CHAPTER 20:TRANSLATION OF FOREIGN FINANCIAL STATEMENTS

(MULTIPLE CHOICE QUESTIONS AND ANSWERS)

B. 1. Tan Company has a Branch in Singapore. On December 31, 2017, the Singapore
Branch reported the following expenses stated in Singapore Dollar:
Bad Debt Expense S$6,000
Amortization of Patent(Patent was acquired on January 1, 2013) 4,000
Rent Expense 10,000

The exchange rates for Singapore dollar at various dates were as follows:
January 1, 2013 P20.00
December 31, 2017 26.35
Average Rate for year ended December 31, 2017 28.20

What is the Philippine peso amount to be included in the translated statement of CI of the
Singapore Branch for the Year ended December 31, 2017 for the foregoing expenses?
a. P527,000
b. P564,000
c. P531,200
d. P400,000
Solutions:
Bad debt expense (S$ 6,000 x P28.20) P169,200
Amortization of patents (S$ 4,000 x P28.20) 112,800
Rent expense (S$ 10,000 x P28.20) 282,000
Total P564,000
Average rate (P28.20) is used to translate all expenses since this is a reasonable
estimation.
D. 2. Daniella Co. started 2015 with two assets: cash of §26,000 (stickles) and land that
originally cost §72,000 when acquired on April 4, 2011. On May 1, 2015, the company
rendered services to a customer for §36,000, an amount immediately paid in cash. On
October 1, 2015, the company incurred an operating expense of §22,000 that was
immediately paid. No other transactions occurred during the year. Currency exchange
rates were as follows:
April 4, 2011 §1 = $.28
January 1, 2015 §1 = $.29
May 1, 2015 §1 = $.30
October 1, 2015 §1 = $.31
 Average for 2015 §1 = $.32
December 31, 2015 §1 = $.35

Assume (1) that Daniella was a foreign subsidiary of a U.S. multinational company that
used the U.S. dollar as its functional currency and (2) that the stickle was the functional
currency of the subsidiary. What was the translation adjustment for this subsidiary for
2015?
a. $6,000
b. $6,400
c. $6,600
d. $6,800
Solutions:
Net assets, 1/1/08 § 98,000 x $.29 = $ 28,420
Change in net assets, 2008:
Rendered services 36,000 x $.30 = 10,800
Incurred expense ( 22,000) x $.31 = ( 6,820)
Net assets, 12/31/08 § 112,000 $ 32,400
Net assets, 12/31/08 at current
exchange ratex $.35 = § 112,000 * $0.35 = 39,200

Translation adjustment, 2008 (positive) $ 6,800

C. 3. (Using the Problem Above) Assume (1) that Daniella was a foreign subsidiary of a U.S.
multinational company that used the U.S. dollar as its reporting currency and (2) that the
U.S. dollar was the functional currency of the subsidiary. What was the remeasurement
gain or loss for 2015?
a. $2,220
b. $2,560
c. $2,480
d. $2,600
Solutions:

Net monetary assets, 1/1/15 § 26,000 x $.29 = $ 7,540

Change in net monetary assets, 2015:
Rendered services 36,000 x $.30 = 10,800
Incurred expense ( 22,000) x $.31 = (6,820)
Net monetary assets, 12/31/15 § 40,000 $ 11,520
 Net monetary assets 12/31/15 at § 40,000 $.35 = 14,000
current exchange rate
Remeasurement gain 2,480

A. 4. Assume that Daniella was a foreign subsidiary of a U.S. multinational company. On

the December 31, 2015 balance sheet, what was the translated value of the Land
account?
a. $25,200
b. $25,500
c. $25,100
d. $25,000
Solutions:
Translated value of land: §72,000 x $.35 = $ 25,200

B. 5. Assume that Daniella was a foreign subsidiary of a U.S. multinational company. On

the December 31, 2015 balance sheet, what was the remeasured value of the Land
account?
a. $21,000
b. $20,160
c. $20,200
d. $20,080
Solutions:
Remeasured value of land: § 72,000 x $.28 = $ 20,160

C. 6. On January 1, 2016, Fatima Co., a U.S. corporation with the U.S. dollar as its
functional currency, established Bryan Co. as a subsidiary. Bryan is located in the
country of Sorania, and its functional currency is the stickle. Bryan engaged in the
following transactions during 2016:

January 1, 2016 Issued common stock for §500,000

July 14, 2008 Sold equipment at a loss of §40,000
October 1, 2008 Paid dividends of §60,000

Bryan’s operating revenues and expenses for 2015 were §800,000 and
§650,000, respectively. The appropriate exchange rates were:
January 1, 2008 $1 = §2.5
July 14, 2008 $1 = §2.1
October 1, 2008 $1 = §2.6
December 31, 2008 $1 = §2.7
 Average for 2008 $1 = §2.4

What is the translation adjustment for Bryan? (Round your answers to the nearest whole
dollar.)
a. $16, 631
b. $(16,743)
c. $(16,671)
d. $16,870
Solutions:
Stickles Rate U.S. Dollars

Net assets, 1/1/08 §0

Change in net assets, 2008:
Common stock issuance 500,000 $1 ÷ §2.5H $200,000
Operating income 150,000 $1 ÷ §2.4A 62,500
Loss on sale of equipment (40,000) $1 ÷ §2.1H (19,048)
Dividends paid (60,000) $1 ÷ §2.6H (23,077)
Net assets, 12/31/08 § 550,000 $(220,375)
Net assets, 12/31/08 at current

exchange rate § 550,000 $1 ÷ §2.7C 203,704

Translation adjustment , 2008
(negative) $ (16,671)

C 7. Falcon Inc., a US company, owns 100% of Star Corporation, a New Zealand company.
Star's equipment was acquired on the following dates (amounts are stated in New Zealand
dollars):

Jan. 01, 20X1 Purchased equipment for NZ$40,000

Jul. 01, 20X1 Purchased equipment for NZ$80,000

Jan. 01, 20X2 Purchased equipment for NZ$50,000

Jul. 01, 20X2 Sold equipment purchased on Jan. 01, 20X1 for NZ$35,000

Exchange rates for the New Zealand dollar on various dates are:

Jan. 01, 20X1 1NZ$ = $.500 Jan. 01, 20X2 1NZ$ = $.530
Jul. 01, 20X1 1NZ$ = $.520 Jul. 01, 20X2 1NZ$ = $.505
 Dec. 31, 20X1 1NZ$ = $.530 Dec. 31, 20X2 1NZ$ = $.490
20X1 avg. rate 1NZ$ = $.515 20X2 avg. rate 1NZ$ = $.510

Star's equipment has an estimated 5-year life with no salvage value and is depreciated using
the straight-line method. Star's functional currency and reporting currency are the New
Zealand dollar.

What is the value of Starling's equipment account on December 31, 20X2 in US dollars.?

a. $63,200
b. $63,500
c. $63,700
d. $63,600
Solutions:
Equipment:

Jul. 01, 20X1 (NZ$80,000 x $.490/NZ$) = $39,200

Jan. 01, 20X2 (NZ$50,000 x $.490/NZ$) = 24,500

Total $63,700

A 8. What is the depreciation expense Starling's for 20X2 in US dollars.

a. $15,300
b. $15,500
c. $15,600
d. $15,000
Solutions:
Depreciation expense:

{(NZ$40,000 x 1/5 x .5 yr.)x($.510/NZ$)} = $ 2,040

{(NZ$80,000 x 1/5 x 1 yr.)x($.510/NZ$)} = 8,160

{(NZ$50,000 x 1/5 x 1 yr.)x($.510/NZ$)} = 5,100

Total $15,300
D 9. What is the amount of gain or loss from the sale of equipment on July 1, 20X2 in US
dollars?
a. $3,500
b. $3,540
c. $3,590
d. $3,570
Equipment sold NZ$40,000

Accumulated Depreciation on sold equipment 12,000

(NZ$40,000 x 1/5 x 1.5 yr.)

Net book value of equipment sold NZ$28,000

Cash received on July 1, 20X2 35,000

Gain on sale of equipment NZ$ 7,000

Gain in US$:
(NZ$7,000 x $.510/NZ$) = $ 3,570

C 10. On January 1, 2015, Harold Corporation, a US company, acquired 100% of Sem

Corporation of Canada, paying an excess of 90,000 Canadian dollars over the book value
of Sem’s net assets. The excess was allocated to undervalued equipment with a three-year
remaining useful life. Sem’s functional currency is the Canadian dollar. Exchange rates for
Canadian dollars for 2015 are:

January 1, 2015 $.77

Average rate for 2015 .75
December 31, 2015 .73
What is the depreciation expense stated in US dollars on the excess allocated to
equipment for 2015?

a. $22,200
b. $22,550
c. $22,500
d. $21,600
Solutions:
Depreciation expense in 20X5
C$90,000/3 years x $.75/C$ = $22,500 depreciation expense
A 11. What is the unamortized excess allocated to equipment on December 31, 2015?
a. $43,800
b. $43,700
c. $43,900
d. $43,600
Solutions:
Unamortized excess at December 31, 20X5
C$90,000 x 2/3 x $.73/C$ = $43,800 unamortized excess on equipment

D 12. If Sem’s functional currency was the US dollar, what would be the depreciation
expense on the excess allocated to the equipment for 2015?
a. $25,200
b. $25,500
c. $25,100
d. $23,100
Solutions:
Remeasured depreciation expense
C$90,000 x $.77/C$ = $69,300 excess
$69,300/3 years = $23,100 depreciation expense

D 13. Lode Corporation has a foreign subsidiary located in a country experiencing high
rates of inflation. Information concerning this country’s inflation rate experience is given
below.

Change Annual rate

Date Index in index of Inflation
January 1, 2011 90
January 1, 2012 120 30 30/100 = 30.00%
January 1, 2013 150 30 30/130 = 23.08%
January 1, 2014 210 60 60/160 = 37.50%

The inflation rate that is used in determining if the subsidiary is operating in a highly
inflationary economy is
 a. 92.67%
b. 84.54%
c. 130.00%
d. 133.33%
Solutions:
{(210 – 90)/90} x 100% = 133%

A. 14. The following assets of Orio Corporation’s Romanian subsidiary have been converted
into US dollars at the following exchange rates:
Current Historical
Rates Rates

Accounts receivable $ 850,000 $ 875,000

Trademark 600,000 575,000
Property plant and equipment 1,200,000 900,000

Totals $ 2,650,000 $ 2,350,000

If the functional currency of the subsidiary is the US dollar, the assets should be reported
in the consolidated financial statements of Orio Corporation and Subsidiary in the total
amount of
a. $2,325,000
b. $2,350,000
c. $2,375,000
d. $2,650,000
Solutions:
Acc. Rec. $850,000 + Trademark $575,000 + Plant $900,000

C 15. Pean Corporation, a US company, acquired a 30% interest in Selm Corporation of

Switzerland on January 1, 2013 for $3,300,000 when Selm’s stockholders’ equity in Swiss
francs (SF) consisted of 7,000,000 SF Capital Stock and 3,000,000 SF Retained Earnings.
The exchange rate for Swiss francs was $.66 on January 1. All excess purchase cost was
attributed to a trademark that did not have a recorded book value. Pean will amortize the
trademark over 40 years.
A summary of changes in Selm’s stockholders’ equity during 2013 and relevant exchange
rates are as follows:
 In Exchange In
Francs Rates Dollars

Stockholders’ equity
1/1/13 £ 10,000,000 $ .660C $ 6,600,000
Net income 2,500,000 .650A 1,625,000
Dividends 11/1/13 ( 1,000,000 ) .645C ( 645,000 )
Equity adjustment ( 220,000 )
Stockholders’ equity

12/31/13 £ 11,500,000 .64C $ 7,360,000

The Fair value of the trademark from Pean’s investment in Selm on January 1, 2013 is.
a. $2,300,000
b. $2,100,000
c. $2,000,000
d. $2,050,000
Solutions:
Cost of 30% interest $ 3,300,000
Book value acquired 10,000,000 x $.66 x 30% = ( 1,980,000 )
Fair value of trademark in dollars $ 1,320,000

Trademark in $1,320,000/$.66 = 2,000,000

A 16, Trademark amortization for 2013 is.

a. $32,500
b. $32,200
c. $32,400
d. $33,200
Solutions:
Trademark amortization for 20X3

Trademark: 2,000,000/40 yr. x $.65 average rate = $ 32,500

A 17. Unamortized trademark at December 31, 2013 is.

 a. $1,248,000
b. $1,256,000
c. $1,246,000
d. $1,240,000
Solutions:
Unamortized trademark

Trademark (2,000,000 – 50,000SF) x $.64 exchange

rate $ 1,248,000

A 18. Equity adjustment from the trademark is.

a. $39,500
b. $39,100
c. $39,000
d. $39,800
Solutions:
Equity adjustment from trademark

Beginning trademark $ 1,320,000

Trademark amortization ( 32,500 )
Less: Ending trademark (1,950,000 x $.64) ( 1,248,000 )
Equity adjustment $ 39,500

B 19. Income from Selm for 2013 is.

a. $445,200
b. $455,000
c. $455,100
d. $455,600
Solutions:
Income from Selby
Equity in income ($1,625,000 x 30%) $ 487,500
Less: Trademark amortization ( 32,500 )
Income from Selby $ 455,000
D 20. Investment in Selm balance at December 31, 2013 is.

a. $3,450,000
b. $3,455,000
c. $3,445,000
d. $3,456,000
Solutions:
Investment in Sege balance at December 31, 2013

Cost, January 1, 2013 $ 3,300,000

Add: Income from Selby 455,000
Less: Dividends ($645,000 x 30%) ( 193,500 )
Less: Equity adjustment from translation
($220,000 x 30%) ( 66,000 )
Less: Equity adjustment from trademark ( 39,500 )
Investment balance, December 31, 2013 $ 3,456,000

Check:
Share of Selm’s equity $7,360,000 x 30% $ 2,208,000
Add: Unamortized trademark 1,248,000
Investment balance, December 31, 2013 $ 3,456,000

C 21. Peak Corporation, a US company, formed a British subsidiary on January 1, 2015 by

investing £450,000 in exchange for all of the subsidiary’s no-par common stock. The
British subsidiary, Sear Corporation, purchased real property on April 1, 2015 at a cost of
£500,000, with £100,000 allocated to land and £400,000 allocated to a building. The
building is depreciated over a 40-year estimated useful life on a straight-line basis with no
salvage value. The British pound is Sear’s functional currency and its reporting currency.
The British economy does not have high rates of inflation. Exchange rates for the pound
on various dates were:
January 01, 2015 = 1£ = $1.50
April 01, 2015 = 1£ = $1.51
December 31, 2015 = 1£ = $1.58
2015 average rate = 1£ = $1.56
Searle's adjusted trial balance is presented below for the year ended December 31, 2015.
In Pounds
Debits:
Cash £ 220,000
 Accounts receivable 52,000
Inventory 59,000
Building 400,000
Land 100,000
Depreciation expense 7,500
Other expenses 110,000
Cost of good sold 220,000
Total debits £ 1,168,500

Credits
Accumulated depreciation £ 7,500
Accounts payable 111,000
Common stock 450,000
Retained earnings 0
Equity adjustment 0
Sales revenue 600,000
Total credits £ 1,168,500

C In Translation Working Papers, the total debits of Sear’s Corporation is.

a. $1,840,320
b. $1,839,450
c. $1,839,480
d. $1,849,450
A 22. In Translation Working Papers, the total credits of Sear’s Corporation is.
a. $1,798,230
b. $1,798,340
c. $1,797,260
d. $1,798,560

A 23. The credit differential of Sear’s Corporation is.

a. $41,250
b. $41,500
c. $41,000
d. $41,400
Solutions (for nos. 21, 22, and 23):
Sear Corporation
Translation Working Papers

Debits
Cash 220,000 x $1.58 = $ 347,600
 Accounts receivable 52,000 x $1.58 = 82,160
Inventory 59,000 x $1.58 = 93,220
Building 400,000 x $1.58 = 632,000
Land 100,000 x $1.58 = 158,000
Depreciation expense 7,500 x $1.56 = 11,700
Other expenses 110,000 x $1.56 = 171,600
Cost of goods sold 220,000 x $1.56 = 343,200

20.Total debits $ 1,839,480

Credits
Accumulated depreciation 7,500 x $1.58 = $ 11,850
Accounts payable 111,000 x $1.58 = 175,380
Common stock 450,000 x $1.50 = 675,000
Sales revenue 600,000 x $1.56 = 936,000
Retained earnings 0
21.Total credits $ 1,798,230

22.Credit differential $ 41,250

B 24. The Net Income of Sear’s Corporation is.

a. $410,500
b. $409,500
c. $408,500
d. $409,000
Solutions:
Sear Corporation
Translated Income Statement
For the Year Ended December 31, 20X5

Sales revenue $ 936,000

Expenses:
Cost of goods sold ( 343,200 )
Depreciation expense ( 11,700 )
Other expenses ( 171,600 )

Net income $ 409,500

C 25. The Total Assets of Sear’s Corporation is.

a. $1,302,150
b. $1,301,220
 c. $1,301,130
d. $1,302,300
Solutions:
Sear Corporation
Translated Balance Sheet
December 31, 20X5

Cash $ 347,600

Accounts receivable 82,160

Inventory 93,220

Building-net 620,150

Land 158,000

Total assets $ 1,301,130

A 26. On January 1, 2008, Fan Corp. started a foreign subsidiary. On April 1, 2010, the
subsidiary purchased inventory costing 150,000 stickles. One-fourth of this inventory
remained unsold at the end of 2010 while 40% of the liability from the purchase had not
yet been paid. The pertinent exchange rates were:
January 1, 2010 $1 = §3.0
April 1, 2010 $1 = §3.4
Average for 2010 $1 = §3.2
December 31, 2010$1 = §3.6

The December 31, 2010 inventory balance for this foreign subsidiary as translated into
U.S. dollars? (Round your answers to the nearest whole dollar.)

a. $10,417
b. $10,353
c. $10.552
d. $10,445
Solutions:
Inventory (§150,000 x ¼ x (1 ÷ 3.6)) = $ 10,417

D 27. The December 31, 2008 accounts payable balance for this foreign subsidiary as
translated into U.S. dollars? (Round your answers to the nearest whole dollar.)
 a. $15,533
b. $15,667
c. $17,333
d. $16,667
Solutions:
Accounts payable (§150,000 x 40% x (1 ÷ 3.6)) = $16,667
C 28. Kent Company acquired all of the outstanding common stock of Haste Company of
Canada for U.S. $350,000 on January 1, 2013, when the exchange rate for the Canadian
dollar (CAD) was U.S. $.70. The fair value of the net assets of Haste was equal to their
book value of CAD 450,000 on the date of acquisition. Any acquisition consideration
excess over fair value was attributed to an unrecorded patent with a remaining life of five
years. The functional currency of Haste is the Canadian dollar.

For the year ended December 31, 2013, Haste's trial balance net income was translated at
U.S. $25,000. The average exchange rate for the Canadian dollar during 2013 was U.S.
$.68, and the 2013 year-end exchange rate was U.S. $.65.

Amortization of the patent, translated, for 2013 would be.

a. $7,200
b. $5,900
c. $6,800
d. $10,000
Solutions:

Patent Value $35,000/$.70 = Patent Value C$50,000/5 yrs = C$10,000 per year × $.68 = $6,800
Translated

C 29. Certain balance sheet accounts of a foreign subsidiary of Park Company at December
31, 2013, have been restated into U.S. dollars as follows:
Restarted at
Current Rates Historical Rates
Cash $47,500 $45,000
Accounts Recievable 95,000 90,000
Inventory, at market 76,000 72,000
Land 57,000 54,000
Equipment(net) 142,500 135,000
Total $418,000 $396,000

Assuming the functional currency of the subsidiary is the local currency, what total
should be included in Park's consolidated balance sheet at December 31, 2013, for the
 above items?

a. $396,000
b. $171,000
c. $418,000
d. $277,500
Solutions:

If LC is the Functional Currency, Current Rates Used for All Items = $418,000

D 30. Certain balance sheet accounts of a foreign subsidiary of Park Company at December
31, 2013, have been restated into U.S. dollars as follows:

Restarted at
Current Rates Historical Rates
Cash $47,500 $45,000
Accounts Recievable 95,000 90,000
Inventory, at market 76,000 72,000
Land 57,000 54,000
Equipment(net) 142,500 135,000
Total $418,000 $396,000

If the current rate used to restate these amounts is $.95, what was the average historical
rate used to arrive at the total amount for historical rates?

a. $1.00
b. $0.75
c. $0.80
d. $0.90
Solutions:

$418,000/$.95 = $440,000; $396,000/$440,000 = $.90

A 31. Dart Co. was formed on January 1, 2013 as a wholly owned foreign subsidiary of a
U.S. corporation. Dart's functional currency was the stickle (§). The following
transactions and events occurred during 2013:
Jan 1 Dart issued common stock for §1,000,000
June 30 Dart paid dividends of §20,000
Dec. 31 Dart reported net income of §80,000 for the year
Exchange rates for 2013 were:
Jan 1 $1 = §.48
June 30 $1 = §.46
 Dec. 31 $1 = §.42
Weighted average rate for the year $1 = §.44

What was the amount of the translation adjustment for 2013?

a. $60,800 decrease in relative value of net assets.
b. $61,900 decrease in relative value of net assets.
c. $60,500 decrease in relative value of net assets.
d. $61,400 decrease in relative value of net assets.

Solutions:

[§1,000,000 × [$.42 - $.48] ($.06) = ($60,000)] + [§20,000 × [$.42 - $.46] ($.04)] = ($800) =
($60,800) Loss in Relative Asset Value

B 32. Certain balance sheet accounts of a foreign subsidiary of the Tup Co. had been stated
in U.S. dollars as follows:
Stated at
Current Rates Historical Rates
Accounts Receivables -
$280,000 $308,000
Current
Accounts Receivables – long-
140,000 154,000
Term
Prepaid Insurance 70,000 77,000
Goodwill 112,000 119,000
Totals $602,000 $658,000

If the subsidiary's local currency is its functional currency, what total amount should be
included in Tup's balance sheet in U.S. dollars?
a. $609,000
b. $602,000
c. $625,100
d. $658,000
Solutions:

If LC is the Functional Currency, Current Rates Used for All Items = $602,000

A. 33. A subsidiary of Pard Inc., a U.S. company, was located in a foreign country. The
functional currency of this subsidiary was the Stickle (§), the local currency where the
subsidiary is located. The subsidiary acquired inventory on credit on November 1, 2012,
for §120,000 that was sold on January 17, 2013 for §156,000. The subsidiary paid for the
inventory on January 31, 2013. Currency exchange rates between the dollar and the
 Stickle were as follows:

November 1, 2012 $.19 = §1

December 31, 2012 $.20 = §1
January 1, 2013 $.22 = §1
January 31, 2013 $.23 = §1
Average for 2013 $.24 = §1

What amount would have been reported for cost of goods sold on Parn's consolidated
income statement at December 31, 2013?
a. $28,800
b. $27,600
c. $26,000
d. $29,100
Solutions:

§120,000 × $.24 = $28,800

A 34. On January 1, 2014, Peam Corporation, a US firm, acquired a 70% interest in Sege
Corporation, a foreign company, for $120,000, when Sege’s stockholders’ equity consisted
of 300,000 local currency units (LCU) and retained earnings of 100,000 LCU. At the time
of the acquisition, Sege’s assets and liabilities were fairly valued except for a patent that
did not have any recorded book value. All excess purchase cost was attributed to the patent,
which had an estimated economic life of 10 years at the date of acquisition. The exchange
rate for LCUs on January 1, 20X4 was $.40.

A summary of changes in Sege’s stockholders’ equity during 2014 and the exchange
rates for LCUs is as follows:
LCU Rates Dollars
Stockholders’ equity
1/1/14 400,000 $ .40C $ 160,000
Net income 100,000 .42A 42,000
Dividends 12/1/14 ( 50,000 ) .43C ( 21,500 )
Equity adjustment 17,500
Stockholders’ equity
12/31/14 450,000 .44C $ 198,000

The Fair value of the patent from Peam’s investment in Sege on January 1, 2014 is.
 a. 20,000
b. 21,000
c. 22,000
d. 19,000
Solutions:
Patent Fair Value

Cost of 70% interest $ 120,000

Book value acquired 400,000 LCU x $.40 x 70% = ( 112,000 )
Patent in dollars $ 8,000

Patent in LCU = $8,000/$.40 per LCU = 20,000

C 35. What is the Patent amortization for 2014?

a. $880
b. $875
c. $840
d. $810
Solutions:
Patent amortization for 2014

Patent: 20,000 LCU/10 years = 2,000 LCU per year

2,000 LCU per year x $.42 equals amortization of: $ 840

A 36. Unamortized patent at December 31, 2014 is.

a. $7,920
b. $7,500
c. $7,160
d. $7,800
Solutions:
Unamortized patent

Patent (20,000 LCU – 2,000 LCU) x $.44 = $ 7,920

A 37. Equity adjustment from the patent is.

a. $760
b. $780
c. $775
d. $720
 Solutions:
Equity adjustment from patent

Beginning patent (from Req. 1) $ 8,000

Patent amortization (from Req. 2) ( 840
Subtotal 7,160
Ending goodwill 18,000 LCU x $.44 = 7,920
Equity adjustment $ 760

D 38. Income from Sege for 2014 is

a. $27,100
b. $29,280
c. $28,500
d. $28,560
Solutions:
Income from Sege
Equity in income ($42,000 x 70%) $ 29,400
Less: Patent amortization ( 840
Income from Sege $ 28,560

A 39. Investment in Sege balance at December 31, 2014.

a. $146,520
b. $145,500
c. $146,930
d. $145,700
Solutions:
Investment in Sege balance at December 31, 20X4

Cost, January 1, 2014 $ 120,000

Add: Income for 2014 (from Req. 5) 28,560
Less: Dividends ($21,500 x 70%) ( 15,050
Add: Equity adjustment from patent (from Req. 4) 760
Add: Equity adjustment from translation
($17,500 x 70%) 12,250
Investment balance, December 31, 2014 $ 146,520

Check:
Book value: $198,000 x 70% = $ 138,600
Unamortized patent (from Req. 3) 7,920
Investment balance $ 146,520
D 40. A U.S. company's foreign subsidiary had the following amounts in stickles (§), the
functional currency, in 2013:

Cost of Goods Sold §12,000,000

Ending Inventory 600,000
Beginning Inventory 240,000

The average exchange rate during 2013 was §1 = $.96. The beginning inventory was
acquired when the exchange rate was §1 = $1.20. The ending inventory was acquired when
the exchange rate was §1 = $.90. The exchange rate at December 31, 2013 was §1 = $.84.
Assuming that the foreign nation for the subsidiary had a highly inflationary economy, at
what amount should that foreign subsidiary's purchases have been reflected in the 2013 U.S.
dollar income statement?
a. $11,880,000
b. $11,751,600
c. $11,613,200
d. $11,865,600
Solutions:

Beginning Inventory §240,000 - COGS §12,000,000 - Ending Inventory §600,000 = Purchases

§12,360,000 × $.96 = $11,865,600

B 41. Estan is an Italian subsidiary of a U.S. company. Estan's ending inventory is valued at
the average cost for the last quarter of the year.
The following account balances are available for Estan for 2013:
Beginning Inventory €20,000
Purchases €400,000
Ending Inventory €15,000
Relevant exchange rates follow:
4th quarter average 2012 €1 = $.93
December 31, 2012 €1 = $.94
Average for 2013 €1 = $.96
4th quarter average,2013 €1 = $.99
December 31, 2013 €1 = $1.01

Compute the cost of goods sold for 2013 in U.S. dollars using the temporal method.
a. $385,400
b. $387,750
c. $387,100
d. $388,170
Solutions:
 Begin Inventory (€20,000 × $.93 = $18,600) + Purchases (€400,000 × $.96 = $384,000) - End
Inventory (€15,000 × $.99 = $14,850) = COGS $387,750

D 42. Estan is an Italian subsidiary of a U.S. company. Estan's ending inventory is valued at
the average cost for the last quarter of the year.
The following account balances are available for Estan for 2013:

Beginning Inventory €20,000

Purchases €400,000
Ending Inventory €15,000
Relevant exchange rates follow:
4th quarter average 2012 €1 = $.93
December 31, 2012 €1 = $.94
Average for 2013 €1 = $.96
4th quarter average,2013 €1 = $.99
December 31, 2013 €1 = $1.01

Compute the cost of goods sold for 2013 in U.S. dollars using the current rate method.
a. $388,960
b. $388,150
c. $388,500
d. $388,800
Solutions:

€405,000 × $.96 = $388,800

A 43. Estan is an Italian subsidiary of a U.S. company. Estan's ending inventory is valued at
the average cost for the last quarter of the year.
The following account balances are available for Estan for 2013:

Beginning Inventory €20,000

Purchases €400,000
Ending Inventory €15,000
Relevant exchange rates follow:
4th quarter average 2012 €1 = $.93
December 31, 2012 €1 = $.94
Average for 2013 €1 = $.96
4th quarter average,2013 €1 = $.99
December 31, 2013 €1 = $1.01

Compute the ending inventory for 2013 in U.S. dollars using the current rate method.
a. $15,150
b. $15,500
 c. $14,100
d. $14,850

Solutions:

€15,000 × $1.01 = $15,150

A 44. Using the problem above, Compute the ending inventory for 2013 in U.S. dollars
using the temporal method.
a. $14,850
b. $14,500
c. $14,110
d. $14,900
Solutions:

€15,000 × $.99 = $14,850

A. 45. Perz Company, a Mexican subsidiary of a U.S. company, sold equipment costing
200,000 pesos with accumulated depreciation of 75,000 pesos for 140,000 pesos on
March 1, 2013. The equipment was purchased on January 1, 2012. Relevant exchange
rates for the peso are as follows:

Jan 1, 2012 $.110

March 1, 2013 .106
December 31, .102
2013
Average, 2013 .105

The financial statements for Perz are remeasured by its U.S. parent. What amount of gain
or loss would be reported in its translated income statement?

a. $1,090
b. $1,500
c. $1,100
d. $1,000
Solutions:
[Sales Price MNP 140,000 × .106 = $14,840] - [BV as Historical Cost MNP 200,000 -
Acc. Deprec. MNP 75,000 = MNP 125,000 × .110 = $13,750] = $1,090 Gain
D. 46. Certain balance sheet accounts of a foreign subsidiary of Parm Company at December
31, 2013, have been restated into U.S. dollars as follows:

Restarted at
Current Rates Historical Rates
Cash $47,500 $45,000
Accounts Recievable 95,000 90,000
Inventory, at market 76,000 72,000
Land 57,000 54,000
Equipment(net) 142,500 135,000
Total $418,000 $396,000

Assuming the functional currency of the subsidiary is the U.S. dollar, what total should
be included in Parm's consolidated balance sheet at December 31, 2013, for the above
items?

a. $410,000
b. $418,000
c. $396,000
d. $407,500
Solutions:
If the Dollar is the Functional Currency, Current Rates Used for All Items except PP&E
at their Historical Values ($47,500 + $95,000 + $76,000 + $54,000 + $135,000) =
$407,500
D. 47. The Pear Corporation, a US corporation, formed a British subsidiary on January 1,
20X7 by investing £550,000 in exchange for all of the subsidiary’s no-par common stock.
The British subsidiary, Seak Corporation, purchased real property on April 1, 20X7 at a
cost of £500,000, with £100,000 allocated to land and £400,000 allocated to the building.
The building is depreciated over a 40-year estimated useful life on a straight-line basis with
no salvage value. The US dollar is Seak’s functional currency, but it keeps its records in
pounds. The British economy does not experience high rates of inflation. Exchange rates
for the pound on various dates are:
January 01, 20X7 = 1£ = $1.40
April 01, 20X7 = 1£ = $1.42
December 31, 20X7 = 1£ = $1.45
20X7 average rate = 1£ = $1.44
Seakam's adjusted trial balance is presented below for the year ended December 31,
20X7.
In Pounds
Debits:
Cash £ 200,000
 Accounts receivable 72,000
Notes receivable 99,000
Building 400,000
Land 100,000
Depreciation expense 7,500
Other expenses 115,000
Salary expense 208,000
Total debits £ 1,201,500

Credits
Accumulated depreciation £ 7,500
Accounts payable 100,000
Common stock 550,000
Retained earnings 0
Equity adjustment 0
Sales revenue 544,000
Total credits £ 1,201,500

Using the temporal method, the total debits of Seak’s Corporation is:
a. $1,723,500
b. $1,722,700
c. $1,721,150
d. $1,723,720
C. 48. Using the temporal method, the total Credits of Seak’s Corporation is:
a. $1,708,810
b. $1,710,070
c. $1,709,010
d. $1,709,070

A. 49. Using the temporal method, the credit differentials of Seak’s Corporation is:
a. $14,710
b. $14,500
c. $15,100
d. $15,050
Solutions (For nos. 47, 48, and 49)
Seak Corporation
Translation Working Papers
 Debits
Cash 200,000 x $1.45 = $ 290,000
Accounts receivable 72,000 x $1.45 = 104,400
Notes receivable 99,000 x $1.45 = 143,550
Building 400,000 x $1.42 = 568,000
Land 100,000 x $1.42 = 142,000
Depreciation expense 7,500 x $1.42 = 10,650
Other expenses 115,000 x $1.44 = 165,600
Salary expense 208,000 x $1.44 = 299,520

47. Total debits $ 1,723,720

Credits
Accumulated depreciation 7,500 x $1.42 = $ 10,650
Accounts payable 100,000 x $1.45 = 145,000
Common stock 550,000 x $1.40 = 770,000
Sales revenue 544,000 x $1.44 = 783,360
Retained earnings 0 0
48. Total credits $ 1,709,010

49. Credit differential $ 14,710

B. 50. The Net Income of Seak’s Corporation is.

a. $325,200
b. $322,300
c. $322,100
d. $322,400
Solutions:
Seak Corporation
Translated Income Statement
For the Year Ended December 31, 2017

Sales revenue $ 783,360

Expenses:
Salary expense ( 299,520 )
Depreciation expense ( 10,650 )
Other expenses ( 165,600 )
Income before exchange gains or losses $ 307,590
Exchange gains 14,710
Net income $ 322,300
Retained earnings, January 1, 20X7 0
Retained earnings, December 31, 20X7 $ 322,300