Advanced Acc. Exam 3

Based on the preceding information, what amount of gain or loss on the sale of land should be reported in the consolidated income statement for 20X5?

$0

Dahl entered into the second forward contract to hedge a commitment to purchase equipment being manufactured to Dahl's specifications. At December 31, 20X5, what amount of foreign currency transaction gain should Dahl include in income from this forward contract?

$3,000

Middle Company holds 60 percent of Bottom Corporation's voting shares. Bottom has developed a new type of production equipment that appears to be quite marketable. It spent $40,000 in developing the equipment; however, Middle agreed to purchase the production rights for the machine for $100,000. If the intercompany sale occurred on January 1, 20X2, and the production rights are expected to have value for five years, at what amount should the rights be reported in the consolidated balance sheet for December 31, 20X2?

$0

On April 8, 20X3, Trul Corporation purchased merchandise from an unaffiliated foreign company for 10,000 units of the foreign company's local currency. Trul paid the bill in full on March 1, 20X4, when the spot rate was $0.45. The spot rate was $0.60 on April 8, 20X3, and was $0.55 on December 31, 20X3. For the year ended December 31, 20X4, Trul should report a transaction gain of

$1,000

On September 1, 20X5, Johnson Inc. entered into a foreign exchange contract for speculative purposes by purchasing €50,000 for delivery in 60 days. The rates to exchange U.S. dollars for euros follow: 9/1/X5 9/30/X5 Spot rates $0.75 $0.70 30-day forward rate 0.73 0.72 60-day forward rate 0.74 0.73 In its September 30, 20X5, income statement, what amount should Johnson report as foreign exchange loss?

$1,000

Assume that Bartell acquired $10,500 of goodwill on January 1, 20X5, and the goodwill suffered a 10 percent impairment loss in 20X5. If the functional currency is the U.S. dollar, how much goodwill impairment loss should be reported on Bartell's consolidated statement of income for 20X5?

$1,050

Assume that Bartell acquired $10,500 of goodwill on January 1, 20X5, and the goodwill suffered a 10 percent impairment loss in 20X5. If the functional currency is the Malaysian ringgit, how much goodwill impairment loss should be reported on Bartell's consolidated income statement for 20X5?

$1,100

On January 1, 20X0, Poe Corporation sold a machine for $900,000 to Saxe Corporation, its wholly owned subsidiary. Poe paid $1,100,000 for this machine, which had accumulated depreciation of $250,000. Poe estimated a $100,000 salvage value and depreciated the machine using the straight-line method over 20 years, a policy that Saxe continued. In Poe's December 31, 20X0, consolidated balance sheet, this machine should be included in fixed-asset cost and accumulated depreciation as Cost Accumulated Depreciation

$1,100,000 $300,000

Dahl entered into the third forward contract for speculation. At December 31, 20X5, what amount of foreign currency transaction gain should Dahl include in income from this forward contract?

$3,000

Consolidated net income for 20X6 will be

$120,000

Income assigned to the noncontrolling interest in the 20X6 consolidated income statement will be

$14,000

In the stockholders' equity section of Mondell's consolidated balance sheet at December 31, 20X5, Mondell should report the translation adjustment as a component of other comprehensive income of

$15,920

Dahl entered into the first forward contract to manage the foreign currency risk from a purchase of inventory in November 20X5, payable in March 20X6. The forward contract is not designated as a hedge. At December 31, 20X5, what amount of foreign currency transaction gain should Dahl include in income from this forward contract?

$3,000

Patch Corporation purchased land from Sub1 Corporation for $350,000 on December 3, 20X5. This purchase followed a series of transactions between Patch-controlled subsidiaries. On January 23, 20X5, Sub3 Corporation purchased the land from a nonaffiliate for $240,000. It sold the land to Sub2 Company for $220,000 on July 15, 20X5, and Sub2 sold the land to Sub1 for $305,000 on September 5, 20X5. Patch has control of the following companies Subsidiary Level of Ownership 20X5 Net Income Sub3 60 percent $60,000 Sub2 90 percent $140,000 Sub1 70 percent $90,000 Patch reported income from its separate operations of $345,000 for 20X5. Based on the preceding information, at what amount should the land be reported in the consolidated balance sheet as of December 31, 20X5?

$240,000

What amount should Mondell record as "income from subsidiary" based on the German subsidiary's reported net income?

$26,660

Stees Corporation had the following foreign currency transactions during 20X2. First, it purchased merchandise from a foreign supplier on January 20, 20X2, for the U.S. dollar equivalent of $90,000. The invoice was paid on March 20, 20X2, at the U.S. dollar equivalent of $96,000. Second, on July 1, 20X2, Stees 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, 20X4. On December 31, 20X2, 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 percent per annum. In Stees's 20X2 income statement, what amount should be included as a foreign exchange loss?

$27,000

Bartell Inc., a U.S. company, acquired 90 percent of the common stock of a Malaysian company on January 1, 20X5, for $160,000. The net assets of the Malaysian subsidiary amounted to 680,000 ringgit (RM) on the date of acquisition. On January 1, 20X5, the book values of the Malaysian subsidiary's identifiable assets and liabilities approximated their fair values. Exchange rates at various dates during 20X5 follow: RM $ January 1 1=0.21 December 3 11=0.24 Average for 20X5 1=0.22 Mondell Inc., a U.S. company, acquired 100 percent of the common stock of a German company on January 1, 20X5, for $402,000. The German subsidiary's net assets amounted to €300,000 on the date of acquisition. On January 1, 20X5, the book values of its identifiable assets and liabilities approximated their fair values. As a result of an analysis of functional currency indicators, Mondell determined that the euro was the functional currency. On December 31, 20X5, the German subsidiary's adjusted trial balance, translated into U.S. dollars, contained $12,000 more debits than credits. The German subsidiary reported income of €25,000 for 20X5 and paid a cash dividend of €5,000 on November 30, 20X5. Included on the German subsidiary's income statement was depreciation expense of €2,500. Mondell uses the fully adjusted equity method of accounting for its investment in the German subsidiary and determined that goodwill in the first year had an impairment loss of 10 percent of its initial amount. Exchange rates at various dates during 20X5 follow: € $ January 1 1=1.20 November 30 1=1.30 December 31 1=1.32 Average for 20X5 1=1.24 On January 1, 20X5, how much goodwill was acquired by Bartell?

$31,480

On July 1, 20X1, Black Company lent $120,000 to a foreign supplier, evidenced by an interest-bearing note due on July 1, 20X2. The note is denominated in the borrower's currency and was equivalent to 840,000 LCUs on the loan date. The note principal was appropriately included at $140,000 in the receivables section of Black's December 31, 20X1, balance sheet. The note principal was repaid to Black on the July 1, 20X2, due date when the exchange rate was 8 LCUs to $1. In its income statement for the year ended December 31, 20X2, what amount should Black include as a foreign currency transaction gain or loss on the note principal?

$35,000 loss

On July 1, 20X4, Bay Company borrowed 1,680,000 local currency units (LCUs) from a foreign lender evidenced by an interest-bearing note due on July 1, 20X5, which is denominated in the currency of the lender. The U.S. dollar equivalent of the note principal was as follows: Date Amount 7/1/X4 (date borrowed) $210,000 12/31/X4 (Bay's year-end) 240,000 7/1/X5 (date repaid) 280,000 In its income statement for 20X5, what amount should Bay include as a foreign exchange gain or loss on the note principal?

$40,000 loss

On November 15, 20X3, Chow Inc., a U.S. company, ordered merchandise FOB shipping point from a German company for €200,000. The merchandise was shipped and invoiced on December 10, 20X3. Chow paid the invoice on January 10, 20X4. The spot rates for euros on the respective dates were November 15, 20X3 $0.4955 December 10, 20X3 0.4875 December 31, 20X3 0.4675 January 10, 20X4 0.4475 In Chow's December 31, 20X3, income statement, the foreign exchange gain is

$4,000

On December 12, 20X5, Dahl Company entered into three forward exchange contracts, each to purchase 100,000 francs in 90 days. The relevant exchange rates are as follows: Spot Rate Forward Rate for March 12, 20X6 December 12, 20X5 $0.88 $0.90 December 31, 20X5 0.98 0.93 The following information applies to Denton Inc.'s sale of 10,000 foreign currency units under a forward contract dated November 1, 20X5, for delivery on January 31, 20X6: 11/1/X5 12/31/X5 Spot rates $0.80 $0.83 30-day forward rate 0.79 0.82 90-day forward rate 0.78 0.81 Denton entered into the forward contract to speculate in the foreign currency. In its income statement for the year ended December 31, 20X5, what amount of loss should Denton report from this forward contract?

$400

On Mondell's consolidated balance sheet at December 31, 20X5, what amount should be reported for the goodwill acquired on January 1, 20X5?

$41,580

Scroll Inc., a wholly owned subsidiary of Pirn Inc., began operations on January 1, 20X1. The following information is from the condensed 20X1 income statements of Pirn and Scroll Pirn Scroll Sales $500,000 $300,000 Cost of Goods Sold (350,000) (270,000) Gross Profit$150,000 $30,000 Depreciation (40,000) (10,000) Other Expenses (60,000) (15,000) Income from Operations $50,000 $5,000 Gain on Sale of Equipment to Scroll 12,000 Income before Taxes $62,000 $5,000 Scroll purchased equipment from Pirn for $36,000 on January 1, 20X1, that is depreciated using the straight-line method over four years. What amount should be reported as depreciation expense in Pirn's 20X1 consolidated income statement?

$47,000

Based on the preceding information, what should be the amount of income assigned to the controlling shareholders in the consolidated income statement for 20X5?

$474,000

On September 1, 20X1, Cott Corporation received an order for equipment from a foreign customer for 300,000 LCUs when the U.S. dollar equivalent was $96,000. Cott shipped the equipment on October 15, 20X1, and billed the customer for 300,000 LCUs when the U.S. dollar equivalent was $100,000. Cott received the customer's remittance in full on November 16, 20X1, and sold the 300,000 LCUs for $105,000. In its income statement for the year ended December 31, 20X1, Cott should report a foreign exchange gain of

$5,000

Based on the information provided, the gain on the sale of the equipment eliminated in the consolidated financial statements for 20X4 is

$8,050

Cobb Co. purchased merchandise for 300,000 pounds from a vendor in London on November 30, 20X5. Payment in British pounds (£) was due on January 30, 20X6. The exchange rates to purchase 1 pound were as follows: November 30, 20X5 December 31, 20X5 Spot rate $1.65 $1.62 30-day rate 1.64 1.59 60-day rate 1.63 1.56 In its December 31, 20X5, income statement, what amount should Cobb report as a foreign exchange gain?

$9,000

Port Inc. owns 100 percent of Salem Inc. On January 1, 20X2, Port sold delivery equipment to Salem at a gain. Port had owned the equipment for two years and used a five-year straight-line depreciation rate with no residual value. Salem is using a three-year straight-line depreciation rate with no residual value for the equipment. In the consolidated income statement, Salem's recorded depreciation expense on the equipment for 20X2 will be decreased by

33 1/3 percent of the gain on the sale.

If 1 Canadian dollar can be exchanged for 90 cents of U.S. currency, what fraction should be used to compute the indirect quotation of the exchange rate expressed in Canadian dollars?

1/.90

Dale Inc., a U.S. company, bought machine parts from a German company on March 1, 20X1, for €30,000, when the spot rate for euros was $0.4895. Dale's year-end was March 31, when the spot rate was $0.4845. On April 20, 20X1, Dale paid the liability with €30,000 acquired at a rate of $0.4945. Dale's income statements should report a foreign exchange gain or loss for the years ended March 31, 20X1 and 20X2 of

20X1: $150 gain 20X2: $300 loss

The receipt of the dividend will result in

A credit to the investment account for $6,500

On October 1, 20X5, Stevens Company, a U.S. company, contracted to purchase foreign goods requiring payment in pesos one month after their receipt in Stevens's factory. Title to the goods passed on December 15, 20X5. The goods were still in transit on December 31, 20X5. Exchange rates were 1 dollar to 22 pesos, 20 pesos, and 21 pesos on October 1, December 15, and December 31, 20X5, respectively. Stevens should account for the exchange rate fluctuations in 20X5 as

A gain included in income before discontinued operations

An entity denominated a December 15, 20X6, purchase of goods in a currency other than its functional currency. The transaction resulted in a payable fixed in terms of the amount of foreign currency and was paid on the settlement date, January 20, 20X7. The exchange rates between the functional currency and the currency in which the transaction was denominated changed at December 31, 20X6, resulting in a loss that should

Be included as a component of income from continuing operations for 20X6

On October 2, 20X5, Louis Co., a U.S. company, purchased machinery from Stroup, a German company, with payment due on April 1, 20X6. If Louis's 20X5 operating income included no foreign exchange gain or loss, the transaction could have

Been denominated in U.S. dollars

An entity denominated a sale of goods in a currency other than its functional currency. The sale resulted in a receivable fixed in terms of the amount of foreign currency to be received. The exchange rate between the functional currency and the currency in which the transaction was denominated changed. The effect of the change should be included as a

Component of income whether the change results in a gain or a loss

In the preparation of the 20X6 consolidated income statement, depreciation expense will be

Credited for $5,000 in the consolidation entries

In the preparation of the 20X6 consolidated balance sheet, computer equipment will be

Debited for $1,000

Certain balance sheet accounts in a foreign subsidiary of Shaw Company on December 31, 20X1, have been restated in U.S. dollars as follows: Restated at CurrentRates Restated at HistoricalRates Accounts Receivable, Current $100,000 $110,000 Accounts Receivable, Long-Term 50,000 55,000 Prepaid Insurance 25,000 30,000 Patents 40,000 45,000 Total $215,000 $240,000 What total should be included in Shaw's balance sheet for December 31, 20X1, for these items?

Foreign Currency is Functional Currency: $215,000 U.S. Dollar is Functional Currency: $225,000

Marvin Company's receivable from a foreign customer is denominated in the customer's local currency. This receivable of 900,000 LCUs has been translated into $315,000 on Marvin's December 31, 20X5, balance sheet. On January 15, 20X6, the receivable was collected in full when the exchange rate was 3 LCU to $1. The journal entry Marvin should make to record the collection of this receivable is

Dr. Foreign Currency Units 300,000 Dr. Exchange Loss 15,000 Cr. Accounts Receivable 315,000

Company J acquired all of Company K's outstanding common stock in exchange for cash. The acquisition price exceeds the fair value of net assets acquired. How should Company J determine the amounts to be reported for the plant and equipment and long-term debt acquired from Company K? Plant and Equipment Long-Term Debt

Fair Value Fair Value

At what rates should the following balance sheet accounts in the foreign currency financial statements be restated into U.S. dollars?

Foreign Currency is Functional Currency Equipment: Current Accumulated Depreciation of Equipment: Current U.S. Dollar is Functional Currency Equipment: Historical Accumulated Depreciation of Equipment: Historical

On January 1, 20X1, Pat Company formed a foreign subsidiary. On February 15, 20X1, Pat's subsidiary purchased 100,000 local currency units (LCU) of inventory. Of the original inventory purchased on February 15, 20X1, 25,000 LCU made up the entire inventory on December 31, 20X1. The exchange rates were 2.2 LCU = $1 from January 1, 20X1, to June 30, 20X1, and 2 LCU = $1 from July 1, 20X1, to December 31, 20X1. The December 31, 20X1, inventory balance for Pat's foreign subsidiary should be restated in U.S. dollars in the amount of

Foreign Currency is Functional Currency: $12,500 U.S. Dollar is Functional Currency: $11,364

Linser Corporation owns a foreign subsidiary with 2,600,000 local currency units (LCU) of property, plant, and equipment before accumulated depreciation on December 31, 20X4. Of this amount, 1,700,000 LCU were acquired in 20X2 when the rate of exchange was 1.5 LCU = $1, and 900,000 LCU were acquired in 20X3 when the rate of exchange was 1.6 LCU = $1. The rate of exchange in effect on December 31, 20X4, was 1.9 LCU = $1. The weighted average of exchange rates that were in effect during 20X4 was 1.8 LCU = $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 Linser's income statement for 20X4?

Foreign Currency is Functional Currency: $144,444 U.S. Dollar is Functional Currency: $169,583

A wholly owned foreign subsidiary of Nick Inc. has certain expense accounts for the year ended December 31, 20X4, stated in local currency units (LCU) as follows: LCU Depreciation of Equipment (related assets were purchased January 1, 20X2) 120,000 Provision for Uncollectible Accounts 80,000 Rent 200,000 The exchange rates at various dates were as follows: Dollar Equivalent of 1 LCU January 1, 20X2 0.50 December 31, 20X4 0.40 Average, 20X4 0.44 What total dollar amount should be included in Nick's income statement to reflect the preceding expenses for the year ended December 31, 20X4?

Foreign Currency is Functional Currency: $176,000 U.S. Dollar is Functional Currency: $183,200

A foreign subsidiary of the Bart Corporation has certain balance sheet accounts on December 31, 20X2. Information relating to these accounts in U.S. dollars is as follows: Restated at CurrentRates Restated at HistoricalRates Marketable (AFS and Trading) Securities $75,000 $85,000 Inventories, carried at average cost 600,000 700,000 Refundable Deposits 25,000 30,000 Goodwill 55,000 70,000 $755,000 $885,000 What total should be included in Bart's balance sheet on December 31, 20X2, as a result of the preceding information?

Foreign Currency is Functional Currency: $755,000 U.S. Dollar is Functional Currency: $870,000

A credit-balancing item resulting from the process of restating a foreign entity's financial statement from the local currency unit to U.S. dollars should be included as a(an)

Foreign Currency is Functional Currency: Separate component of stockholders' equity U.S. Dollar is Functional Currency: Component of income from continuing operations

Bar Corporation had a realized foreign exchange loss of $13,000 for the year ended December 31, 20X2, and must also determine whether the following items will require year-end adjustment: Bar had a $7,000 credit resulting from the restatement in dollars of the accounts of its wholly owned foreign subsidiary for the year ended December 31, 20X2. Bar had an account payable to an unrelated foreign supplier to be paid in the supplier's local currency. The U.S. dollar equivalent of the payable was $60,000 on the October 31, 20X2, invoice date and $64,000 on December 31, 20X2. The invoice is payable on January 30, 20X3. What amount of the net foreign exchange loss in computing net income should be reported in Bar's 20X2 consolidated income statement?

LCU is Functional Currency: $17,000 U.S. Dollar is Functional Currency: $10,000

When remeasuring foreign currency financial statements into the functional currency, which of the following items would be remeasured using a historical exchange rate?

Inventories carried at cost

Gate Inc. had a $30,000 credit adjustment for the year ended December 31, 20X2, from restating its foreign subsidiary's accounts from their local currency units into U.S. dollars. Additionally, Gate had a receivable from a foreign customer payable in the customer's local currency. On December 31, 20X1, this receivable for 200,000 local currency units (LCU) was correctly included in Gate's balance sheet at $110,000. When the receivable was collected on February 15, 20X2, the U.S. dollar equivalent was $120,000. In Gate's 20X2 consolidated income statement, how much should be reported as foreign exchange gain in computing net income?

LCU is Functional Currency: $10,000 U.S. Dollar is Functional Currency: $40,000

The balance in Simpson Corp.'s foreign exchange loss account was $15,000 on December 31, 20X2, before any necessary year-endadjustment relating to the following: Simpson had a $20,000 debit resulting from the restatement in dollars of the accounts of its wholly owned foreign subsidiary for the year ended December 31, 20X2. Simpson had an account payable to an unrelated foreign supplier, payable in the supplier's local currency on January 27, 20X3. The U.S. dollar equivalent of the payable was $100,000 on the November 28, 20X2, invoice date, and $106,000 on December 31, 20X2. In Simpson's 20X2 consolidated income statement, what amount should be included as foreign exchange loss in computing net income?

LCU is Functional Currency: $21,000 U.S. Dollar is Functional Currency: $41,000

On January 1, 20X4, Gold Company purchased a computer with an expected economic life of five years. On January 1, 20X6, Gold sold the computer to TLK Corporation and recorded the following entry: Consolidation Worksheet Entries Debit Credit Dr. Cash 39,000 Dr. Accumulated Depreciation 16,000 Cr. Computer Equipment 40,000 Cr. Gain on Sale of Equipment 15,000 TLK Corporation holds 60 percent of Gold's voting shares. Gold reported net income of $45,000 including the gain on the sale of equipment, and TLK reported income from its own operations of $85,000 for 20X6. There is no change in the estimated economic life of the equipment as a result of the intercompany transfer. Upper Company holds 60 percent of Lower Company's voting shares. During the preparation of consolidated financial statements for 20X5, the following consolidation entry was made: General Journal Debit Credit Dr. Investment in Lower 10,000 Cr. Land 10,000 Which of the following statements is correct

Lower Company purchased land from Upper Company before January 1, 20X5

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 would be the appropriate exchange rate for translating Sales to Customers Wages Expense

Sales to Customers: Yes Wages Expense: Yes

The functional currency of Dahl Inc.'s subsidiary is the European euro. Dahl borrowed euros as a partial hedge of its investment in the subsidiary. In preparing consolidated financial statements, Dahl's debit balance of its translation adjustment exceeded its exchange gain on the borrowing. How should the translation adjustment and the exchange gain be reported in Dahl's consolidated financial statements?

The translation adjustment should be netted against the exchange gain, and the excess translation adjustment should be reported in the stockholders' equity section of the balance sheet

Water Company owns 80 percent of Fire Company's outstanding common stock. On December 31, 20X9, Fire sold equipment to Water at a price in excess of Fire's carrying amount but less than its original cost. On a consolidated balance sheet at December 31, 20X9, the carrying amount of the equipment should be reported at

Water's original cost less Fire's recorded gain

Based on the information provided, while preparing the 20X4 consolidated income statement, depreciation expense will be

credited for $350 in the consolidation entries

Based on the information provided, in the preparation of the 20X5 consolidated income statement, depreciation expense will be

credited for $700 in the consolidation entries

Pluto Corporation owns 70 percent of Saturn Company's stock. On July 1, 20X4, Pluto sold a piece of equipment to Saturn for $56,350. Pluto had purchased this equipment on January 1, 20X1, for $63,000. The equipment's original 15-year estimated total economic life remains unchanged. Both companies use straight-line depreciation. The equipment's residual value is considered negligible. Based on the information provided, in the preparation of the 20X4 consolidated financial statements, equipment will be ______ in the consolidation entries

debited for $6,650