exposure exists and the foreign currency appreciates. Which of the following statements is true?

There is a negative translation adjustment

A net asset balance sheet exposure exists and the foreign currency appreciates. Which of the following statements is true?

There is a positive translation adjustment

A net liability balance sheet exposure exists and the foreign currency depreciates. Which of the following statements is true?

There is a positive translation adjustment.

When preparing a consolidated statement of cash flows, which of the following statements is false?

a change in the acc rec is translated using the current rate

Esposito is an Italian subsidiary of a U.S. company. Esposito's ending inventory is valued at the average cost for the last quarter of the year. The following account balances are available for Esposito for 2018: Euros Beginning inventory 20,000 Purchases 400,000 Ending inventory 15,000 Relevant exchange rates follow: 1 Euro = 4th qtr avg, 2017 $.93 12/31/17 $.94 Avg for 2018 $.96 4th qtr avg, 2018 $.99 12/31/18 $1.01 Compute ending inventory for 2018 under the current rate method.

$15,150 15000 x 1.01

Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1, 2017. Selected account balances are available for the year ended December 31, 2018, and are stated in Euro, the local currency. Euros Sales 400,000 Inventory (bought on 2/1/18) 20,000 Equipment (bought on 1/1/17) 90,000 Dividends (paid on 9/1/18) 20,000 Accumulated depreciation, equipment (at 12/31/18) 45,000 Depreciation expense, equipment (for 2018) 9,000 Relevant exchange rates for 1 Euro are given below: 1/1/17 $.91 1/1/18 .93 2/1/18 .94 9/1/18 .97 12/31/18 1.01 4th quarter average, 2017 .90 4th quarter average, 2018 .98 Average, 2018 .95 Assume the functional currency is the Euro; compute the U.S. Statement of Retained Earnings amount reported for Dividends in 2018.

$19,400 20,000 x .97 = 19400

Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1, 2017. Selected account balances are available for the year ended December 31, 2018, and are stated in Euro, the local currency. Assume the functional currency is the U.S. Dollar; compute the U.S. income statement amount for sales for 2018. sales: 400,000 Relevant exchange rates for 1 Euro are given below: 1/1/17 $.91 1/1/18 .93 2/1/18 .94 9/1/18 .97 12/31/18 1.01 4th quarter average, 2017 .90 4th quarter average, 2018 .98 Average, 2018 .95

$380,000 400,000 x .95

Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1, 2017. Selected account balances are available for the year ended December 31, 2018, and are stated in Euro, the local currency. Assume the functional currency is the U.S. Dollar; compute the U.S. balance sheet amount for accumulated depreciation for 2018. Accumulated Depreciation: 45,000 Relevant exchange rates for 1 Euro are given below: 1/1/17 $.91 1/1/18 .93 2/1/18 .94 9/1/18 .97 12/31/18 1.01 4th quarter average, 2017 .90 4th quarter average, 2018 .98 Average, 2018 .95

$40,950 45,000 x .91

Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1, 2017. Selected account balances are available for the year ended December 31, 2018, and are stated in Euro, the local currency. Euros Sales 400,000 Inventory (bought on 2/1/18) 20,000 Equipment (bought on 1/1/17) 90,000 Dividends (paid on 9/1/18) 20,000 Accumulated depreciation, equipment (at 12/31/18) 45,000 Depreciation expense, equipment (for 2018) 9,000 Relevant exchange rates for 1 Euro are given below: 1/1/17 $.91 1/1/18 .93 2/1/18 .94 9/1/18 .97 12/31/18 1.01 4th quarter average, 2017 .90 4th quarter average, 2018 .98 Average, 2018 .95 Assume the functional currency is the U.S. Dollar; compute the U.S. balance sheet amount for accumulated depreciation for 2018.

$40,950 45,000 x .91 = $40,950

Westmore, Ltd. is a British subsidiary of a U.S. company. Westmore's functional currency is the pound sterling. The following exchange rates were in effect during 2018: 1 pound sterling = 1/1 $1.60 6/30 $1.64 12/31 $1.61 Weighted average rate for the year $1.59 On December 31, 2018, Westmore had accounts receivable of 280,000 pounds sterling. What amount (rounded) would have been included for this subsidiary in calculating consolidated accounts receivable?

$450,800 280,000 x 1.61

Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1, 2017. Selected account balances are available for the year ended December 31, 2018, and are stated in Euro, the local currency. Assume the functional currency is the U.S. Dollar; compute the U.S. balance sheet amount for equipment for 2018. Equipment = $90,000 Relevant exchange rates for 1 Euro are given below: 1/1/17 $.91 1/1/18 .93 2/1/18 .94 9/1/18 .97 12/31/18 1.01 4th quarter average, 2017 .90 4th quarter average, 2018 .98 Average, 2018 .95

$81,900 90,000 x .91

Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1, 2017. Selected account balances are available for the year ended December 31, 2018, and are stated in Euro, the local currency. Assume the functional currency is the EURO; compute the U.S. balance sheet amount for equipment for 2018. Equipment = $90,000 Relevant exchange rates for 1 Euro are given below: 1/1/17 $.91 1/1/18 .93 2/1/18 .94 9/1/18 .97 12/31/18 1.01 4th quarter average, 2017 .90 4th quarter average, 2018 .98 Average, 2018 .95

$90,900 90,000 x $1.01

Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1, 2017. Selected account balances are available for the year ended December 31, 2018, and are stated in Euro, the local currency. Euros Sales 400,000 Inventory (bought on 2/1/18) 20,000 Equipment (bought on 1/1/17) 90,000 Dividends (paid on 9/1/18) 20,000 Accumulated depreciation, equipment (at 12/31/18) 45,000 Depreciation expense, equipment (for 2018) 9,000 Relevant exchange rates for 1 Euro are given below: 1/1/17 $.91 1/1/18 .93 2/1/18 .94 9/1/18 .97 12/31/18 1.01 4th quarter average, 2017 .90 4th quarter average, 2018 .98 Average, 2018 .95 Assume the functional currency is the Euro; compute the U.S. balance sheet amount for equipment for 2018.

$90,900 90,000 x 1.01 = 90900

Under the current rate method, which accounts are translated using current exchange rates?

All assets and liabilities

Under the temporal method, which accounts are remeasured using current exchange rates?

Cash, receivables, and most liabilities

Where is the remeasurement gain or loss reported in the parent company's financial statements?

Net income/loss in the income statement

Dilty Corp. owned a subsidiary in France. Dilty concluded that the subsidiary's functional currency was the U.S. dollar. What must Dilty do to ready the subsidiary's financial statements for consolidation?

Remeasure them.

Under the current rate method, depreciation expense would be translated at what rate?

average rate

Under the current rate method, how would cost of goods sold be translated?

average rate

Which method of translating a foreign subsidiary's financial statements is correct if it is assumed that the parent's net investment is exposed to foreign exchange risk?

current rate method