Advanced Accounting Exam 2

Fay Corp. had a realized foreign currency transaction loss of $15,000 for the year ended December 31, Year 5, and must also determine whether the following items will require year-end adjustment: Fay had an $8,000 loss resulting from the translation of the accounts of its wholly owned foreign subsidiary for the year ended December 31, Year 5. Fay had an account payable to an unrelated foreign supplier payable in the supplier's local currency. The US dollar equivalent of the payable was $64,000 on the October 31, Year 5, invoice date and $60,000 on December 31, Year 5. The invoice is payable on January 30, Year 6. In Fay's Year 5 consolidated income statement, what amount should be included as foreign currency transaction loss? A. $11,000 B. $15,000 C. $19,000 D. $23,000

A. $11,000 Translation adjustments are reported in OCI. Translation adjustments therefore are not included in earnings. Furthermore, a receivable or payable fixed in terms of a foreign currency is recorded at the date of the transaction at the current rate of exchange. This receivable or payable must then be adjusted to the current rate at each balance sheet date. The gain or loss from this adjustment is included in earnings. Accordingly, the $4,000 (64,000 - 60,000) gain adjustment arising from the foreign currency transaction should be included along with the realized foreign currency transaction loss of $15,000 in year 5 consolidated income statement. The amount to be reported is an $11,000 (15,000 - 4,000) foreign currency transaction loss.

Hi Shade, a partner in an accounting firm, decided to withdraw from the partnership. Shade's share of the partnership profits and losses was 20%. Upon withdrawing from the partnership, he was paid $74,000 in final settlement of his interest. The total of the partners' capital accounts before recognition of partnership goodwill prior to Shade's withdrawal was $210,000. After his withdrawal, the remaining partners' capital accounts, excluding their share of goodwill, totaled $160,000. The total agreed upon goodwill of the firm was A. $120,000 B. $160,000 C. $210,000 D. $250,000

A. $120,000 The balance in Shade's account prior to recognition of goodwill was $50,000 (210-160). Given that he was paid $74,000 upon withdrawing, Shade's account must have been credited with $24,000 in goodwill. If his share of partnership profits and losses was 20%, the total agreed upon goodwill equals $120,000 (24,000/20%).

The Flat and Iron partnership agreement provides for Flat to receive a 20% bonus on profits before the bonus. Remaining profits and losses are divided between Flat and Iron in the ratio of 2 to 3, respectively. Which partner has a greater advantage when the partnership has a profit and when it has a loss? Profit Loss A. Flat Iron B. Flat Flat C. Iron Flat D. Iron Iron

B. Flat Flat When the partnership has a loss, Iron is allocated 60% and Flat 40%. Hence, Flat has the advantage when the partnership has a loss. When the partnership has a profit, Flat receives 20% plus 40% of the remaining 80%, a total of 52% [ 20% + (40% x 80%)]. Thus, Flat also has the advantage in this situation.

When Mill retired from the partnership of Mill, Yale, and Lear, the final settlement of Mill's interest exceeded Mill's capital balance. Under the bonus method, the excess: A. Was recorded as goodwill. B. Was recorded as an expense. C. Reduced the capital balances of Yale and Lear. D. Had no effect on the capital balances of Yale and Lear.

C. Reduced the capital balances of Yale and Lear. The bonus method reduces the capital accounts of the other partners because the bonus, that is, the excess of settlement value of the retiring partner's capital balance, is deemed to be paid to the withdrawing partner by the remaining partners.

Pilates and Wesson drafted a partnership agreement that lists the following assets contributed at the partnership's formation: Contributed by Pilates Wesson Cash $40,000 $60,000 Inventory -- 30,000 Building -- 80,000 Furniture and Equipment 30,000 -- The building is subject to a mortgage of $20,000, which the partnership has assumed. The partnership agreement also specifies that profits and losses are to be distributed evenly. What amounts should be recorded as capital for pilates and Wesson at the formation of the partnership? Pilates Wesson A. $70,000 $170,000 B. $70,000 $150,000 C. $110,000 $110,000 D. $120,000 $120,000

Pilates Wesson B. $70,000 $150,000 The balances should reflect the fair vales of the assets contributed. The building should be valued net of the mortgage. Hence, the capital balances for Pilates and Wesson are $70,000 (40,000 + 30,000) and $150,000 (60,000 + 30,000 + 80,000 - 20,000), respectively.

During the current year, Young and Zinc maintained average capital balances in their partnership of $160,000 and $100,000, respectively. The partners receive 10% interest on average capital balances, and residual profit or loss is divided equally. Partnership profit before interest was $4,000. By what amount should Zinc's capital balance change for the year? A. $1,000 decrease. B. $2,000 increase. C. $11,000 decrease. D. $12,000 increase.

A. $1,000 decrease. The partners are to receive 10% interest and then split the residual profit or loss. Because interest exceeds partnership profit before interest, the residual loss is $22,000 {[(160,000 + 100,000) x 10%] - $4,000}. Zinc's capital balance is increased first by $10,000 (100,000 x 10%) and then decreased by $11,000 ($22,000 loss x 50%), a net decrease of $1,000.

The partnership agreement of Orion and Hunt provides that interest at 10% per year is to be credited to each partner on the basis of weighted-average capital balances. A summary of Hunt's capital account for the current year ended December 31 is as follows: Balance, January 1 $280,000 Additional investment, July 1 80,000 Withdrawal, August 1 (30,000) Balance, December 31 330,000 What amount of interest should be credited to Hunt's capital account for the current year? A. $28,000 B. $30,750 C. $33,000 D. $36,000

B. $30,750 Hunt's balance was $280,000 for 6 months, $360,000 for 1 month, and $330,000 for 5 months. Consequently, the weighted-average balance was 307,500 and interest was $30,750 (10% of 307,500). $280,000 x 6/12 = $140,000 $360,000 x 1/12 = 30,000 $330,000 x 5/12 = 137,000 Total = $307,500

Toigo Co. purchased merchandise from a vendor in England on November 20 for 500,000 British pounds. Payment was due in British pounds on January 20. The spot rates to purchase one pound were as follows: November 20 $1.25 December 31 1.20 January 20 1.17 How should the foreign currency transaction gain be reported on Toigo's financial statements at December 31? A. A gain of $40,000 as a separate component of stockholders' equity B. A gain of $40,000 in the income statement C. A gain of $25,000 as a separate component of stockholders' equity D. A gain of $25,000 in the income statement

D. A gain of $25,000 in the income statement. Foreign currency transactions are recorded at the spot rate n effect at the transaction date. Transaction gains and losses are included in the income statement in the period the exchange rate changes. On November 20, the entity made the following entry: Inventory (500,000 x 1.25) 625,000 Accounts Payable (pounds) 625,000 On December 31, the entity made the following entry: Accounts Payable (500,000 x (1.25 -1.20)) 25,000 Transaction gain 25,000

The following condensed balance sheet is presented for the partnership of Smith and Johnson, who share profits and losses in the ratio of 60:40, respectively: Other assets $450,000 Smith, loan 20,000 $470,000 Accounts payable $120,000 Smith, Capital 195,000 Johnson, capital 155,000 $470,000 The partners have decided to liquidate the partnership. If the other assets are sold for $385,000, what amount of the available cash should be distributed to Smith? A. $136,000 B. $156,000 C. $159,000 D. $195,000

A. $136,000 When the partnership sells the other assets it must recognize a loss of $65,000 (450-385). This loss must be allocated to the partners based on their loss ratio of 60:40. Thus, Smith's capital account is reduced to $156,000 [195 - (65 x 60%)] and Johnson's to $129,000 [195 - (65 x 40%)]. The accounts payable are then paid, leaving assets of $265,000. Finally, the balance of the loan is subtracted from Smith's capital account balance, and each partner receives the balance in his or her capital account. Thus, Smith should receive $136,000 in cash (156 - 20).

If an entity's books of account are not maintained in its functional currency, GAAP require remeasurement into the functional currency prior to the translation process. An item that should be remeasured by use of the current exchange rate is A. An investment in bonds to be held until maturity. B. A plant asset and the associated accumulated depreciation. C. A patent and the associated accumulated amortization. D. The revenue from a long-term construction contract.

A. An investment in bonds to be held until maturity. Common nonmonetary balance sheet items and their related revenues, expenses, gains, and losses are remeasured at historical rates. All others are remeasured using the current rate. Thus, monetary items, such as an investment in bonds, are remeasured at the current exchange rate.

If the partnership agreement does not specify how income is to be allocated, profits should be allocated: A. Equally B. In proportion to the weighted average of capital invested during the period. C. Equitably so that partners are compensated for the time and effort expended on behalf of the partnership. D. In accordance with an established ratio.

A. Equally

When property other than cash is invested in a partnership, at what amount should the noncash property be credited to the contributing partner's capital account? A. Fair value at the date of contribution B. Contributing partner's original cost. C. Assessed valuation for property tax purposes. D. Contributing partner's tax basis.

A. Fair value at the date of contribution The capital account should be credited for the current fair value of the assets at the date of contribution.

When remeasuring foreign currency financial statements into the functional currency, which of the following items would be remeasured using historical exchange rates? A. Inventories carried at cost. B. Equity securities reported at fair values. C. Bonds payable D. Accrued liabilities.

A. Inventories carried at cost. The current rate of exchange is used for remeasuring certain balance sheet items and the historical rate for other balance sheet items. Nonmonetary balance sheet items and related revenue, expense, gain, and loss accounts are remeasured at the historical rate. Monetary accounts are remeasured at the current rate. Inventories valued at cost are nonmonetary items and are measured at historical rates.

Partnership capital and drawing accounts are similar to the corporate: A. Paid-in capital, retained earnings, and dividends accounts. B. Retained earnings account. C. Paid-in capital ad retained earnings accounts. D. Preferred and common stock accounts.

A. Paid-in capital, retained earnings, and dividends accounts. Partnership capital accounts are similar to corporate paid-in capital and retained earnings accounts. Partnership drawing accounts are similar to corporate dividends accounts. They are nominal accounts that are closed to partnership capital and corporate retained earnings, respectively, at the end of each period.

The goodwill and bonus methods are two means of adjusting for differences between the net book value and the fair value of partnerships when new partners are admitted. Which of the following statements about these methods is true? A. The bonus method does not revalue assets to market values. B. The bonus method revalues assets to market values. C. Both methods result in the same balances in the individual partners' capital accounts. D. Both methods result in the same total value of partner capital accounts, but the individual capital accounts vary.

A. The bonus method does not revalue assets to market values. The goodwill method revalues assets to adjust the total value of partnership capital. The bonus method simply readjusts capital accounts and makes no changes in the existing asset accounts.

When the hedge is highly effective, a loss arising from the decrease in fair value of a derivative is included in current earnings if the derivative qualifies and is designated as a Fair-Value Hedge Cash-Flow Hedge A. Yes No B. No Yes C. Yes Yes D. No No

A. Yes; No When the hedge is highly effective, hedge accounting is applied to the entire change in the fair value of the hedging instrument. A fair-value hedge includes a hedge of an exposure to changes in the fair value of a recognized asset or liability of of an unrecognized firm commitment. The entire change in (1) the fair value of a derivative that qualified and is designated as a fair-value hedge and (2) the fair value of the hedged item attributable to the hedged risk are included in earnings in the period of change. Thus, the net effect on earnings is limited to the difference between the changes in fair value. A cash-flow hedge includes a hedge of an exposure to variability in the cash flows of a recognized asset or liability or a forecasted transaction. When the hedge is highly effective, the entire change in the fair value of the hedging instrument (derivative) is reported in other comprehensive income (OCI). The amounts accumulated in OCI are reclassified to earnings in the period(s) the hedged transaction affects earnings. For example, accumulated amounts related to a forecasted purchase of equipment are reclassified as the equipment is depreciated.

On October 1, Bordeaux, Inc., a calendar year-end firm, invested in a derivative designed to hedge the risk of changes in fair value of certain assets, currently valued at $1.5 million. The hedge was determined to be highly effective. On December 31, the fair value of the hedged assets decreased by $350,000, and the fair value of the derivative increased by $345,000. Bordeaux should recognize a net effect on earnings for the year of A. $0 B. $5,000 C. $345,000 D. $350,000

B. $5,000 A hedge of an exposure to changes in the fair value of a recognized asset or liability is classified as a fair value hedge. Gains and losses from changes in fair value of a derivative classified as a fair value hedge are included in the determination of earnings in the period of change. They are offset by losses or gains on the hedged item attributable to the risk being hedged. Thus, earnings of the period of change are affected only by the net gain or loss attributable to the ineffective aspect of the hedge. The ineffective portion is equal to $5,000 (350,000 - 345,000).

Max Blau and Harry Rubi are partners who share profits and losses in the ratio of 6:4. On May 1, their respective capital accounts were as follows: Blau $60,000 Rubi $50,000 On that date, Joe Lind was admitted as a partner with a one-third interest in capital and profits for an investment of $40,000. The new partnership began with total capital of $150,000. Immediately after Lind's admission, Blau's capital should be: A. $50,000 B. $54,000 C. $46,000 D. $60,000

B. $54,000 Following the entrance of Lnid, the partnership began with total capital of $150,000, the sum of the capital balances of Blau, Rubi, and Lind's investment. Thus, no goodwill was recognized. Lind received a one-third interest, and his capital balance must be credited for $50,000 (150,000 x 1/3). But Lind contributed only $40,000, so the $10,000 bonus (50,000 - 40,000) must be allocated to the existing partners capital accounts of Blau and Rubi of $6,000 (10,000 x 60%) and $4,000 (10,000 x 40%). Consequently, immediately after Lind's admission, Blau's capital is $54,000 ($60,000 - $6,000).

Beck, the active partner in Beck & Cris, receives an annual bonus of 25% of partnership net income after deducting the bonus. For the year ended December 31, partnership net income before the bonus amounted to $300,000. Beck's bonus for the year should be. A. $56,250 B. $60,000 C. $75,000 D. $62,250

B. $60,000 Calculating the bonus requires formulating an equation with one unknown. The bonus (B) is equal to 25% of net income ($300,000) minus the bonus. B = .25(NI-B) B = .25(300,000 -B) B = 75,000 - .25B 1.25B = 75,000 B = 60,000

Park Co.' wholly owned subsidiary, Schnell Corp., maintains its accounting records in euros. Because all of Schnell's branch offices are in London, its functional currency is the British pound. Remeasurement of Schnell's Year 4 financial statements resulted in a in an $7,600 gain, and translation of its financial statements resulted in an $8,100 gain. What amount should Park report as a foreign currency transaction gain in its income statement for the year ended December 31, Year 4? A. $0 B. $7,600 C. $8,100 D. $15,700

B. $7,600 The financial statements must be remeasured into the functional currency using the temporal method and then translated into the reporting currency using the current rate method. The $7,600 gain arising from remeasurement should be reported in current income. The $8,100 translation gain should be reported in other comprehensive income and is not reflected in income.

Garcia Corporation has entered into a binding agreement with Hernandez Company to purchase 400,000 pounds of Colombian coffee at $2.53 per pound for delivery in 90 days. This contract is accounted for as a A. Financial instrument B. Firm commitment C. Forecasted transaction D. Fair value hedge

B. Firm commitment A firm commitment is an agreement with an unrelated party, binding on both parties and usually legally enforceable, that specifies all significant terms and includes a disincentive for nonperformance.

On June 30, the balance sheet for the partnership of Ace, Deuce, and Trey, including their respective profit-and-loss ratios, was as follows: Assets, at cost $300,000 Ace, loan $ 15,000 Ace, capital (20%) 70,000 Deuce, capital (20%) 65,000 Trey, capital (60%) 150,000 Total $300,000 Ace has decided to retire from the partnership and by mutual agreement the assets are to be adjusted to their fair value of $360,000 at June 30. It was agreed that the partnership would pay Ace $102,000 cash for Ace's partnership interest exclusive of the amount due on the loan, which is to be repaid in full. No goodwill is to be recorded in this transaction. After Ace's retirement, what are the capital account balances of Deuce and Trey, respectively? A. $65,000 and $150,000 B. $72,000 and $171,000 C. $73,000 and $174,000 D. $77,000 and $186,000

B. $72,000 and $171,000 The first step is to record $60,000 to reflect the appreciation of the assets. This amount should be allocated according to the profit-and-loss ratio of 2:2:6. Writeup of specific assets has nothing to do with the recording of goodwill. After the distribution, Ace has an account balance of $82,000. If Ace is to be paid $102,000, exclusive of the repayment of the loan and without recording goodwill, a $20,000 bonus must be deducted from the capital accounts of Deuce and Trey. Because they share profits and losses in the ratio of 2:6, their accounts will be reduced by $5,000 and $15,000, respectively.

A derivative financial instrument is best described as A. Evidence of an ownership interest in an entity such as shares of common sock. B. A contract that has its settlement value tied to an underlying notional amount. C. A contract that conveys to a second entity a right to receive cash from a first entity. D. A contract that conveys to a second entity a right to future collections on accounts receivable from a first entity.

B. A contract that has its settlement value tied to an underlying notional amount. A derivative is a bet on whether the value of something (underlying notional amount) will go up or down. A derivative has at least one underlying (interest rate, currency exchange rate, price of a specific financial instrument, etc.) and at least one notional amount (number of units specified in the contract) or payment provision, or both. No initial net investment, or one smaller than that necessary for contracts with similar responses to the market is required. Furthermore, a derivative's terms require or permit net settlement or provide for the equivalent. Net settlement means that the derivative can be readily settled with only a net delivery of assets. Thus, neither party must deliver (1) an asset associated with its underlying or (2) an asset that has a principal, stated amount, etc., equal to the notional amount.

On October 1, Velec Co., a U.S. company, contracted to purchase foreign goods requiring payment in euros 1 month after their receipt at Velec's factory. Title to the goods passed on December 15. The goods were still in transit on December 31. Exchange rates were one dollar to 1.06 euros, 1.04 euros, and 1.05 euros on October 1, December 15, and December 31 respectively. Velec should account for the exchange rate fluctuation for the year as A. A loss included in net income. B. A gain included in net income. C. Other comprehensive gain. D. Other comprehensive loss.

B. A gain included in net income. a receivable or payable stated in a foreign currency is adjusted to its current exchange rate at each balance sheet date. The transaction gain or loss arising from this adjustment should ordinarily be reflected in current income. Because title passed on December 15, the liability fixed in euros should have been recorded on that date at the 1.04 euro exchange rate. The increase to 1.05 euros per dollar at year-end decreases the dollar value of the liability and results in a transaction gain. Such a gain is reported as a component of income from continuing operations.

The Revised Uniform Partnership Act defines a partnership as: A. Any association of two or more persons or entities. B. An association of two or more persons to carry on as co-owners a business for profit. C. A separate legal entity for most legal purposes. D. An entity created by following statutory requirements.

B. An association of two or more persons to carry on as co-owners a business for profit. a partnership must be a profit-oriented business arrangement among co-owners. A partnership is viewed for most legal purposes as a group of individuals rather than a separate entity.

On October1 1, Year 5, Mild. Co., a U.S. company, purchased machinery from Grund, a German company, with payment due on April 1, Year 6. If Mild's Year 5 operating income included no foreign currency transaction gain or loss the transaction could have A. Resulted in an extraordinary gain. B. Been denominated in U.S. dollars. C. Caused a foreign currency transaction gain to be reported as a contra account against machinery. D. Caused a foreign currency translation gain to be reported in OCI.

B. Been denominated in U.S. dollars. A foreign currency transaction results in a receivable or a payable fixed in terms of the amount of foreign currency. A change in the exchange rate between the functional currency and the currency in which the transaction is stated is a gain or loss that ordinarily should be included as a component of income from continuing operations in the period in which the exchange rate changes. If Mild Co.'s functional currency is the U.S. dollar and the transaction was stated in U.S. dollars, the transaction is a foreign transaction, not a foreign currency transaction. Thus, no foreign currency transaction gain or loss occurred.

Shore Co. records its transactions in U.S. dollars. A sale of goods resulted in a receivable denominated in Japanese yen, and a purchase of goods resulted in a payable denominated in euros. Shore recorded a foreign currency transaction gain on collection of the receivable and an exchange loss of settlement of the payable. The exchange rates are expressed as so many units of foreign currency to one dollar. Did the number of foreign currency units exchangeable for a dollar increase or decrease between the contract and settlement dates? Yen Exchangeable for $1 Euros Exchangeable for $1 A. Increase Increase B. Decrease Decrease C. Decrease Increase D. Increase Decrease

B. Decrease; Decrease When a foreign currency transaction results in a receivable or a payable, fixed in terms of the amount of foreign currency, a change in the exchange rate between the functional currency and the currency in which the transaction is denominated is a gain or loss that ordinarily should be included as a component of income from continuing operations in the period in which the exchange rate changes. A gain on a receivable denominated in a foreign currency results when the fixed amount of the foreign currency can be exchanged for a greater number of dollars at the date of collection, that is , when the number of foreign currency units exchangeable for a dollar decrease. A loss on a payable denominated in a foreign currency results when the number of dollars needed to purchase the fixed amount of the foreign currency increases, that is, when the number of foreign currency units exchangeable for a dollar decrease.

A foreign subsidiary of a U.S. parent reports its financial statements in its local currency although its functional currency is the U.S. dollar. In the consolidated financial statements, all of the following accounts of the subsidiary are remeasured into the functional currency at the historical rate except A. Marketable securities carried at cost. B. Inventories carried at market. C. Property, plant, and equipment. D. Goodwill.

B. Inventories carried at market. When a foreign subsidiary's functional currency is the U.S. dollar, all elements of its financial statements reported in a foreign currency must be remeasured as if they had been recorded in the U.S. dollar. Nonmonetary balance sheet items and related revenue, expense, gain, and loss amounts are remeasured at the historical rate. Monetary items are remeasured at the current rate. Inventories carried at market are classified as monetary assets and must be remeasured at the current rate.

Prior to partnership liquidation, a schedule of possible losses is frequently prepared to determine the amount of cash that may be safely distributed to the partners. The schedule of possible losses A. Consists of each partner's capital account plus loan balance, divided by that partner's profit-and-loss sharing ratio. B. Shows the successive losses necessary to eliminate the capital accounts of partners (assuming no contribution of personal assets by the partners). C. Indicates the distribution of successive amounts of available cash to each partner. D. Assumes contribution of personal assets by partners unless there is a substantial presumption of personal insolvency by the partners.

B. Shows the successive losses necessary to eliminate the capital accounts of partners (assuming no contribution of personal assets by the partners). A schedule of possible losses presents a series of incremental losses to indicate the amount of loss in a liquidation that will eliminate each partner's capital account. The presumption is that losses or partners' capital deficits will not be repaid by individual partners. The schedule is used to determine the amount of cash that may be safely distributed to the individual partners without potential impairment of the rights of any party.

If all assets and liabilities of a firm's foreign subsidiary are translated into the parent's currency at the current exchange rate (the rate in effect at the date of the balance sheet), the extent of the parent firm's translation gain or loss is based on the subsidiary's A. Current assets minus current liabilities B. Total assets minus total liabilities. C. Monetary assets minus monetary liabilities. D. Operating cash flows.

B. Total assets minus total liabilities. When the functional currency of a foreign subsidiary is the local (foreign) currency, translation of all assets and liabilities is required at the current rate as of the balance sheet date.

Neron Co. has two derivatives related to two different financial instruments, instrument A and instrument B, both of which are debt instruments. The derivative related to instrument A is a fair value hedge, and the derivative related to instrument B is a cash flow hedge. Neron experienced gains in the value of instruments A and B due to a change in interest rates. Which of the gains should be reported by Neron in its income statement? Gain in value of Gain in value of Debt instrument A Debt instrument B A. Yes Yes B. Yes No C. No Yes D. No No

B. Yes; No In a fair value hedge, the change in fair value of the hedged item (instrument A) is an adjustment to the carrying amount that is recognized currently in earnings. The same treatment applies to the change in fair value of the hedging instrument. The earnings effect of (gain on) the hedged item (instrument B) in this cash flow hedge occurs in a future reporting period.

The partnership agreement of Axel, Berg, & Cobb provides for the year-end allocation of net income in the following order: First, Axel is to receive 10% of net income up to $100,000 and 20% over $100,000 Second, Berg and Cobb are to receive 5% each of the remaining income over $150,000. The balance of income is to be allocated equally among the three partners. The partnership's net income for the year was $250,000 before any allocations to partners. What amount should be allocated to Axel? A. $101,000 B. $106,667 C. $108,000 D. $110,000

C. $108,000 Axel initially receives $40,000{(100,000 x 10%) + [(250,000 - 100,000) x 20%]}. The remaining income is $210,000 (250,000 - 40,000). Of this amount, Berg and Cobb receive $3,000 each [(210,000 - 150,000) x 5%], a total of $6,000. The balance is allocated equally [($250,000 - 40,000 - 6,000)/3 = 68,000]. Thus, Axel receives a total of $108,000 (40,000 + 68,000).

Orange and Blue have a partnership with capital balances of $50,000 and $70,000, respectively. They wish to admit Jeri White into the partnership partly because of the prestige that she will bring to the partnership. If White purchases a one-fourth interest in capital and future profit and loss for $25,000, her capital account should reflect assigned goodwill in what amount? A. $10,000 B. $11,250 C. $15,000 D. $25,000

C. $15,000 The partnership capital is $120,000 prior to the admission of White, and she is to receive 25% of the capital for her contribution of cash and goodwill. Thus, $120,000 equals 75% of the new capital after her admission. So the total capital will be $160,000 (120,000/75%), and White's capital account will be credited for $40,000. Because she contributed only $25,000 in cash, a debit to goodwill of $15,000 will also be required.

Presented below is the condensed balance sheet for the partnership of Lever, Polen, and Quint, who share profits and losses in the ratio of 4:3:3: Cash $ 90,000 Other Assets 830,000 Lever, loan 20,000 940,000 Accounts payable $210,000 Quint, loan 30,000 Lever, capital 310,000 Polen, capital 200,000 Quint, capital 190,000 940,000 Assume that the assets and liabilities are fair valued on the balance sheet and that the partnership decides to admit Fahn as a new partner with a 20% interest. No goodwill or bonus is to be recorded. How much should Fahn contribute in cash or other assets. A. $140,000 B. $142,000 C. $175,000 D. $177,500

C. $175,000 The carrying amount of the partnership is the sum of the capital accounts of Lever, Polen, and Quinnt, i.e., $700,000. If Fahn is to have a 20% interest without recording goodwill or bonus, the current sum of the capital accounts will be equal to 80% of the carrying amount after the admission of Fahn. Dividing the original carrying amount of $700,000 by 80% yields the new carrying amount after Fahn's admission ($875,000). The difference between the respective carrying amounts is the amount the new partner must contribute.

A wholly owned subsidiary of Ward, Inc., has certain expense accounts for the year ended December 31, Year 4, stated in local currency units (LCU) as follows: LCU Depreciation of equipment (related assets were purchased January 1, Year 2) 120,000 Allowance for credit losses 80,000 Rent 200,000 The exchange rates at various dates are as follows: Dollar Equivalent of 1 LCU December 31, Year 4 $0.40 Average for year ended 12/31/Y4 0.44 January 1, Year 2 0.50 Assume that the LCU is the subsidiary's functional currency and that the charges to the expense accounts occurred approximately evenly during the year. What total dollar amount should be included in Ward's Year 4 consolidated income statement to reflect these expenses? A. $160,000 B. $172,000 C. $176,000 D. $200,000

C. $176,000 When the local currency of the subsidiary is the functional currency, translation in the reporting currency is necessary. Assets and liabilities are translated at the exchange rate at the balance sheet date, and revenues, expenses, gains and losses are usually translated at average rates of the period. Thus, the 400,000 LCU in total expenses should be translated at the average exchange rate of $0.44, resulting in expenses reflected in the consolidated income statement of $176,000 (400,000 x $0.44).

Presented below is the condensed balance sheet of the partnership of Kane, Clark, and Lane, who share profits and losses in the ratio 6:3:1. Cash $85,000 Other assets 415,000 500,000 Liabilities $ 80,000 Kane, Capital 252,000 Clark, Capital 126,000 Lane, Capital 42,000 500,000 Assume that the partners agree to sell to Bayer 20% of their respective capital and profit and loss interests for a total payment of $90,000. The payment by Bayer is to be made directly to the individual partners. The partners agree that implied goodwill is to be recorded prior to the acquisition by Bayer. What are the capital balances of Kane, Clark, and Lane, respectively, after the acquisition by Bayer? A. $198,000; $99,000; $33,000 B. $201,600; $100,800; $33,600 C. $216,000; $108,000; $36,000 D. $270,000; $135,000; $45,000

C. $216,000; $108,000; $36,000

Certain balance sheet accounts of a foreign subsidiary of Rowan, Inc., at December 31, have been translated into USD as follows: Translated At: Current Rates Historical Rates Note receivable, long-term $240,000 $200,000 Prepaid rent 85,000 80,000 Patent 150,000 170,000 $475,000 $450,000 The subsidiary's functional currency is the currency of the country in which it is located. What total amount should be included in Rowan's December 31 consolidated balance sheet for the above accounts? A. $450,000 B. $455,000 C. $475,000 D. $495,000

C. $475,000 When the currency used to prepare a foreign entity's financial statements is its functional currency, the current-rate method is used to translate the foreign entity's financial statements into the reporting currency. This method applies the current exchange rate at the balance sheet date to assets and liabilities and historical rates to shareholders' equity. The translation gains and losses arising from applying this method are reported in other comprehensive income in the consolidated statements and are not reflected in earnings. Because Rowan's listed assets should be translated at current rates, $475,000 is the total amount that should be included in the consolidated balance sheet.

Dunn and Grey are partners with capital account balances of $60,000 and $90,000, respectively. They agree to admit Zorn as a partner with a one-third interest in capital and profits, for an investment of $100,000, after revaluing the assets of Dunn and Grey. Goodwill to the original partners should be A. $0 B. $33,333 C. $50,000 D. $66,667

C. $50,000 If a one-third interest is worth an investment of $100,000, the fair value of the partnership must be $300,000 (100,000/33.33%). The total of the existing capital balances and Zorn's investment is $250,000 (60,000 + 90,000 + 100,000). Thus, goodwill is $50,000 (300,000 - 250,000). The entry will be to debit cash (or property at fair value) for $100,000 and goodwill for $50,000, and to credit Zorn's capital balance for $100,000 and the capital balances of Dunn and grey for a total of $50,000.

The economic effects of a change in foreign exchange rates on a relatively self-contained and integrated operation within a foreign country relate to the net investment by the reporting entity in that operation. Consequently, translation adjustments that result from the consolidation of that operation A. Directly affect the reporting entity's cash flows but must not be included in earnings. B. Directly affect the reporting entity's cash flows and must be included in earnings. C. Do not directly affect the reporting entity's cash flows and must not be included in earnings. D. DO not directly affect the reporting entity's cash flows but must be included in earnings.

C. Do not directly affect the reporting entity's cash flows and must not be included in earnings. Foreign currency translation adjustments for a foreign operation that is relatively self-contained and integrated within its environment do not affect cash flows of the reporting entity and must be excluded from earnings. When an operation is relatively self-contained, the cash generated and expended by the entity is normally in the currency of the foreign country, and that currency is deemed to be the operation's functional currency. Also, translation and adjustments must be included in other comprehensive income, not earnings.

Which of the following is included in other comprehensive income? A. Unrealized holding gains and losses on trading debt securities. B. Unrealized holding gains and losses that result from a debt security being transferred in the held-to-maturity category and from the available-for-sale category. C. Foreign currency translation adjustments. D. The difference between the accumulated benefit obligation and the fair value of pension plan assets.

C. Foreign currency translation adjustments. Other comprehensive income (OCI) includes all items of comprehensive income not included in net income. Foreign currency translation adjustments for a foreign operation that is relatively self-contained and integrated within it environment do not affect cash flows of the reporting entity. Thus, they are excluded from earnings and reported in OCI.

Transaction gains and losses have direct cash flow effects when foreign-denominated monetary assets are settled in amounts greater or less than the functional currency equivalent of the original transactions. These transaction gains and losses should be reflected in income A. At the date the transaction originated. B. On a retroactive basis C. In the period the exchange rate changes. D. Only at the year-end balance sheet date.

C. In the period the exchange rate changes. When a foreign currency transaction results in a receivable or a payable that is fixed in terms of the amount of foreign currency to be received or paid, a change in the exchange rate between the functional currency and the currency in which the transaction is stated results in a gain or loss that ordinarily should be included as a component of income from continuing operations in he period in which he exchange rate changes.

GAAP provide specific guidelines for translating foreign currency financial statements. The translation process begins with a determination of whether a foreign affiliate's functional currency is also its local reporting currency. Which one of the following factors indicates that a foreign affiliate's functional currency is the U.S. dollar? A. Cash flows are primarily in foreign currency and do not affect parent's cash flows. B. Financing is primarily obtained from local foreign sources and from the affiliate's operations. C. Sales prices are responsive to short-term changes in exchange rates and worldwide competition. D. Labor, materials, and other costs consist primarily of local costs to the foreign affiliate.

C. Sales prices are responsive to short-term changes in exchange rates and worldwide competition. The functional currency is the currency of the primary economic environment in which an entity operates. It is normally the currency of the environment in which an entity primarily generates and expends cash. If a U.S. entity's foreign affiliate's sales prices respond to short-term changes in exchange rates and worldwide competition, its functional currency is likely to be the U.S. dollar.

Byrd and Katt formed a partnership and agreed to divide initial capital equally, even though Byrd contributed $200,000 and Katt contributed $168,000 in identifiable assets. Under the bonus approach to adjust the capital accounts, Katt's unidentifiable asset should be debited for: A. $92,000 B. $32,000 C. $16,000 D. $0

D. $0 The goodwill and the bonus methods are two means of adjusting for differences between the carrying amount and the fair value of partnership net assets. Under the goodwill method, assets are revalued. Under the bonus method, assets are not revalued. Instead, adjustments are made to partnership capital accounts. Consequently, total partnership capital differs between the two methods, and an unidentifiable asset may be debited under the goodwill but not the bonus method.

Porter and Saint-Lucie are partners who share profits and losses in the ratio of 6:4, respectively. Porter's salary is $20,000 and Saint-Lucie's is $10,000> The partners also are paid interest on their average capital balances. In the year just ended, Porter received $10,000 of interest and Saint-Lucie $4,000. The profit and loss allocation is determined after deductions for the salary and interest payments. If Saint-Lucie's share of partnership income was $40,000 for the year what was the total partnership income? A. $65,000 B. $95,000 C. $100,000 D. $109,000

D. $109,000 Saint-Lucie's share of P/S income was $40,000, her share of residual income must have been $26,000 (40-10-4). This is 40% of residual income, so total residual income was $65,000 (26,000/40%). Total p/s income is equal to $65,000 (residual income) + $30,000 (20 + 10 salaries) + $14,000 (10 + 4 interest) = $109,000

Kaspar and Karp formed a partnership on January 2 and agreed to share profits 90% and 10% respectively. Kaspar contributed capital of $25,000. Karp contributed no capital but has a specialized expertise and manages the firm full-time. There were no withdrawals during the year. The partnership agreement provides that capita accounts are to be credited annually with interest at 5% of beginning capital; Karp is to be paid a salary of $1,000 a month; Karp is to receive a bonus of 20% of income calculated before deducting her salary, the bonus, and interest on both capital accounts; and bonus, interest, and Karp's salary are to be considered partnership expenses. The partnership annual income statement follows: Revenues $96,450 Expenses (including salary, ($49,700) interest, and bonus) Net Income $46,750 What is Karp's bonus? A. $11,688 B. $12,000 C. $14,687 D. $15,000

D. $15,000 The bonus payable to Karp is equal to 20% of te income before deduction of her salary and interest on both capital accouns. Net income after deduction of salary, interest, and the bonus is $46,750. The solution requires adding back salary (12,000 = 1,000 x 12 months), interest (1,250 = 25,000 x 5%), and the bonus (B) to the net income as shown: B = .2(46,750 + 12,000 + 1,250 + B) B = .2(60,000 + B) B = 12,000 + .2B .8B = 12,000 B = 15,000

Kern and Pate are partners with capital balances of $60,000 and $20,000, respectively. Profits and losses are divided in the ratio of 60:40. Kern and Pate decided to form a new partnership with Grant, who invested land valued at $15,000 for a 20% capital interest in the new partnership. Grant's cost of the land was $12,000. The partnership elected to use the bonus method to record the admission of Grant into the partnership. Grant's capital account should be credited for: A. $12,000 B. $15,000 C. $16,000 D. $19,000

D. $19,000 This transaction is to be accounted for under the bonus method. The incoming partner invests $15,000 fair value of land for a 20% interest in the capital of the new partnership. Hence, the incoming partner's capital account should be credited for 20% of the total capital of the investment. The total capital following the investment by the new partner equals $95,000 ($60,000 + $20,00 + $15,000). Because 20% of this amount is $19,000, Grant's capital account should be credited for $19,000.

The Dease Company owns a foreign subsidiary with 3,600,000 local currency units of property, plant, and equipment before accumulated depreciation on December 31, Year 7. The subsidiary's functional currency is the U.S. dollar. Of this amount, 2,400,000 LCUs were acquired in Year 0 when the exchange rate was 1.6 LCUs to 1$, and 1,200,000 LCUs were acquired in Year 3 when the rate of exchange was 1.8 LCUs to $1. The rate of exchange in effect at December 31, Year 7, was 2 LCUs to $1. The weighted average of exchange rates in effect during year 7 was 1.92 LCUs to $1. Assuming that the property, plant, and equipment are depreciated using the straight-line method over a 10-year period with no salvage value, how much depreciation expense relating to the foreign subsidiary's property, plant, and equipment should be charged in Dease's income statement for Year 7? A. $180,000 B. $187,500 C. $200,000 D. $216,667

D. $216,667 Given that the subsidiary's functional currency is the U.S. dollar, the financial statements of the subsidiary must be remeasured in terms of the dollar. Nonmonetary assets and the related revenues and expenses are remeasured based on the historical rates in effect at the dates of the transactions. Depreciation expense relates to the PP&E (nonmonetary assets), so the rate of exchange in effect when these fixed assets were acquired is used in remeasuring depreciation expense for the period.

Ball Corp. had the following foreign currency transactions during the current year: Merchandise was purchased from a foreign supplier on January 20, Year 4, for the U.S. dollar equivalent of $90,000. The invoice was paid on March 20, at the U.S. dollar equivalent of $96,000. On July 1, Year 4, Ball borrowed the U.S. dollar equivalent of $500,000 evidenced by a note that was payable in the lender's local currency on July 1, Year 6. On December 31, Year 4, the U.S. dollar equivalents of the principal amount and accrued interest were $520,000 and $26,000, respectively. Interest on the note is 10% per annum. In Ball's Year 4 income statement, what amount should be included as foreign currency transaction loss? A. $0 B. $6,000 C. $21,000 D. $27,000

D. $27,000 When a foreign currency transaction gives rise to a receivable or a payable that is fixed in terms of the foreign currency, a change in the exchange rate between the functional currency and the currency in which the transaction is denominated is a gain or loss that ordinarily should be included as a component of income from continuing operations in the period in which the exchange rate changes. In the year 4 income statement, the foreign currency transaction loss should include the $6,000 difference between the 90,000 initially recorded as a payable and the $96,000 payment amount, the $20,000 difference between the $500,000 equivalent amount of the principal of the note at December 31 and its 520,000 equivalent at July 1, and the $1,000 difference between the $26,000 equivalent of the interest accrued and the $25,000 (500,000 x 10% (6/12 months) interest on the initially recorded amount of the loan. The foreign currency transaction loss therefore equals $27,000.

The Brinjac Company owns a foreign subsidiary. Included among the subsidiary's liabilities for the year just ended are 400,000 LCUs of revenue received in advance, recorded when $0.50 was the dollar equivalent per LCU, and a deferred tax liability for 187,500 LCU, recognized when $0.40 was the dollar equivalent per LCUs. The rate of exchange in effect at year ended was $0.35 per LCU. If the dollar is the functional currency, what total should be included for these two liabilities on Brinjac's consolidated balance sheet at year end? A. $205,625 B. $215,000 C. $265,625 D. $275,000

D. $275,000 When a foreign entity's functional currency is the U.S. dollar, the financial statements of the entity recorded in a foreign currency must be remeasured in terms of the U.S. dollar. Revenue received in advance (deferred income) is considered a nonmonetary balance sheet item and is remeasured at the applicable historical rate (400,000 x $0.50 = 200,000_. Deferred charges and credits (except policy acquisition costs for life insurance companies) are also remeasured at historical exchange rates. Consequently, the deferred tax liability (a deferred credit) is remeasured at the historical rate (187,500 x $0.40 = 75,000). The total for these liabilities is therefore $275,000.

A wholly owned foreign subsidiary of Union Corporation has certain expense accounts for the year ended December 31, Year 10, stated in local currency units (LCUs) as follows: LCU Amortization of patent (related patent acquired January 1, Year 8) 40,000 Allowance for credit losses 60,000 Rent 100,000 The exchange rates at various dates are as follows: Dollar Equivalent of 1 LCU December 31, Year 10 $0.20 Average for year ended 12/31/Y10 0.22 January 1, Yr 8 0.25 The subsidiary's operations were an extension of the parent company's operations. What total dollar amount should be included in Union's income statement to reflect the above expenses for the year ended December 31, Year 10? A. $40,000 B. $42,000 C. $44,000 D. $45,200

D. $45,200 Given that the foreign sub's operations are an extension of the parent's, the functional currency of the subsidiary is considered to be the U.S. dollar. Thus, remeasurement from the local currency to the U.S. dollar is required for financial statement purposes. Nonmonetary balance sheet items and related revenues and expenses (e.g., cost of sales, depreciation, and amortization) should be remeasured using historical rates to produce the same results as if those items had been initially recorded in the functional currency (USD). Accordingly amortization should be remeasured at the historic rate of $0.25. Monetary and current value items should be remeasured at a current rate. Thus, allowance for credit losses and rent should be remeasured at the average Year 10 rate.

Cor-Eng Partnership was formed on January 2 of the current year. Under the partnership agreement, each partner has an equal initial capital balance accounted for under the goodwill method. Partnership net income or loss is allocated 60% to Cor and 40% to Eng. To form the partnership, Cor originally contributed assets costing $30,000 with a fair value of $60,000 on January 2 of the current year, while Eng contributed $20,000 in cash. Drawings by the partners during the current year totaled $3,000 by Cor and $9,000 by Eng. The partnership's current-year net income was $25,000. Eng's initial capital balance in the partnership is: A. $20,000 B. $25,000 C. $40,000 D. $60,000

D. $60,000 If $60,000 (the fair value of Cor's original contribution) is 50% of the partnership capital, the total initial capital is $120,000, and goodwill of $40,000 should be recognized ($120,000-$60,000-$20,000 cash contributed by Eng). Thus, Eng's initial capital is $60,000.

On September 1, Year 2, Cano & Co., a US corporation, sold merchandise to a foreign firm for 250,000 local currency units (LCUs). Terms of the sale require payment in LCUs on February 1, Year 3. On September 1, Year 2, the spot exchange rate was $0.20 per LCU. On December 31, Year 2, Cano's year-end, the spot rate was $0.19, but the rate increased to $0.22 by February 1, Year 3, when payment was received. How much should Cano report as foreign currency transaction gain or loss in it Year 3 income statement? A. $0 B. $2,500 loss. C. $5,000 gain. D. $7,500 gain.

D. $7,500 gain. A receivable or payable stated in a foreign currency should be recorded at the current exchange rate and then adjusted to the current exchange rate at each balance sheet date. That adjustment is a foreign currency transaction gain or loss that is ordinarily included in earnings for the period of change. Furthermore, a gain or loss measured from the transaction date or the most recent intervening balance sheet date is recognized when the transaction is settled. Accordingly, Cano should recognize a foreign currency transaction gain of $7,500 (250,000 LCUs (0.22-0.19) in Year 3.

In the Adel-Brick partnership, Adel and Brick had a capital ratio of 3:1 and a profit and loss ratio of 2:1, respectively. The bonus method was used to record Colter's admittance as a new partner. What ratio would be used to allocate, to Adel and Brick, the excess of Colter's contribution over the amount credited to Colter's capital account? A. Adel and Brick's new relative capital ratio. B. Adel and Brick's new relative profit and loss ratio. C. Adel and Brick's old capital ratio. D. Adel and Brick's old profit and loss ratio.

D. Adel and Brick's old profit and loss ratio. The bonus method makes no changes in existing asset accounts. Capital accounts of existing partners are adjusted in accordance with the old profit and loss ratio to reflect the bonus. The entry will be to debit cash (or the fair value of the property) contributed and to credit Colter's capital account for a lesser amount. The excess will be credited in the ratio of 2:1 to the original partners' capital balances.

The financial results of three foreign subsidiaries are included along with those of a U.S. parent in consolidated financial statements. The subsidiaries are distinct and separable from the parent and from each other. If the four operations are conducted in four different economic environments, how many different functional currencies most likely are necessary to measure these operations? A. One. B. Two. C. Three. D. Four.

D. Four The activities of an entity must be measured in terms of the currency of the primary economic environment in which the entity operates, that is, the functional currency. Because the four operations (parent and three subsidiaries) are distinct from each other and are conducted in four different economic environments, each entity's assets, liabilities, and operations are measured using a different functional currency.

In preparing consolidated financial statements of a U.S. parent company with a foreign subsidiary, the foreign subsidiary's functional currency is the currency: A. In which the subsidiary maintains its accounting records. B. Of the country in which the subsidiary is located. C. Of the country in which the subsidiary is located. D. Of the environment in which the subsidiary primarily generates and expends cash.

D. Of the environment in which the subsidiary primarily generates and expends cash. The method used to convert foreign currency amounts into units of the reporting currency is the functional currency translation approach. It is appropriate for use in accounting for and reporting the financial results and relationships of foreign subsidiaries in consolidated statements. This method (1) identifies the functional currency of the entity (2) measures all elements of the financial statements in the functional currency, and (3) uses current exchange rate for translation from the functional currency to the reporting currency.

US GAAP require the current rate of exchange to be used for remeasuring certain balance sheet items and the historical rate of exchange for the other balance sheet items. An item that should be remeasured using the historical exchange rate is A. Accounts and notes receivable B. Accounts and note payable C. Taxes payable D. Prepaid expenses

D. Prepaid expenses Financial statements are remeasured using the temporal rate method. In general, this method adjusts monetary items at the current rate and nonmonetary items at the historical rate. prepaid expenses is a nonmonetary item that should be remeasured using the historical rate.

Which of the following is NOT part of foreign currency translation? A. The functional currency of each foreign operation must be identified. B. All elements of the financial statements of a foreign operation must be measured in the functional currency. C. If the functional currency of a foreign operation differs from the reporting currency, translation using the current exchange rate method is required. D. The translation gain or loss must be included in earnings of the current period.

D. The translation gain or loss must be included in earnings of the current period. A gain or loss arising from translation from functional currency into the reporting currency is not included in the current period's earnings. Translation adjustments are reported in OCI.

On June 30, the condensed balance sheet for the partnership of Eddy, Fox, and Grimm, together with their respective profit and loss sharing percentages, was as follows: Assets, net of liabilities $320,000 Eddy, capital (50%) $160,000 Fox, capital (30%) 96,000 Grimm, capital (20%) 64,000 $320,000 Eddy decided to retire from the partnership and by mutual agreement, is to be paid $180,000 out of partnership funds for his interest. Total goodwill implicit in the agreement is to be recorded. After Eddy's retirement, what are the capital balances of the other partners? Fox Grimm A. $84,000 $56,000 B. $102,000 $68,000 C. $108,000 $72,000 D. $120,000 $80,000

Fox Grimm C. $108,000 $72,000 The $180,000 paid to Eddy represents Eddy's 50% interest in the partnership. The total fair value of the partnership is therefore $360,000 (180,000/50%), and the goodwill implicit in the retirement agreement is $40,000 ($360,000 total value - 320,000 net assets prior to goodwill). This $40,000 should be allocated 50% (20,000) to Eddy, 30% (12,000) to Fox, and 20% (8,000) to Grimm. Fox's capital balance following the recording of goodwill is $108,000 (96,000 + 12,000) and Grimm's is $72,000 (64,000 + 8,000).

The assets, liabilities, and operations of a foreign subsidiary are presented in the consolidated financial statements of a U.S.-based parent. They must be measured in A. The functional currency of the subsidiary. B. The local currency of the subsidiary. C. The reporting currency. D. The local currency of the parent.

The assets, liabilities, and operations of a foreign entity must be measured using its functional currency. Thus, translation into the reporting currency should reflect in the consolidated statements the financial results of the consolidated entities measured in their functional currencies. The steps in the translation process include (1) identifying the functional currency of the entity (the currency of e primary economic environment in which the entity operates), (2) remeasuring the entity's financial statements into the functional currency if they are measured in another currency, and (3) translating (using a current rate) the entity's financial statements into the reporting currency if it differs from the functional currency.

A foreign subsidiary's functional currency is its local currency, which has not experienced significant inflation. The weighted-average exchange rate for the current year is an appropriate exchange rate for translating Wages Expense Sales to Customers A. Yes No B. Yes Yes C. No Yes D. No No

Wages Expense Sales to Customers B. Yes Yes When an entity's local currency is the functional currency and this currency has not experienced significant inflation, translation into the reporting currency of all elements of the financial statements must be at a current exchange rate. Assets and liabilities are translated at the exchange rate at the balance sheet date. Revenues (e.g., sales), expenses (e.g., wages), gans, and losses should be translated at the rates in effect when they were recognized. However, translation of income statement items at a weighted-average rate for the period is permitted.