AFA Chapter 12

Which of the following would be assigned a share of the translation adjustment in the consolidation of a less-than-wholly-owned subsidiary?

Noncontrolling interest

Epsilon Chemicals Inc. has a subsidiary in Sweden. Its financial analyst finds that the income reported by the remeasurement is higher than that reported by a translation. Which of the following is the most likely reason for the higher income?

The U.S. dollar is weakening against the European euro, resulting in a remeasurement gain for the subsidiary. The subsidiary's operating expenses are remeasured at a lower exchange rate due to weakening U.S. dollar.

Identify a feature of the translation process.

The accuracy of the translation process is proved by computing the effects of changes in the exchange rate.

Which of the following statements are true when the recording currency is not the functional currency, but the functional currency is the reporting currency?

The consolidation and financial reports are prepared and reported in the functional currency which is also the reporting currency. The financial statements require remeasurement from the recording currency to the functional currency.

Identify the exchange rate used for the translation of dividends.

The exchange rate on the date of declaration

Which of the following exchange rates should be used for the translation of a material gain or loss resulting from a special event?

The exchange rate on the date of the event

Which of the following is true of the translation and remeasurement restatement methods?

Translation and remeasurement may result in significantly different consolidated financial statements.

ASC 220 requires the reporting of comprehensive income as part of the entity's primary financial statements.

True

When does a foreign affiliate restate financial statements in U.S. dollars by remeasurement?

When the foreign affiliate is located in highly inflationary economies and uses the U.S. dollar as its functional currency When the foreign affiliate's functional currency is not its recording currency

When is the U.S. dollar the functional currency for foreign affiliates?

When the subsidiary is directly affected by changes in the exchange rates When the subsidiary is dependent on the U.S. economy for sales markets, production components, or financing

When is the weighted average method used in financial statement conversion?

When there are rapid changes in the exchange rates When there are seasonal fluctuations in the income statements

For maintaining economic relationships in the functional currency statements, the account balances must be translated by Blank______ exchange rate.

a comparable

On January 1, 20X1, Unic Chemicals Inc., a U.S.-based company, purchased 100 percent of the capital stock of an Italian company for $45,000. The Italian company's book value was only $42,500. The differential is attributable to a patent amortizable over five years. Identify the journal entry that is the excess value reclassification entry at January 1, 20X1.

Debit Patent for $2,500; Credit Investment in the Italian company for $2,500

Which of the following accounts are considered nonmonetary accounts under the remeasurement method?

Deferred income Inventories

True or false: The export sales department of a U.S. manufacturer will never require remeasurement.

False

Translation and remeasurement include Blank______ adjustment procedures.

different

The foreign transactions in an entity's records are adjusted to their equivalent functional currency when the entity

enters into transactions denominated in other currencies.

The goal of remeasurement is to obtain the

equivalent U.S. dollar values for the foreign affiliate's accounts so they may be combined or consolidated with the U.S. company's statements.

The depreciation expense in the trial balance is remeasured using the

historical exchange rate.

Nonmonetary accounts are remeasured using the

historical exchange rates.

When the functional currency is the U.S. dollar, the nonmonetary items on the balance sheet are remeasured using

historical exchange rates.

The gain or loss on financial statement remeasurement is included in the

income statement.

Worksheet entries are made on Blank______ books.

neither company's

A remeasurement gain results for a subsidiary's income when transacting in the

stronger currency

The foreign currency is the functional currency when the

subsidiary's cash flows are in the foreign currency and they do not affect the parent's cash flows.

The foreign currency transaction loss is a component of the

subsidiary's net income.

In a consolidated income statement, the net remeasurement gain after offsetting the foreign currency transaction loss account is reported in

the income statement.

In a consolidated income statement, the net remeasurement gain after offsetting the foreign currency transaction loss account is reported in the

the income statement.

The balancing item that makes the translated trial balance debits equal the credits is called the adjustment.

translation

ASC 830 provides guidelines for the

translation of foreign currency into U.S. dollars in the preparation of consolidated financial statements.

A record of a subsidiary's acquisition or disposition of nonmonetary assets and equities is maintained to ensure the

use of the proper exchange rates for remeasurement.

A translation adjustment arises because an investee's assets, liabilities, and stockholders' equity are translated

using different exchange rates.

Cyan Financials Inc. is a U.S.-based parent company with a subsidiary (Kimia Solutions) based in Italy. In Kimia'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 amount of foreign currency units in euros on the trial balance on December 31, 20X1?

€2,000

As of January 1, 20X1, Aurile, Inc. has a $45,000 credit balance in its accumulated other comprehensive income account. The additional other comprehensive income during the year is $15,500. What is the accumulated other comprehensive income credit balance at the end of the period?

$60,500

Interosis Equipments Inc. is a US-based company with a subsidiary (Emipia Solutions) in Sweden. The U.S. dollar will be considered the functional currency when

Interosis primarily provides financing to Emipia

Which of the following statements are true regarding a differential's unamortized balance?

It is reported on the balance sheet of the parent company. It is translated at the current exchange rate used for balance sheet accounts.

Identify the impact of the consolidation entry on the accumulated depreciation of a foreign subsidiary.

It reduces the accumulated depreciation of the foreign subsidiary.

Which of the following statements is true about financial statement remeasurement using the temporal method?

It remeasures the financial statements from the recording currency to the functional currency.

Vilane Solutions Inc. is a U.S.-based company with a subsidiary (Skan Enterprises) in France. Which of the following are reasons for Skan to use the U.S. dollar as its functional currency even though it maintains its accounting records in the euro?

Most of the sales markets of Skan Enterprises are located in the U.S. Most of the finances for Skan Enterprises are provided by Vilane Solutions Inc.

Identify a reason to use a parent company's currency as the functional currency.

Most of the subsidiary's cash transactions are in the parent company's currency.

Identify the option that helps verify the amounts reported on consolidated financial statements.

Relationship of the parent's net income and retained earnings with consolidated net income and consolidated retained earnings

Beta Manufacturers Inc. is a US-based parent company with a German subsidiary (Bisque Equipments). Bisque records its financial statements in euros. As Bisque primarily takes orders from German customers for U.S.-manufactured goods, its financial statements require remeasurement in U.S. dollars. Bisque's reported income is 12 percent higher when the dollar is the functional currency as compared to the reported income under translation. Which of the following statements is a reason for the remeasurement gain?

The local currency of the foreign affiliate was stronger than the functional currency, U.S. dollar.

Which of the following statements are true about declaration and payment of dividends by a foreign subsidiary?

The parent company would record dividends receivable from the foreign subsidiary on the declaration date. The parent company would adjust the dividends receivable to the current exchange rate on the balance sheet date.

Which of the following statements is true regarding a parent company's adjustment resulting from the translation of the differential?

The parent company's original investment in the subsidiary should be revised based on new exchange rates.

Which of the following statements are true if a parent company uses the equity method and no intercompany revenue transactions occur?

The parent's net income equals the consolidated net income. The parent's retained earnings equal the consolidated retained earnings.

Omega Financials Inc., a U.S.-based parent company, has a subsidiary (Radon Global) in Italy. At the beginning of the year, the translation rate is $1.10 =€1. At the time of amortization of the differential, the translation rate is $1.25 = €1. Which of the following statements is true about the translation adjustment if the translation rate is $1.40 = €1 at the end of the year?

The remaining amount of the differential should be translated at $1.40 on the year-end balance sheet.

Which of the following statements is true about consolidated financial statement reporting of a U.S.-based parent company which has a Belgium-based subsidiary?

The subsidiary's financial statements should be restated in the parent company's recording currency.

Each period's other comprehensive income (OCI) account is closed to

accumulated other comprehensive income.

To maintain the economic relationships in the functional currency statements, the translation is made using the current exchange rate for all

assets and liabilities.

The _____ rate for a period is usually the exchange rate used to measure revenues and expenses.

average

The rate is usually a simple average for a period of time.

average

The differential's periodic amortization is measured at the

average exchange rate used to translate other income statement accounts.

A deposit in foreign currency is reported in a balance sheet stated in foreign currency, and the translation is done at the rate on the date of the

balance sheet

The foreign transactions of an entity may be adjusted to their equivalent functional currency Blank______ the preparation of financial statements.

before

If the dividends are paid on the same day they are declared, the dividends are translated at the

exchange rate of the declaration date

If a foreign affiliate has active sales markets in its own country, the local currency may be the

functional currency

To translate a subsidiary's financial statement from the local (functional) currency to U.S. dollars, the

local currency balance sheet should be translated into U.S. dollars using the current exchange rate.

The allocation and amortization of the difference between an investment's cost and its book value should be

made in the foreign subsidiary's functional currency before translation.

A periodic change in a parent company's translation adjustment from a foreign investment is reported as a component of the parent company's

other comprehensive income.

In the consolidation process, the translation adjustment computed on the differential should be adjusted in the

parent company's investment in the foreign subsidiary.

The periodic change in the parent company's translation adjustment should be reported as a component of the

parent company's other comprehensive income.

The differential representing the excess cost over book value is recorded in the

parent's investment account.

Identify the statement that defines "recording currency".

the currency in which a company records its transactions in the financial statements

Identify features of the translation process.

It retains the underlying economic relationships presented in the foreign entity's financial statements. It enables the evaluation of the performance of the foreign entity's management with the same economic measures used to operate it. It allows the economic relationships to pass through the translation process into the US parent's reporting currency.

The local currency of a foreign affiliate becomes the functional currency when

it does not regularly remit the cash generated to the parent company in the US. it obtains financing from local sources. its transactions are mostly in the local currency.

Which of the following items of a foreign subsidiary are recognized by a parent company making entries on its books in the dollar equivalent values?

Income Translation adjustment Dividends

When the direct exchange rate increases during a period, the nonmonetary accounts are Blank______ when remeasured than when translated.

lower

On December 31, 20X1, Omega Solutions Inc. deposited 10,000 British pounds sterling (£) in a London Bank when the exchange rate was $1.80 per pound. The exchange rate on December 31, 20X2 is $1.75. Calculate the amount of translation adjustment on December 31, 20X2 to report the deposit of 10,000 British pounds sterling.

500

Plafix Chemicals Inc. is a U.S.-based parent company which has a subsidiary, Alpha Chemicals, located in Ireland. Which of the following statements are true about Plafix's financial reporting?

Because the subsidiary is located in Ireland, the local currency of Alpha is the euro. Because the parent company is located in the U.S., the reporting currency of Plafix is the U.S. dollar.

How are foreign entity statements restated into U.S. dollars?

By the remeasurement of the foreign entity's statements into its functional currency By the translation after remeasurement if the functional currency is not the U.S. dollar By the translation of the foreign entity's functional currency statements into U.S. dollars

Which of the following balance sheet items are considered monetary items in the remeasurement process?

Cash Short-term receivables Long-term payables

Which of the following statements are true with regards to comprehensive income according to ASC 220?

Comprehensive income includes net income and other comprehensive income. Comprehensive income is defined to include all changes in equity during a period except those from investments by and distributions to owners.

True or false: The primary objective of the translation and remeasurement methods are the same.

False

For which of the following entities is remeasurement required?

For a foreign division, branch, or subsidiary that primarily manufactures a subassembly which is shipped to a U.S. plant for inclusion in a product For a foreign sales branch or subsidiary of a U.S. manufacturer that primarily takes orders from foreign customers for US-manufactured goods For a foreign shipping subsidiary that primarily transports ore from a U.S. company's foreign mines to the United States for processing

Beta Financials Inc. is a U.S.-based parent company with a subsidiary (Surplus Enterprises) based in France. In Surplus' trial balance on December 31, 20X1, there are foreign currency units worth $3,500 USD. When the US dollars are received, the spot exchange rate is $1.40 = €1. Which of the following accounts will be debited by Surplus Enterprises to record the change in the exchange rate from $1.40 to $1.25 = €1 on December 31, 20X1?

Foreign Currency Units

Which of the following are true about a foreign affiliate using the remeasurement method for restating its financial statements?

The foreign affiliate which uses the U.S. dollar as both its functional and its reporting currency is not required to remeasure. The foreign entity should use the dollar as its functional currency if it is located in a highly inflationary economy. The foreign affiliate should remeasure when it uses the local currency to record its operations & the local currency is not the functional currency.

Identify features the FASB has adopted as indicating a functional currency.

The functional currency is the currency of the primary economic environment in which the entity operates. The functional currency is the currency of the environment in which an entity primarily generates and receives cash.

The Foreign Currency Units account is classified as a Blank______ on a subsidiary's balance sheet.

current asset

Dividends receivable from a foreign subsidiary should be adjusted to the value based on the Blank______ on the balance sheet date.

current exchange rate

If the dividends are not paid by the end of the year, the dividends payable liability will be translated at the

current exchange rate.

A decrease in the exchange rate during a period results in a balance in the translation adjustment account.

debit

Beta Finance Inc. has an Italian subsidiary (Krypton Solutions). In the remeasurement of the income statement, the value of beginning inventory is €4,500. The purchases during the year amount to €17,500. The ending inventory is €5,000. The exchange rate in the beginning is €1 = $1.15. The average exchange rate is €1 = $1.30, and the exchange rate at the time of acquisition of the ending inventory is €1 = $1.40. What is the remeasured value of cost of goods sold in dollars?

$20,925

Thistle Global Inc., a U.S.-based parent company, has a subsidiary (Sienna Solutions) in Sweden. At the beginning of the year, the differential was €3,500 and the translation rate was $1.10 = €1 resulting in a differential of $3,850. The amortization of the differential in this period was €700 and the translation rate was $1.25 = €1, resulting in amortization during the period of $875. The remaining balances then end of the year were €2,800 and $2,975. What is the translation adjustment if the translation rate is $1.40 = €1 at the end of the year?

$945

Which of the following exchange rates is used in the translation of a foreign entity's revenues and expenses from its functional currency into a US company's reporting currency?

Average exchange rate for the period covered by the financial statements