Deck 11: Translation and Consolidation of Foreign Operations

Question 1

The exposure resulting from the translation of foreign-currency-denominated financial statements into Canadian dollars is referred to as:

A) translation (accounting) exposure.
B) transaction exposure.
C) economic exposure.
D) business risk exposure.

Answer 1

A

Question 2

Which of the following statements is correct?

A) If the functional currency of the foreign operation is different than the parent's functional currency, depreciation and amortization must be translated using closing rates.
B) If the functional currency of the foreign operation is different than the parent's functional currency, depreciation and amortization are translated using average rates.
C) If the functional currency of the foreign operation is different than the parent's functional currency, depreciation and amortization must be translated using historical rates.
D) If the functional currency of the foreign operation is the same as the parent's functional currency, depreciation and amortization must be translated using closing rates.

Answer 2

B

Question 3

Which of the following statements is correct?

A) If the functional currency of the foreign operation is different than the parent's functional currency, the non-monetary items recorded at closing values must be translated using closing rates.
B) If the functional currency of the foreign operation is different than the parent's functional currency, the non-monetary items recorded at closing values must be translated using average rates.
C) If the functional currency of the foreign operation is different than the parent's functional currency, the non-monetary items recorded at closing values must be translated using historical rates.
D) If the functional currency of the foreign operation is the same as the parent's functional currency, the non-monetary items recorded at closing values must be translated using average rates.

Answer 3

A

Question 4

Which of the following statements is correct?

A) If the functional currency of the foreign operation is different than the parent's functional currency, the contributed capital must be translated using closing rates.
B) If the functional currency of the foreign operation is different than the parent's functional currency, the contributed capital must be translated using average rates.
C) If the functional currency of the foreign operation is different than the parent's functional currency, the contributed capital must be translated using historical rates.
D) If the functional currency of the foreign operation is the same as the parent's functional currency, the contributed capital must be translated using average rates.

Question 5

If the functional currency of the foreign operation is the same as the parent's functional currency, which of the following statements is correct?

A) The foreign operation's financial statements are translated using the functional currency translation (FCT) method.
B) The foreign operation's financial statements are translated using the presentation currency translation (PCT) method.
C) The foreign operation is classified as a foreign affiliate.
D) The investment in the foreign operation is classified as a non-monetary asset.

Question 6

Which of the following statements is correct?

A) If the functional currency of the foreign operation is different than the parent's functional currency, the non-monetary items recorded at cost must be translated using historical rates.
B) If the functional currency of the foreign operation is different than the parent's functional currency, the non-monetary items recorded at cost must be translated using average rates.
C) If the functional currency of the foreign operation is different than the parent's functional currency, the non-monetary items recorded at cost must be translated using closing rates.
D) If the functional currency of the foreign operation is the same as the parent's functional currency, the non-monetary items recorded at cost must be translated using closing rates.

Question 7

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: $\begin{array}{|l|r|r|}\hline \text { Tanuary } 1,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.815 \\\hline \text { December } 31,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.8175 \\\hline \text { Average for } 2020: & \text { US } \$ 1= & \text { CDN } \$ 0.825 \\\hline \begin{array}{l}\text { Date of Purchase of Inventory on } \\\text { Hand: }\end{array} & \text { US } \$ 1= & \text { CDN } \$ 0.83 \\\hline \text { Date Dividends were declared: } & \text { US } \$ 1= & \text { CDN } \$ 0.8125\\\hline\end{array}$ US1 financial results for 2020 were as follows:
US1 Financial Statements
At December 31, 2020
(in U.S. dollars)
$\begin{array}{|l|r|}\hline \text { Income Statement: } & \\\hline \text { Sales } & \$ 5,000,000 \\\hline \text { Cost of Sales } & \$ 3,500,000 \\\hline \text { Depreciation Expense } & \$ 150,000 \\\hline \text { Bond Interest Expense } & \$ 100,000 \\\hline \text { Other Expense } & \$ 750,000 \\\hline \text { Net Income } & \$ 500,000 \\\hline \text { Statement of Retained Earnings: } & \\\hline \text { January 1, 2020: } & \$ 400,000 \\\hline \text { Net Income } &\$ 500,000 \\\hline \text { Dividends } & \$ 100,000) \\\hline \text { December } 31,2020: & \$ 800,000 \\\hline \text { Balance Sheet } & \\\hline \text { Cash } &\$ 1,200,000 \\\hline \text { Accounts Receivable } & \$ 1,900,000 \\\hline \text { Inventory } & \$ 700,000(\$ 500,000 \text { January 1, 2020) } \\\hline \text { Plant and Equipment (net) } & \$ 400,000 \\\hline \text { Current Liabilities } & \$ 4,200,000 \\\hline \text { Bonds Payable } & \$ 2,000,000 \\\hline \text { Common Shares } & \$ 1,000,000 \\\hline \text { Retained Earnings } & \$ 800,000 \\\hline & \$ 4,200,000 \\\hline\end{array}$ Sales, purchases, bond interest, and other expenses occurred evenly throughout the year.
US1 is considered to be a foreign subsidiary that has a different functional currency than ABC Inc.'s functional currency.
Which of the following rates would be used to translate the company's Dividends paid during the year?

A) US$1 = CDN$0.815
B) US$1 = CDN$0.8125
C) US$1 = CDN$0.825
D) US$1 = CDN$0.83

Question 8

Which of the following statements is correct with respect to the translation of cost of sales in a foreign operation where the functional currency of the foreign operation is the same as the parent's functional currency?

A) Opening inventory is translated using an average rate.
B) Opening inventory is translated using closing rates.
C) Ending inventory is translated using an average rate.
D) Ending inventory is translated using the rate in effect when the inventory was acquired.

Question 9

What exposure exists when the present value of future cash flows change as a result of changes in exchange rates?

A) Translation (accounting) exposure
B) Transaction exposure
C) Economic exposure
D) Business risk exposure

Question 10

Which of the following statements is correct?

A) If the functional currency of the foreign operation is different than the parent's functional currency, the monetary items must be translated using closing rates.
B) If the functional currency of the foreign operation is different than the parent's functional currency, the monetary items must be translated using average rates.
C) If the functional currency of the foreign operation is different than the parent's functional currency, the shareholders' equity must be translated using closing rates.
D) If the functional currency of the foreign operation is the same as the parent's functional currency, the non-monetary items recorded at cost must be translated using average rates.

Question 11

Under the presentation currency translation (PCT) method, which of the following statements is correct?

A) Transaction exposure is greatest.
B) The relationship of balance sheet items is best preserved.
C) Income statement items are translated using a mix of rates.
D) Income statement items are translated using average rates.

Question 12

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: $\begin{array}{|l|r|r|}\hline \text { Tanuary } 1,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.815 \\\hline \text { December } 31,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.8175 \\\hline \text { Average for } 2020: & \text { US } \$ 1= & \text { CDN } \$ 0.825 \\\hline \begin{array}{l}\text { Date of Purchase of Inventory on } \\\text { Hand: }\end{array} & \text { US } \$ 1= & \text { CDN } \$ 0.83 \\\hline \text { Date Dividends were declared: } & \text { US } \$ 1= & \text { CDN } \$ 0.8125\\\hline\end{array}$ US1 financial results for 2020 were as follows:
US1 Financial Statements
At December 31, 2020
(in U.S. dollars)
$\begin{array}{|l|r|}\hline \text { Income Statement: } & \\\hline \text { Sales } & \$ 5,000,000 \\\hline \text { Cost of Sales } & \$ 3,500,000 \\\hline \text { Depreciation Expense } & \$ 150,000 \\\hline \text { Bond Interest Expense } & \$ 100,000 \\\hline \text { Other Expense } & \$ 750,000 \\\hline \text { Net Income } & \$ 500,000 \\\hline \text { Statement of Retained Earnings: } & \\\hline \text { January 1, 2020: } & \$ 400,000 \\\hline \text { Net Income } &\$ 500,000 \\\hline \text { Dividends } & \$ 100,000) \\\hline \text { December } 31,2020: & \$ 800,000 \\\hline \text { Balance Sheet } & \\\hline \text { Cash } &\$ 1,200,000 \\\hline \text { Accounts Receivable } & \$ 1,900,000 \\\hline \text { Inventory } & \$ 700,000(\$ 500,000 \text { January 1, 2020) } \\\hline \text { Plant and Equipment (net) } & \$ 400,000 \\\hline \text { Current Liabilities } & \$ 4,200,000 \\\hline \text { Bonds Payable } & \$ 2,000,000 \\\hline \text { Common Shares } & \$ 1,000,000 \\\hline \text { Retained Earnings } & \$ 800,000 \\\hline & \$ 4,200,000 \\\hline\end{array}$ Sales, purchases, bond interest, and other expenses occurred evenly throughout the year.
US1 is considered to be a foreign subsidiary that has a different functional currency than ABC Inc.'s functional currency.
Which of the following rates would be used to translate the company's Retained Earnings at the start of the year?

A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D) US$1 = CDN$0.83

Question 13

Under the functional currency translation (FCT) method, which of the following statements is correct?

A) The relationship of balance sheet items is best preserved.
B) A single historic rate is used to translate all income statement items.
C) A net asset exposure is most likely.
D) Historic rates are used to translate most non-monetary items.

Question 14

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: $\begin{array}{|l|l|r|}\hline \text { January } 1,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.815 \\\hline \text { December } 31,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.8175 \\\hline \text { Average for } 2020: & \text { US } \$ 1= & \text { CDN } \$ 0.825 \\\hline \text { Date of Purchase of Inventory on Hand: } & \text { US } \$ 1= & \text { CDN } \$ 0.83 \\\hline \text { Date Dividends were declared: } & \text { US } \$ 1= & \text { CDN } \$ 0.8125\\\hline\end{array}$ US1 financial results for 2020 were as follows:
US1 Financial Statements
At December 31, 2020
(in U.S. dollars)
$\begin{array}{|l|r|}\hline \text { Income Statement: } & \\\hline \text { Sales } & \$ 5,000,000 \\\hline \text { Cost of Sales } & \$ 3,500,000 \\\hline \text { Depreciation Expense } & \$ 150,000 \\\hline \text { Bond Interest Expense } & \$ 100,000 \\\hline \text { Other Expense } & \$ 750,000 \\\hline \text { Net Income } & \$ 500,000 \\\hline \text { Statement of Retained Earnings: } & \\\hline \text { January 1, 2020: } & \$ 400,000 \\\hline \text { Net Income } &\$ 500,000 \\\hline \text { Dividends } & \$ 100,000) \\\hline \text { December } 31,2020: & \$ 800,000 \\\hline \text { Balance Sheet } & \\\hline \text { Cash } &\$ 1,200,000 \\\hline \text { Accounts Receivable } & \$ 1,900,000 \\\hline \text { Inventory } & \$ 700,000(\$ 500,000 \text { January 1, 2020) } \\\hline \text { Plant and Equipment (net) } & \$ 400,000 \\\hline \text { Current Liabilities } & \$ 4,200,000 \\\hline \text { Bonds Payable } & \$ 2,000,000 \\\hline \text { Common Shares } & \$ 1,000,000 \\\hline \text { Retained Earnings } & \$ 800,000 \\\hline & \$ 4,200,000 \\\hline\end{array}$ Sales, purchases, bond interest, and other expenses occurred evenly throughout the year.
US1 is considered to be a foreign subsidiary that has a different functional currency than ABC Inc.'s functional currency.
Which of the following rates would be used to translate US1's income statement items?

A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D) US$1 = CDN$0.83

Question 15

If the functional currency of a foreign operation is different than the parent's, functional currency, how are exchange gains and losses to be reported?

A) As part of other comprehensive income.
B) In an exchange account.
C) As part of the non-controlling interest.
D) As part of the acquisition differential amortization.

Question 16

Under the presentation currency translation (PCT) method, which of the following statements is correct?

A) All balance sheet items excluding shareholders equity are translated using the closing rate in effect at the balance sheet date.
B) All balance sheet items are translated using the closing rate in effect at the balance sheet date.
C) All balance sheet items are translated using the average rate in effect throughout the year.
D) Only non-current balance sheet items are translated using the closing rate in effect at the balance sheet date.

Question 17

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: $\begin{array}{|l|r|r|}\hline \text { Tanuary } 1,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.815 \\\hline \text { December } 31,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.8175 \\\hline \text { Average for } 2020: & \text { US } \$ 1= & \text { CDN } \$ 0.825 \\\hline \begin{array}{l}\text { Date of Purchase of Inventory on } \\\text { Hand: }\end{array} & \text { US } \$ 1= & \text { CDN } \$ 0.83 \\\hline \text { Date Dividends were declared: } & \text { US } \$ 1= & \text { CDN } \$ 0.8125\\\hline\end{array}$ US1 financial results for 2020 were as follows:
US1 Financial Statements
At December 31, 2020
(in U.S. dollars)
$\begin{array}{|l|r|}\hline \text { Income Statement: } & \\\hline \text { Sales } & \$ 5,000,000 \\\hline \text { Cost of Sales } & \$ 3,500,000 \\\hline \text { Depreciation Expense } & \$ 150,000 \\\hline \text { Bond Interest Expense } & \$ 100,000 \\\hline \text { Other Expense } & \$ 750,000 \\\hline \text { Net Income } & \$ 500,000 \\\hline \text { Statement of Retained Earnings: } & \\\hline \text { January 1, 2020: } & \$ 400,000 \\\hline \text { Net Income } &\$ 500,000 \\\hline \text { Dividends } & \$ 100,000) \\\hline \text { December } 31,2020: & \$ 800,000 \\\hline \text { Balance Sheet } & \\\hline \text { Cash } &\$ 1,200,000 \\\hline \text { Accounts Receivable } & \$ 1,900,000 \\\hline \text { Inventory } & \$ 700,000(\$ 500,000 \text { January 1, 2020) } \\\hline \text { Plant and Equipment (net) } & \$ 400,000 \\\hline \text { Current Liabilities } & \$ 4,200,000 \\\hline \text { Bonds Payable } & \$ 2,000,000 \\\hline \text { Common Shares } & \$ 1,000,000 \\\hline \text { Retained Earnings } & \$ 800,000 \\\hline & \$ 4,200,000 \\\hline\end{array}$ Sales, purchases, bond interest, and other expenses occurred evenly throughout the year.
US1 is considered to be a foreign subsidiary that has a different functional currency than ABC Inc.'s functional currency.
Which of the following rates would be used to translate the company's Assets and Liabilities?

A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D) US$1 = CDN$0.83

Question 18

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: $\begin{array}{|l|r|r|}\hline \text { Tanuary } 1,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.815 \\\hline \text { December } 31,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.8175 \\\hline \text { Average for } 2020: & \text { US } \$ 1= & \text { CDN } \$ 0.825 \\\hline \begin{array}{l}\text { Date of Purchase of Inventory on } \\\text { Hand: }\end{array} & \text { US } \$ 1= & \text { CDN } \$ 0.83 \\\hline \text { Date Dividends were declared: } & \text { US } \$ 1= & \text { CDN } \$ 0.8125\\\hline\end{array}$ US1 financial results for 2020 were as follows:
US1 Financial Statements
At December 31, 2020
(in U.S. dollars)
$\begin{array}{|l|r|}\hline \text { Income Statement: } & \\\hline \text { Sales } & \$ 5,000,000 \\\hline \text { Cost of Sales } & \$ 3,500,000 \\\hline \text { Depreciation Expense } & \$ 150,000 \\\hline \text { Bond Interest Expense } & \$ 100,000 \\\hline \text { Other Expense } & \$ 750,000 \\\hline \text { Net Income } & \$ 500,000 \\\hline \text { Statement of Retained Earnings: } & \\\hline \text { January 1, 2020: } & \$ 400,000 \\\hline \text { Net Income } &\$ 500,000 \\\hline \text { Dividends } & \$ 100,000) \\\hline \text { December } 31,2020: & \$ 800,000 \\\hline \text { Balance Sheet } & \\\hline \text { Cash } &\$ 1,200,000 \\\hline \text { Accounts Receivable } & \$ 1,900,000 \\\hline \text { Inventory } & \$ 700,000(\$ 500,000 \text { January 1, 2020) } \\\hline \text { Plant and Equipment (net) } & \$ 400,000 \\\hline \text { Current Liabilities } & \$ 4,200,000 \\\hline \text { Bonds Payable } & \$ 2,000,000 \\\hline \text { Common Shares } & \$ 1,000,000 \\\hline \text { Retained Earnings } & \$ 800,000 \\\hline & \$ 4,200,000 \\\hline\end{array}$ Sales, purchases, bond interest, and other expenses occurred evenly throughout the year.
US1 is considered to be a foreign subsidiary that has a different functional currency than ABC Inc.'s functional currency.
Which of the following rates would be used to translate the company's Common Shares?

A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D) US$1 = CDN$0.83

Question 19

Which of the following statements is correct?

A) If the functional currency of the foreign operation is different than the parent's functional currency, dividends must be translated using closing rates.
B) If the functional currency of the foreign operation is different than the parent's functional currency, dividends must be translated using average rates.
C) If the functional currency of the foreign operation is different than the parent's functional currency, dividends must be translated using historical rates.
D) If the functional currency of the foreign operation is the same as the parent's functional currency, dividends must be translated using average rates.

Question 20

The risk exposure that occurs between the time of entering into a transaction and the time of settling it is referred to as:

A) translation (accounting) exposure.
B) transaction exposure.
C) economic exposure.
D) business risk.

Question 21

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: $\begin{array}{|l|r|r|}\hline \text { Tanuary } 1,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.815 \\\hline \text { December } 31,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.8175 \\\hline \text { Average for } 2020: & \text { US } \$ 1= & \text { CDN } \$ 0.825 \\\hline \begin{array}{l}\text { Date of Purchase of Inventory on } \\\text { Hand: }\end{array} & \text { US } \$ 1= & \text { CDN } \$ 0.83 \\\hline \text { Date Dividends were declared: } & \text { US } \$ 1= & \text { CDN } \$ 0.8125\\\hline\end{array}$ US1 financial results for 2020 were as follows:
US1 Financial Statements
At December 31, 2020
(in U.S. dollars)
$\begin{array}{|l|r|}\hline \text { Income Statement: } & \\\hline \text { Sales } & \$ 5,000,000 \\\hline \text { Cost of Sales } & \$ 3,500,000 \\\hline \text { Depreciation Expense } & \$ 150,000 \\\hline \text { Bond Interest Expense } & \$ 100,000 \\\hline \text { Other Expense } & \$ 750,000 \\\hline \text { Net Income } & \$ 500,000 \\\hline \text { Statement of Retained Earnings: } & \\\hline \text { January 1, 2020: } & \$ 400,000 \\\hline \text { Net Income } &\$ 500,000 \\\hline \text { Dividends } & \$ 100,000) \\\hline \text { December } 31,2020: & \$ 800,000 \\\hline \text { Balance Sheet } & \\\hline \text { Cash } &\$ 1,200,000 \\\hline \text { Accounts Receivable } & \$ 1,900,000 \\\hline \text { Inventory } & \$ 700,000(\$ 500,000 \text { January 1, 2020) } \\\hline \text { Plant and Equipment (net) } & \$ 400,000 \\\hline \text { Current Liabilities } & \$ 4,200,000 \\\hline \text { Bonds Payable } & \$ 2,000,000 \\\hline \text { Common Shares } & \$ 1,000,000 \\\hline \text { Retained Earnings } & \$ 800,000 \\\hline & \$ 4,200,000 \\\hline\end{array}$ Sales, purchases, bond interest, and other expenses occurred evenly throughout the year.
US1 is considered to be a foreign subsidiary that has a different functional currency than ABC Inc.'s functional currency.
What is the amount of the gain or loss arising from translation?

A) A CDN$5,000 loss.
B) A CDN$750 loss.
C) A CDN$307 loss.
D) A CDN$3,750 gain.

Question 22

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: $\begin{array}{|l|r|r|}\hline \text { Tanuary } 1,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.815 \\\hline \text { December } 31,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.8175 \\\hline \text { Average for } 2020: & \text { US } \$ 1= & \text { CDN } \$ 0.825 \\\hline \begin{array}{l}\text { Date of Purchase of Inventory on } \\\text { Hand: }\end{array} & \text { US } \$ 1= & \text { CDN } \$ 0.83 \\\hline \text { Date Dividends were declared: } & \text { US } \$ 1= & \text { CDN } \$ 0.8125\\\hline\end{array}$ US1 financial results for 2020 were as follows:
US1 Financial Statements
At December 31, 2020
(in U.S. dollars)
$\begin{array}{|l|r|}\hline \text { Income Statement: } & \\\hline \text { Sales } & \$ 5,000,000 \\\hline \text { Cost of Sales } & \$ 3,500,000 \\\hline \text { Depreciation Expense } & \$ 150,000 \\\hline \text { Bond Interest Expense } & \$ 100,000 \\\hline \text { Other Expense } & \$ 750,000 \\\hline \text { Net Income } & \$ 500,000 \\\hline \text { Statement of Retained Earnings: } & \\\hline \text { January 1, 2020: } & \$ 400,000 \\\hline \text { Net Income } &\$ 500,000 \\\hline \text { Dividends } & \$ 100,000) \\\hline \text { December } 31,2020: & \$ 800,000 \\\hline \text { Balance Sheet } & \\\hline \text { Cash } &\$ 1,200,000 \\\hline \text { Accounts Receivable } & \$ 1,900,000 \\\hline \text { Inventory } & \$ 700,000(\$ 500,000 \text { January 1, 2020) } \\\hline \text { Plant and Equipment (net) } & \$ 400,000 \\\hline \text { Current Liabilities } & \$ 4,200,000 \\\hline \text { Bonds Payable } & \$ 2,000,000 \\\hline \text { Common Shares } & \$ 1,000,000 \\\hline \text { Retained Earnings } & \$ 800,000 \\\hline & \$ 4,200,000 \\\hline\end{array}$ Sales, purchases, bond interest, and other expenses occurred evenly throughout the year.
US1 is considered to be a foreign subsidiary that has the same functional currency as ABC Inc.'s functional currency.
Which of the following rates would be used to translate the company's accounts receivable?

A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D) US$1 = CDN$0.83

Question 23

Which of the following is an indication that the functional currency of a foreign operation is not the Canadian dollar?

A) Only goods imported from the parent are sold by the subsidiary.
B) The parent dictates the subsidiary's operating procedures.
C) Cash to pay obligations is generated by local operations or borrowed from local lenders.
D) Intercompany transactions account for a high proportion of the subsidiary's overall activities.

Question 24

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: $\begin{array}{|l|r|r|}\hline \text { Tanuary } 1,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.815 \\\hline \text { December } 31,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.8175 \\\hline \text { Average for } 2020: & \text { US } \$ 1= & \text { CDN } \$ 0.825 \\\hline \begin{array}{l}\text { Date of Purchase of Inventory on } \\\text { Hand: }\end{array} & \text { US } \$ 1= & \text { CDN } \$ 0.83 \\\hline \text { Date Dividends were declared: } & \text { US } \$ 1= & \text { CDN } \$ 0.8125\\\hline\end{array}$ US1 financial results for 2020 were as follows:
US1 Financial Statements
At December 31, 2020
(in U.S. dollars)
$\begin{array}{|l|r|}\hline \text { Income Statement: } & \\\hline \text { Sales } & \$ 5,000,000 \\\hline \text { Cost of Sales } & \$ 3,500,000 \\\hline \text { Depreciation Expense } & \$ 150,000 \\\hline \text { Bond Interest Expense } & \$ 100,000 \\\hline \text { Other Expense } & \$ 750,000 \\\hline \text { Net Income } & \$ 500,000 \\\hline \text { Statement of Retained Earnings: } & \\\hline \text { January 1, 2020: } & \$ 400,000 \\\hline \text { Net Income } &\$ 500,000 \\\hline \text { Dividends } & \$ 100,000) \\\hline \text { December } 31,2020: & \$ 800,000 \\\hline \text { Balance Sheet } & \\\hline \text { Cash } &\$ 1,200,000 \\\hline \text { Accounts Receivable } & \$ 1,900,000 \\\hline \text { Inventory } & \$ 700,000(\$ 500,000 \text { January 1, 2020) } \\\hline \text { Plant and Equipment (net) } & \$ 400,000 \\\hline \text { Current Liabilities } & \$ 4,200,000 \\\hline \text { Bonds Payable } & \$ 2,000,000 \\\hline \text { Common Shares } & \$ 1,000,000 \\\hline \text { Retained Earnings } & \$ 800,000 \\\hline & \$ 4,200,000 \\\hline\end{array}$ Sales, purchases, bond interest, and other expenses occurred evenly throughout the year.
US1 is considered to be a foreign subsidiary that has the same functional currency as ABC Inc.'s functional currency.
Which of the following rates would be used to translate the company's cash?

A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D) US$1 = CDN$0.83

Question 25

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: $\begin{array}{|l|r|r|}\hline \text { Tanuary } 1,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.815 \\\hline \text { December } 31,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.8175 \\\hline \text { Average for } 2020: & \text { US } \$ 1= & \text { CDN } \$ 0.825 \\\hline \begin{array}{l}\text { Date of Purchase of Inventory on } \\\text { Hand: }\end{array} & \text { US } \$ 1= & \text { CDN } \$ 0.83 \\\hline \text { Date Dividends were declared: } & \text { US } \$ 1= & \text { CDN } \$ 0.8125\\\hline\end{array}$ US1 financial results for 2020 were as follows:
US1 Financial Statements
At December 31, 2020
(in U.S. dollars)
$\begin{array}{|l|r|}\hline \text { Income Statement: } & \\\hline \text { Sales } & \$ 5,000,000 \\\hline \text { Cost of Sales } & \$ 3,500,000 \\\hline \text { Depreciation Expense } & \$ 150,000 \\\hline \text { Bond Interest Expense } & \$ 100,000 \\\hline \text { Other Expense } & \$ 750,000 \\\hline \text { Net Income } & \$ 500,000 \\\hline \text { Statement of Retained Earnings: } & \\\hline \text { January 1, 2020: } & \$ 400,000 \\\hline \text { Net Income } &\$ 500,000 \\\hline \text { Dividends } & \$ 100,000) \\\hline \text { December } 31,2020: & \$ 800,000 \\\hline \text { Balance Sheet } & \\\hline \text { Cash } &\$ 1,200,000 \\\hline \text { Accounts Receivable } & \$ 1,900,000 \\\hline \text { Inventory } & \$ 700,000(\$ 500,000 \text { January 1, 2020) } \\\hline \text { Plant and Equipment (net) } & \$ 400,000 \\\hline \text { Current Liabilities } & \$ 4,200,000 \\\hline \text { Bonds Payable } & \$ 2,000,000 \\\hline \text { Common Shares } & \$ 1,000,000 \\\hline \text { Retained Earnings } & \$ 800,000 \\\hline & \$ 4,200,000 \\\hline\end{array}$ Sales, purchases, bond interest, and other expenses occurred evenly throughout the year.
US1 is considered to be a foreign subsidiary that has the same functional currency as ABC Inc.'s functional currency.
What is the amount (in Canadian dollars) of US1's net income (US$500,000) not including the exchange gain or loss from the translation of the financial statements?

A) $421,000.
B) $422,500.
C) $414,000.
D) $412,500.

Question 26

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: $\begin{array}{|l|r|r|}\hline \text { Tanuary } 1,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.815 \\\hline \text { December } 31,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.8175 \\\hline \text { Average for } 2020: & \text { US } \$ 1= & \text { CDN } \$ 0.825 \\\hline \begin{array}{l}\text { Date of Purchase of Inventory on } \\\text { Hand: }\end{array} & \text { US } \$ 1= & \text { CDN } \$ 0.83 \\\hline \text { Date Dividends were declared: } & \text { US } \$ 1= & \text { CDN } \$ 0.8125\\\hline\end{array}$ US1 financial results for 2020 were as follows:
US1 Financial Statements
At December 31, 2020
(in U.S. dollars)
$\begin{array}{|l|r|}\hline \text { Income Statement: } & \\\hline \text { Sales } & \$ 5,000,000 \\\hline \text { Cost of Sales } & \$ 3,500,000 \\\hline \text { Depreciation Expense } & \$ 150,000 \\\hline \text { Bond Interest Expense } & \$ 100,000 \\\hline \text { Other Expense } & \$ 750,000 \\\hline \text { Net Income } & \$ 500,000 \\\hline \text { Statement of Retained Earnings: } & \\\hline \text { January 1, 2020: } & \$ 400,000 \\\hline \text { Net Income } &\$ 500,000 \\\hline \text { Dividends } & \$ 100,000) \\\hline \text { December } 31,2020: & \$ 800,000 \\\hline \text { Balance Sheet } & \\\hline \text { Cash } &\$ 1,200,000 \\\hline \text { Accounts Receivable } & \$ 1,900,000 \\\hline \text { Inventory } & \$ 700,000(\$ 500,000 \text { January 1, 2020) } \\\hline \text { Plant and Equipment (net) } & \$ 400,000 \\\hline \text { Current Liabilities } & \$ 4,200,000 \\\hline \text { Bonds Payable } & \$ 2,000,000 \\\hline \text { Common Shares } & \$ 1,000,000 \\\hline \text { Retained Earnings } & \$ 800,000 \\\hline & \$ 4,200,000 \\\hline\end{array}$ Sales, purchases, bond interest, and other expenses occurred evenly throughout the year.
US1 is considered to be a foreign subsidiary that has the same functional currency as ABC Inc.'s functional currency.
If there were no additions or disposals of plant and equipment in 2020, which of the following rates would be used to translate the company's plant and equipment?

A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D) US$1 = CDN$0.83

Question 27

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: $\begin{array}{|l|r|r|}\hline \text { Tanuary } 1,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.815 \\\hline \text { December } 31,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.8175 \\\hline \text { Average for } 2020: & \text { US } \$ 1= & \text { CDN } \$ 0.825 \\\hline \begin{array}{l}\text { Date of Purchase of Inventory on } \\\text { Hand: }\end{array} & \text { US } \$ 1= & \text { CDN } \$ 0.83 \\\hline \text { Date Dividends were declared: } & \text { US } \$ 1= & \text { CDN } \$ 0.8125\\\hline\end{array}$ US1 financial results for 2020 were as follows:
US1 Financial Statements
At December 31, 2020
(in U.S. dollars)
$\begin{array}{|l|r|}\hline \text { Income Statement: } & \\\hline \text { Sales } & \$ 5,000,000 \\\hline \text { Cost of Sales } & \$ 3,500,000 \\\hline \text { Depreciation Expense } & \$ 150,000 \\\hline \text { Bond Interest Expense } & \$ 100,000 \\\hline \text { Other Expense } & \$ 750,000 \\\hline \text { Net Income } & \$ 500,000 \\\hline \text { Statement of Retained Earnings: } & \\\hline \text { January 1, 2020: } & \$ 400,000 \\\hline \text { Net Income } &\$ 500,000 \\\hline \text { Dividends } & \$ 100,000) \\\hline \text { December } 31,2020: & \$ 800,000 \\\hline \text { Balance Sheet } & \\\hline \text { Cash } &\$ 1,200,000 \\\hline \text { Accounts Receivable } & \$ 1,900,000 \\\hline \text { Inventory } & \$ 700,000(\$ 500,000 \text { January 1, 2020) } \\\hline \text { Plant and Equipment (net) } & \$ 400,000 \\\hline \text { Current Liabilities } & \$ 4,200,000 \\\hline \text { Bonds Payable } & \$ 2,000,000 \\\hline \text { Common Shares } & \$ 1,000,000 \\\hline \text { Retained Earnings } & \$ 800,000 \\\hline & \$ 4,200,000 \\\hline\end{array}$ Sales, purchases, bond interest, and other expenses occurred evenly throughout the year.
US1 is considered to be a foreign subsidiary that has the same functional currency as ABC Inc.'s functional currency.
Which of the following rates would be used to translate the company's beginning retained earnings?

A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D) US$1 = CDN$0.83

Question 28

Which of the following statements is correct?

A) If a foreign currency weakens with respect to the Canadian dollar, both foreign operations with a functional currency that is the Canadian dollar and not the Canadian dollar, will show a foreign exchange gain.
B) If a foreign currency weakens with respect to the Canadian dollar, both foreign operations with a functional currency that is the Canadian dollar and not the Canadian dollar, will show a foreign exchange loss.
C) If a foreign currency weakens with respect to the Canadian dollar, a foreign operation with a functional currency that is not the Canadian dollar will show a foreign exchange gain while a foreign operation with a functional currency that is the Canadian dollar will show a foreign exchange loss.
D) If a foreign currency weakens with respect to the Canadian dollar, a foreign operation with a functional currency that is not the Canadian dollar will show a foreign exchange loss while a foreign operation with a functional currency that is the Canadian dollar will show a foreign exchange gain.

Question 29

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: $\begin{array}{|l|r|r|}\hline \text { Tanuary } 1,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.815 \\\hline \text { December } 31,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.8175 \\\hline \text { Average for } 2020: & \text { US } \$ 1= & \text { CDN } \$ 0.825 \\\hline \begin{array}{l}\text { Date of Purchase of Inventory on } \\\text { Hand: }\end{array} & \text { US } \$ 1= & \text { CDN } \$ 0.83 \\\hline \text { Date Dividends were declared: } & \text { US } \$ 1= & \text { CDN } \$ 0.8125\\\hline\end{array}$ US1 financial results for 2020 were as follows:
US1 Financial Statements
At December 31, 2020
(in U.S. dollars)
$\begin{array}{|l|r|}\hline \text { Income Statement: } & \\\hline \text { Sales } & \$ 5,000,000 \\\hline \text { Cost of Sales } & \$ 3,500,000 \\\hline \text { Depreciation Expense } & \$ 150,000 \\\hline \text { Bond Interest Expense } & \$ 100,000 \\\hline \text { Other Expense } & \$ 750,000 \\\hline \text { Net Income } & \$ 500,000 \\\hline \text { Statement of Retained Earnings: } & \\\hline \text { January 1, 2020: } & \$ 400,000 \\\hline \text { Net Income } &\$ 500,000 \\\hline \text { Dividends } & \$ 100,000) \\\hline \text { December } 31,2020: & \$ 800,000 \\\hline \text { Balance Sheet } & \\\hline \text { Cash } &\$ 1,200,000 \\\hline \text { Accounts Receivable } & \$ 1,900,000 \\\hline \text { Inventory } & \$ 700,000(\$ 500,000 \text { January 1, 2020) } \\\hline \text { Plant and Equipment (net) } & \$ 400,000 \\\hline \text { Current Liabilities } & \$ 4,200,000 \\\hline \text { Bonds Payable } & \$ 2,000,000 \\\hline \text { Common Shares } & \$ 1,000,000 \\\hline \text { Retained Earnings } & \$ 800,000 \\\hline & \$ 4,200,000 \\\hline\end{array}$ Sales, purchases, bond interest, and other expenses occurred evenly throughout the year.
US1 is considered to be a foreign subsidiary that has the same functional currency as ABC Inc.'s functional currency.
If the company had no capital asset additions or disposals in 2020, which of the following rates would be used to translate the company's depreciation expense for the year?

A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D) US$1 = CDN$0.83

Question 30

Which of the following statements is FALSE?

A) If a foreign operation has a functional currency that is not the Canadian dollar, the method of valuation of assets and liabilities is of no consequence in the translation because all of the assets are translated at the closing rate.
B) If a foreign operation has a functional currency that is the Canadian dollar, the method of valuation of assets and liabilities is of no consequence in the translation because all of the assets are translated at the closing rate.
C) If a foreign operation has a functional currency that is the Canadian dollar, a write-down to market may be required in the translated financial statements.
D) If a foreign operation has a functional currency that is the Canadian dollar, no write-down is required in the foreign currency financial statements.

Question 31

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: $\begin{array}{|l|r|r|}\hline \text { Tanuary } 1,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.815 \\\hline \text { December } 31,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.8175 \\\hline \text { Average for } 2020: & \text { US } \$ 1= & \text { CDN } \$ 0.825 \\\hline \begin{array}{l}\text { Date of Purchase of Inventory on } \\\text { Hand: }\end{array} & \text { US } \$ 1= & \text { CDN } \$ 0.83 \\\hline \text { Date Dividends were declared: } & \text { US } \$ 1= & \text { CDN } \$ 0.8125\\\hline\end{array}$ US1 financial results for 2020 were as follows:
US1 Financial Statements
At December 31, 2020
(in U.S. dollars)
$\begin{array}{|l|r|}\hline \text { Income Statement: } & \\\hline \text { Sales } & \$ 5,000,000 \\\hline \text { Cost of Sales } & \$ 3,500,000 \\\hline \text { Depreciation Expense } & \$ 150,000 \\\hline \text { Bond Interest Expense } & \$ 100,000 \\\hline \text { Other Expense } & \$ 750,000 \\\hline \text { Net Income } & \$ 500,000 \\\hline \text { Statement of Retained Earnings: } & \\\hline \text { January 1, 2020: } & \$ 400,000 \\\hline \text { Net Income } &\$ 500,000 \\\hline \text { Dividends } & \$ 100,000) \\\hline \text { December } 31,2020: & \$ 800,000 \\\hline \text { Balance Sheet } & \\\hline \text { Cash } &\$ 1,200,000 \\\hline \text { Accounts Receivable } & \$ 1,900,000 \\\hline \text { Inventory } & \$ 700,000(\$ 500,000 \text { January 1, 2020) } \\\hline \text { Plant and Equipment (net) } & \$ 400,000 \\\hline \text { Current Liabilities } & \$ 4,200,000 \\\hline \text { Bonds Payable } & \$ 2,000,000 \\\hline \text { Common Shares } & \$ 1,000,000 \\\hline \text { Retained Earnings } & \$ 800,000 \\\hline & \$ 4,200,000 \\\hline\end{array}$ Sales, purchases, bond interest, and other expenses occurred evenly throughout the year.
US1 is considered to be a foreign subsidiary that has the same functional currency as ABC Inc.'s functional currency.
Which of the following rates would be used to translate the company's bond interest expense for the year?

A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D) US$1 = CDN$0.83

Question 32

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: $\begin{array}{|l|r|r|}\hline \text { Tanuary } 1,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.815 \\\hline \text { December } 31,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.8175 \\\hline \text { Average for } 2020: & \text { US } \$ 1= & \text { CDN } \$ 0.825 \\\hline \begin{array}{l}\text { Date of Purchase of Inventory on } \\\text { Hand: }\end{array} & \text { US } \$ 1= & \text { CDN } \$ 0.83 \\\hline \text { Date Dividends were declared: } & \text { US } \$ 1= & \text { CDN } \$ 0.8125\\\hline\end{array}$ US1 financial results for 2020 were as follows:
US1 Financial Statements
At December 31, 2020
(in U.S. dollars)
$\begin{array}{|l|r|}\hline \text { Income Statement: } & \\\hline \text { Sales } & \$ 5,000,000 \\\hline \text { Cost of Sales } & \$ 3,500,000 \\\hline \text { Depreciation Expense } & \$ 150,000 \\\hline \text { Bond Interest Expense } & \$ 100,000 \\\hline \text { Other Expense } & \$ 750,000 \\\hline \text { Net Income } & \$ 500,000 \\\hline \text { Statement of Retained Earnings: } & \\\hline \text { January 1, 2020: } & \$ 400,000 \\\hline \text { Net Income } &\$ 500,000 \\\hline \text { Dividends } & \$ 100,000) \\\hline \text { December } 31,2020: & \$ 800,000 \\\hline \text { Balance Sheet } & \\\hline \text { Cash } &\$ 1,200,000 \\\hline \text { Accounts Receivable } & \$ 1,900,000 \\\hline \text { Inventory } & \$ 700,000(\$ 500,000 \text { January 1, 2020) } \\\hline \text { Plant and Equipment (net) } & \$ 400,000 \\\hline \text { Current Liabilities } & \$ 4,200,000 \\\hline \text { Bonds Payable } & \$ 2,000,000 \\\hline \text { Common Shares } & \$ 1,000,000 \\\hline \text { Retained Earnings } & \$ 800,000 \\\hline & \$ 4,200,000 \\\hline\end{array}$ Sales, purchases, bond interest, and other expenses occurred evenly throughout the year.
US1 is considered to be a foreign subsidiary that has the same functional currency as ABC Inc.'s functional currency.
Which of the following rates would be used to translate the company's other expenses?

A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D) US$1 = CDN$0.83

Question 33

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: $\begin{array}{|l|r|r|}\hline \text { Tanuary } 1,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.815 \\\hline \text { December } 31,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.8175 \\\hline \text { Average for } 2020: & \text { US } \$ 1= & \text { CDN } \$ 0.825 \\\hline \begin{array}{l}\text { Date of Purchase of Inventory on } \\\text { Hand: }\end{array} & \text { US } \$ 1= & \text { CDN } \$ 0.83 \\\hline \text { Date Dividends were declared: } & \text { US } \$ 1= & \text { CDN } \$ 0.8125\\\hline\end{array}$ US1 financial results for 2020 were as follows:
US1 Financial Statements
At December 31, 2020
(in U.S. dollars)
$\begin{array}{|l|r|}\hline \text { Income Statement: } & \\\hline \text { Sales } & \$ 5,000,000 \\\hline \text { Cost of Sales } & \$ 3,500,000 \\\hline \text { Depreciation Expense } & \$ 150,000 \\\hline \text { Bond Interest Expense } & \$ 100,000 \\\hline \text { Other Expense } & \$ 750,000 \\\hline \text { Net Income } & \$ 500,000 \\\hline \text { Statement of Retained Earnings: } & \\\hline \text { January 1, 2020: } & \$ 400,000 \\\hline \text { Net Income } &\$ 500,000 \\\hline \text { Dividends } & \$ 100,000) \\\hline \text { December } 31,2020: & \$ 800,000 \\\hline \text { Balance Sheet } & \\\hline \text { Cash } &\$ 1,200,000 \\\hline \text { Accounts Receivable } & \$ 1,900,000 \\\hline \text { Inventory } & \$ 700,000(\$ 500,000 \text { January 1, 2020) } \\\hline \text { Plant and Equipment (net) } & \$ 400,000 \\\hline \text { Current Liabilities } & \$ 4,200,000 \\\hline \text { Bonds Payable } & \$ 2,000,000 \\\hline \text { Common Shares } & \$ 1,000,000 \\\hline \text { Retained Earnings } & \$ 800,000 \\\hline & \$ 4,200,000 \\\hline\end{array}$ Sales, purchases, bond interest, and other expenses occurred evenly throughout the year.
US1 is considered to be a foreign subsidiary that has the same functional currency as ABC Inc.'s functional currency.
Which of the following rates would be used to translate the company's dividends?

A) US$1 = CDN$0.815
B) US$1 = CDN$0.8125
C) US$1 = CDN$0.825
D) US$1 = CDN$0.83

Question 34

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: $\begin{array}{|l|r|r|}\hline \text { Tanuary } 1,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.815 \\\hline \text { December } 31,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.8175 \\\hline \text { Average for } 2020: & \text { US } \$ 1= & \text { CDN } \$ 0.825 \\\hline \begin{array}{l}\text { Date of Purchase of Inventory on } \\\text { Hand: }\end{array} & \text { US } \$ 1= & \text { CDN } \$ 0.83 \\\hline \text { Date Dividends were declared: } & \text { US } \$ 1= & \text { CDN } \$ 0.8125\\\hline\end{array}$ US1 financial results for 2020 were as follows:
US1 Financial Statements
At December 31, 2020
(in U.S. dollars)
$\begin{array}{|l|r|}\hline \text { Income Statement: } & \\\hline \text { Sales } & \$ 5,000,000 \\\hline \text { Cost of Sales } & \$ 3,500,000 \\\hline \text { Depreciation Expense } & \$ 150,000 \\\hline \text { Bond Interest Expense } & \$ 100,000 \\\hline \text { Other Expense } & \$ 750,000 \\\hline \text { Net Income } & \$ 500,000 \\\hline \text { Statement of Retained Earnings: } & \\\hline \text { January 1, 2020: } & \$ 400,000 \\\hline \text { Net Income } &\$ 500,000 \\\hline \text { Dividends } & \$ 100,000) \\\hline \text { December } 31,2020: & \$ 800,000 \\\hline \text { Balance Sheet } & \\\hline \text { Cash } &\$ 1,200,000 \\\hline \text { Accounts Receivable } & \$ 1,900,000 \\\hline \text { Inventory } & \$ 700,000(\$ 500,000 \text { January 1, 2020) } \\\hline \text { Plant and Equipment (net) } & \$ 400,000 \\\hline \text { Current Liabilities } & \$ 4,200,000 \\\hline \text { Bonds Payable } & \$ 2,000,000 \\\hline \text { Common Shares } & \$ 1,000,000 \\\hline \text { Retained Earnings } & \$ 800,000 \\\hline & \$ 4,200,000 \\\hline\end{array}$ Sales, purchases, bond interest, and other expenses occurred evenly throughout the year.
US1 is considered to be a foreign subsidiary that has the same functional currency as ABC Inc.'s functional currency.
Which of the following rates would be used to translate the company's current liabilities?

A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D) US$1 = CDN$0.83

Question 35

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: $\begin{array}{|l|r|r|}\hline \text { Tanuary } 1,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.815 \\\hline \text { December } 31,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.8175 \\\hline \text { Average for } 2020: & \text { US } \$ 1= & \text { CDN } \$ 0.825 \\\hline \begin{array}{l}\text { Date of Purchase of Inventory on } \\\text { Hand: }\end{array} & \text { US } \$ 1= & \text { CDN } \$ 0.83 \\\hline \text { Date Dividends were declared: } & \text { US } \$ 1= & \text { CDN } \$ 0.8125\\\hline\end{array}$ US1 financial results for 2020 were as follows:
US1 Financial Statements
At December 31, 2020
(in U.S. dollars)
$\begin{array}{|l|r|}\hline \text { Income Statement: } & \\\hline \text { Sales } & \$ 5,000,000 \\\hline \text { Cost of Sales } & \$ 3,500,000 \\\hline \text { Depreciation Expense } & \$ 150,000 \\\hline \text { Bond Interest Expense } & \$ 100,000 \\\hline \text { Other Expense } & \$ 750,000 \\\hline \text { Net Income } & \$ 500,000 \\\hline \text { Statement of Retained Earnings: } & \\\hline \text { January 1, 2020: } & \$ 400,000 \\\hline \text { Net Income } &\$ 500,000 \\\hline \text { Dividends } & \$ 100,000) \\\hline \text { December } 31,2020: & \$ 800,000 \\\hline \text { Balance Sheet } & \\\hline \text { Cash } &\$ 1,200,000 \\\hline \text { Accounts Receivable } & \$ 1,900,000 \\\hline \text { Inventory } & \$ 700,000(\$ 500,000 \text { January 1, 2020) } \\\hline \text { Plant and Equipment (net) } & \$ 400,000 \\\hline \text { Current Liabilities } & \$ 4,200,000 \\\hline \text { Bonds Payable } & \$ 2,000,000 \\\hline \text { Common Shares } & \$ 1,000,000 \\\hline \text { Retained Earnings } & \$ 800,000 \\\hline & \$ 4,200,000 \\\hline\end{array}$ Sales, purchases, bond interest, and other expenses occurred evenly throughout the year.
US1 is considered to be a foreign subsidiary that has the same functional currency as ABC Inc.'s functional currency.
Assuming the net monetary assets where US$350,000 on January 1, 2020, what is the amount of the 2020 exchange gain (loss) that would result from the translation of US1's financial statements?

A) $2,500 exchange gain.
B) $3,000 exchange loss
C) $6,500 exchange loss
D) $2,250 exchange gain.

Question 36

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: $\begin{array}{|l|r|r|}\hline \text { Tanuary } 1,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.815 \\\hline \text { December } 31,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.8175 \\\hline \text { Average for } 2020: & \text { US } \$ 1= & \text { CDN } \$ 0.825 \\\hline \begin{array}{l}\text { Date of Purchase of Inventory on } \\\text { Hand: }\end{array} & \text { US } \$ 1= & \text { CDN } \$ 0.83 \\\hline \text { Date Dividends were declared: } & \text { US } \$ 1= & \text { CDN } \$ 0.8125\\\hline\end{array}$ US1 financial results for 2020 were as follows:
US1 Financial Statements
At December 31, 2020
(in U.S. dollars)
$\begin{array}{|l|r|}\hline \text { Income Statement: } & \\\hline \text { Sales } & \$ 5,000,000 \\\hline \text { Cost of Sales } & \$ 3,500,000 \\\hline \text { Depreciation Expense } & \$ 150,000 \\\hline \text { Bond Interest Expense } & \$ 100,000 \\\hline \text { Other Expense } & \$ 750,000 \\\hline \text { Net Income } & \$ 500,000 \\\hline \text { Statement of Retained Earnings: } & \\\hline \text { January 1, 2020: } & \$ 400,000 \\\hline \text { Net Income } &\$ 500,000 \\\hline \text { Dividends } & \$ 100,000) \\\hline \text { December } 31,2020: & \$ 800,000 \\\hline \text { Balance Sheet } & \\\hline \text { Cash } &\$ 1,200,000 \\\hline \text { Accounts Receivable } & \$ 1,900,000 \\\hline \text { Inventory } & \$ 700,000(\$ 500,000 \text { January 1, 2020) } \\\hline \text { Plant and Equipment (net) } & \$ 400,000 \\\hline \text { Current Liabilities } & \$ 4,200,000 \\\hline \text { Bonds Payable } & \$ 2,000,000 \\\hline \text { Common Shares } & \$ 1,000,000 \\\hline \text { Retained Earnings } & \$ 800,000 \\\hline & \$ 4,200,000 \\\hline\end{array}$ Sales, purchases, bond interest, and other expenses occurred evenly throughout the year.
US1 is considered to be a foreign subsidiary that has the same functional currency as ABC Inc.'s functional currency.
Which of the following rates would be used to translate the company's common shares?

A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D) US$1 = CDN$0.83

Question 37

According to IAS 29 Financial Reporting in Hyperinflationary Economies, the term "hyper-inflationary" means:

A) an annual inflation rate of 50%.
B) an annual inflation rate of 100%.
C) a cumulative inflation rate of 100% over a 3-5 year period.
D) it does not establish an absolute rate which is deemed to be hyper-inflation.

Question 38

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: $\begin{array}{|l|r|r|}\hline \text { Tanuary } 1,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.815 \\\hline \text { December } 31,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.8175 \\\hline \text { Average for } 2020: & \text { US } \$ 1= & \text { CDN } \$ 0.825 \\\hline \begin{array}{l}\text { Date of Purchase of Inventory on } \\\text { Hand: }\end{array} & \text { US } \$ 1= & \text { CDN } \$ 0.83 \\\hline \text { Date Dividends were declared: } & \text { US } \$ 1= & \text { CDN } \$ 0.8125\\\hline\end{array}$ US1 financial results for 2020 were as follows:
US1 Financial Statements
At December 31, 2020
(in U.S. dollars)
$\begin{array}{|l|r|}\hline \text { Income Statement: } & \\\hline \text { Sales } & \$ 5,000,000 \\\hline \text { Cost of Sales } & \$ 3,500,000 \\\hline \text { Depreciation Expense } & \$ 150,000 \\\hline \text { Bond Interest Expense } & \$ 100,000 \\\hline \text { Other Expense } & \$ 750,000 \\\hline \text { Net Income } & \$ 500,000 \\\hline \text { Statement of Retained Earnings: } & \\\hline \text { January 1, 2020: } & \$ 400,000 \\\hline \text { Net Income } &\$ 500,000 \\\hline \text { Dividends } & \$ 100,000) \\\hline \text { December } 31,2020: & \$ 800,000 \\\hline \text { Balance Sheet } & \\\hline \text { Cash } &\$ 1,200,000 \\\hline \text { Accounts Receivable } & \$ 1,900,000 \\\hline \text { Inventory } & \$ 700,000(\$ 500,000 \text { January 1, 2020) } \\\hline \text { Plant and Equipment (net) } & \$ 400,000 \\\hline \text { Current Liabilities } & \$ 4,200,000 \\\hline \text { Bonds Payable } & \$ 2,000,000 \\\hline \text { Common Shares } & \$ 1,000,000 \\\hline \text { Retained Earnings } & \$ 800,000 \\\hline & \$ 4,200,000 \\\hline\end{array}$ Sales, purchases, bond interest, and other expenses occurred evenly throughout the year.
US1 is considered to be a foreign subsidiary that has the same functional currency as ABC Inc.'s functional currency.
Which of the following rates would be used to translate the company's bonds payable?

A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D) US$1 = CDN$0.83

Question 39

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: $\begin{array}{|l|r|r|}\hline \text { Tanuary } 1,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.815 \\\hline \text { December } 31,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.8175 \\\hline \text { Average for } 2020: & \text { US } \$ 1= & \text { CDN } \$ 0.825 \\\hline \begin{array}{l}\text { Date of Purchase of Inventory on } \\\text { Hand: }\end{array} & \text { US } \$ 1= & \text { CDN } \$ 0.83 \\\hline \text { Date Dividends were declared: } & \text { US } \$ 1= & \text { CDN } \$ 0.8125\\\hline\end{array}$ US1 financial results for 2020 were as follows:
US1 Financial Statements
At December 31, 2020
(in U.S. dollars)
$\begin{array}{|l|r|}\hline \text { Income Statement: } & \\\hline \text { Sales } & \$ 5,000,000 \\\hline \text { Cost of Sales } & \$ 3,500,000 \\\hline \text { Depreciation Expense } & \$ 150,000 \\\hline \text { Bond Interest Expense } & \$ 100,000 \\\hline \text { Other Expense } & \$ 750,000 \\\hline \text { Net Income } & \$ 500,000 \\\hline \text { Statement of Retained Earnings: } & \\\hline \text { January 1, 2020: } & \$ 400,000 \\\hline \text { Net Income } &\$ 500,000 \\\hline \text { Dividends } & \$ 100,000) \\\hline \text { December } 31,2020: & \$ 800,000 \\\hline \text { Balance Sheet } & \\\hline \text { Cash } &\$ 1,200,000 \\\hline \text { Accounts Receivable } & \$ 1,900,000 \\\hline \text { Inventory } & \$ 700,000(\$ 500,000 \text { January 1, 2020) } \\\hline \text { Plant and Equipment (net) } & \$ 400,000 \\\hline \text { Current Liabilities } & \$ 4,200,000 \\\hline \text { Bonds Payable } & \$ 2,000,000 \\\hline \text { Common Shares } & \$ 1,000,000 \\\hline \text { Retained Earnings } & \$ 800,000 \\\hline & \$ 4,200,000 \\\hline\end{array}$ Sales, purchases, bond interest, and other expenses occurred evenly throughout the year.
US1 is considered to be a foreign subsidiary that has the same functional currency as ABC Inc.'s functional currency.
Which of the following rates would be used to translate the company's sales?

A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D) US$1 = $0.83 CDN

Question 40

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: $\begin{array}{|l|r|r|}\hline \text { Tanuary } 1,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.815 \\\hline \text { December } 31,2020: & \text { US } \$ 1= & \text { CDN } \$ 0.8175 \\\hline \text { Average for } 2020: & \text { US } \$ 1= & \text { CDN } \$ 0.825 \\\hline \begin{array}{l}\text { Date of Purchase of Inventory on } \\\text { Hand: }\end{array} & \text { US } \$ 1= & \text { CDN } \$ 0.83 \\\hline \text { Date Dividends were declared: } & \text { US } \$ 1= & \text { CDN } \$ 0.8125\\\hline\end{array}$ US1 financial results for 2020 were as follows:
US1 Financial Statements
At December 31, 2020
(in U.S. dollars)
$\begin{array}{|l|r|}\hline \text { Income Statement: } & \\\hline \text { Sales } & \$ 5,000,000 \\\hline \text { Cost of Sales } & \$ 3,500,000 \\\hline \text { Depreciation Expense } & \$ 150,000 \\\hline \text { Bond Interest Expense } & \$ 100,000 \\\hline \text { Other Expense } & \$ 750,000 \\\hline \text { Net Income } & \$ 500,000 \\\hline \text { Statement of Retained Earnings: } & \\\hline \text { January 1, 2020: } & \$ 400,000 \\\hline \text { Net Income } &\$ 500,000 \\\hline \text { Dividends } & \$ 100,000) \\\hline \text { December } 31,2020: & \$ 800,000 \\\hline \text { Balance Sheet } & \\\hline \text { Cash } &\$ 1,200,000 \\\hline \text { Accounts Receivable } & \$ 1,900,000 \\\hline \text { Inventory } & \$ 700,000(\$ 500,000 \text { January 1, 2020) } \\\hline \text { Plant and Equipment (net) } & \$ 400,000 \\\hline \text { Current Liabilities } & \$ 4,200,000 \\\hline \text { Bonds Payable } & \$ 2,000,000 \\\hline \text { Common Shares } & \$ 1,000,000 \\\hline \text { Retained Earnings } & \$ 800,000 \\\hline & \$ 4,200,000 \\\hline\end{array}$ Sales, purchases, bond interest, and other expenses occurred evenly throughout the year.
US1 is considered to be a foreign subsidiary that has the same functional currency as ABC Inc.'s functional currency.
Which of the following rates would be used to translate the company's ending inventory?

A) US$1 = CDN$0.815
B) US$1 = CDN$0.8175
C) US$1 = CDN$0.825
D) US$1 = CDN$0.83

Question 41

Maker Ltd., an American company, acquired US$200,000 of capital assets on January 1, 2018, when the company was established. These assets were being amortized over 10 years on a straight-line basis, with no significant residual value expected. On January 1, 2019, Holdings Inc., a Canadian company with no capital assets of its own, acquired 100% of the outstanding shares of Maker. US$40,000 of the acquisition differential was allocated to the capital assets, which had eight years remaining economic life on the acquisition date. On March 1, 2020, Maker acquired a further $80,000 of capital assets, which had an estimated useful life of eight years from that date.
Exchange rates for the period from January 1, 2018 to December 31, 2020 were:
$\begin{array}{|l|r|}\hline \text { Tanuary } 1,2018 & \text { US } \$ 1.00=C D N \$ 1.05 \\\hline \text { Tanuary } 1,2019 & U S \$ 1.00=C D N \$ 1.06 \\\hline \text { Average for } 2019 & \text { US } \$ 1.00=\text { CDN } \$ 1.0625 \\\hline \text { December } 31,2019 & \text { US } \$ 1.00=\text { CDN } \$ 1.065 \\\hline \text { March } 1,2020 & \text { US } \$ 1.00=\text { CDN } \$ 1.068 \\\hline \text { Average for } 2020 & U S \$ 1.00=\text { CDN } \$ 1.07 \\\hline \text { December } 31,2020 & \text { US } \$ 1.00=\text { CDN } \$ 1.075 \\\hline\end{array}$ If Maker is considered to be a foreign subsidiary where its functional currency is the U.S. dollar (i.e., different than the parent's functional currency), what amount will be shown for capital assets (net) on its translated Canadian dollar financial statements as at December 31, 2019?

A) $168,000
B) $169,600
C) $170,000
D) $170,400

Question 42

On January 1, 2020, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000.
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2020. Martin's January 1, 2020 Balance Sheet is shown below (in U.S. dollars):
The following exchange rates were in effect during 2020:
Sales, purchases and other expenses occurred evenly throughout the year.
Dividends declared and paid December 31, 2020.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
Compute Martin's exchange gain or loss for 2020 if Martin's functional currency was the Canadian dollar (i.e. the same functional currency as the parent).

Question 43

On December 31, 2019, Hilman Enterprises of Montreal paid $12,000,000 for 100% of the outstanding shares of Wilsen Corp of the United States. Wilsen's fair values approximated its book values on that date.
Wilsen's comparative balance sheets for 2019 and 2020 are shown below:
Balance Sheet as at
December 31 (in U.S. Dollars)
Income Statement for
the Year ended
December 31, 2020
Other Information:
Exchange Rates:
Wilsen paid US$100,000 in dividends on September 30, 2020. The inventories on hand at the end of 2020 were purchased when the exchange rate was US$1 = CDN$1.195.
Sales, purchases and other expenses occurred evenly throughout the year.
Translate Wilsen's December 31, 2020 Statement of Retained Earnings if Wilsen's functional currency is the same as Hilman Enterprises' functional currency (i.e., the Canadian dollar).

Question 44

A foreign subsidiary has earned income evenly over the year and it has paid its income taxes for the year in two instalments, half on June 30 and half on December 31. Assuming the foreign subsidiary's functional currency is the same as the parent's functional currency, what rate(s) should be used to translate the foreign subsidiary's income tax expense into Canadian dollars when preparing translated financial statements for the year ended December 31?

A) Half at the rate at June 30 and half at the rate at December 31.
B) All at the average rate for the year.
C) All at the closing rate for the year.
D) All at the opening rate for the year.

Question 45

Maker Ltd., an American company, acquired US$200,000 of capital assets on January 1, 2018, when the company was established. These assets were being amortized over 10 years on a straight-line basis, with no significant residual value expected. On January 1, 2019, Holdings Inc., a Canadian company with no capital assets of its own, acquired 100% of the outstanding shares of Maker. US$40,000 of the acquisition differential was allocated to the capital assets, which had eight years remaining economic life on the acquisition date. On March 1, 2020, Maker acquired a further $80,000 of capital assets, which had an estimated useful life of eight years from that date.
Exchange rates for the period from January 1, 2018 to December 31, 2020 were:
$\begin{array}{|l|r|}\hline \text { Tanuary } 1,2018 & \text { US } \$ 1.00=\text { CDN } \$ 1.05 \\\hline \text { Tanuary } 1,2019 & \text { US } \$ 1.00=\text { CDN } \$ 1.06 \\\hline \text { Average for } 2019 & \text { US } \$ 1.00=\text { CDN } \$ 1.0625 \\\hline \text { December } 31,2019 & \text { US } \$ 1.00=\text { CDN } \$ 1.065 \\\hline \text { March } 1,2020 & \text { US } \$ 1.00=\text { CDN } \$ 1.068 \\\hline \text { Average for } 2020 & \text { US } \$ 1.00=\text { CDN } \$ 1.07 \\\hline \text { December } 31,2020 & \text { US } \$ 1.00=C D N \$ 1.075\\\hline\end{array}$ If Maker's functional currency is the same as the parent's, what amount will be shown for amortization expense on its translated Canadian dollar financial statements as at December 31, 2019?

A) $20,000
B) $21,000
C) $21,200
D) $21,250

Question 46

Maker Ltd., an American company, acquired US$200,000 of capital assets on January 1, 2018, when the company was established. These assets were being amortized over 10 years on a straight-line basis, with no significant residual value expected. On January 1, 2019, Holdings Inc., a Canadian company with no capital assets of its own, acquired 100% of the outstanding shares of Maker. US$40,000 of the acquisition differential was allocated to the capital assets, which had eight years remaining economic life on the acquisition date. On March 1, 2020, Maker acquired a further $80,000 of capital assets, which had an estimated useful life of eight years from that date.
Exchange rates for the period from January 1, 2018 to December 31, 2020 were:
$\begin{array}{|l|r|}\hline \text { Tanuary } 1,2018 & \text { US } \$ 1.00=C D N \$ 1.05 \\\hline \text { Tanuary } 1,2019 & U S \$ 1.00=C D N \$ 1.06 \\\hline \text { Average for } 2019 & \text { US } \$ 1.00=\text { CDN } \$ 1.0625 \\\hline \text { December } 31,2019 & \text { US } \$ 1.00=\text { CDN } \$ 1.065 \\\hline \text { March } 1,2020 & \text { US } \$ 1.00=\text { CDN } \$ 1.068 \\\hline \text { Average for } 2020 & U S \$ 1.00=\text { CDN } \$ 1.07 \\\hline \text { December } 31,2020 & \text { US } \$ 1.00=\text { CDN } \$ 1.075 \\\hline\end{array}$ If Maker is considered to be a foreign subsidiary where its functional currency is the U.S. dollar (i.e., different than the parent's functional currency), what amount will be shown for capital assets (net) on its translated Canadian dollar financial statements as at December 31, 2020?

A) $212,500
B) $224,430
C) $227,542
D) $228,438

Question 47

On January 1, 2020, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000.
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2020. Martin's January 1, 2020 Balance Sheet is shown below (in U.S. dollars):
The following exchange rates were in effect during 2020:
Sales, purchases and other expenses occurred evenly throughout the year.
Dividends declared and paid December 31, 2020.

Question 48

On December 31, 2019, Hilman Enterprises of Montreal paid $12,000,000 for 100% of the outstanding shares of Wilsen Corp of the United States. Wilsen's fair values approximated its book values on that date.
Wilsen's comparative balance sheets for 2019 and 2020 are shown below:
Balance Sheet as at
December 31 (in U.S. Dollars)
Income Statement for
the Year ended
December 31, 2020
Other Information:
Exchange Rates:
Wilsen paid US$100,000 in dividends on September 30, 2020. The inventories on hand at the end of 2020 were purchased when the exchange rate was US$1 = CDN$1.195.
Sales, purchases and other expenses occurred evenly throughout the year.
Translate Wilsen's December 31, 2020 Balance Sheet if Wilsen's functional currency was the U.S. dollar (i.e., the functional currency of the foreign subsidiary is different than the parent's functional currency).

Question 49

On December 31, 2019, Hilman Enterprises of Montreal paid $12,000,000 for 100% of the outstanding shares of Wilsen Corp of the United States. Wilsen's fair values approximated its book values on that date.
Wilsen's comparative balance sheets for 2019 and 2020 are shown below:
Balance Sheet as at
December 31 (in U.S. Dollars)
Income Statement for
the Year ended
December 31, 2020
Other Information:
Exchange Rates:
Wilsen paid US$100,000 in dividends on September 30, 2020. The inventories on hand at the end of 2020 were purchased when the exchange rate was US$1 = CDN$1.195.
Sales, purchases and other expenses occurred evenly throughout the year.
Calculate the exchange gain or loss that would result from the translation of Wilsen's Financial Statements if Wilsen's functional currency was the U.S. dollar (i.e., the functional currency of the foreign subsidiary is different than the parent's functional currency).

Question 50

On December 31, 2019, Hilman Enterprises of Montreal paid $12,000,000 for 100% of the outstanding shares of Wilsen Corp of the United States. Wilsen's fair values approximated its book values on that date.
Wilsen's comparative balance sheets for 2019 and 2020 are shown below:
Balance Sheet as at
December 31 (in U.S. Dollars)
Income Statement for
the Year ended
December 31, 2020
Other Information:
Exchange Rates:
Wilsen paid US$100,000 in dividends on September 30, 2020. The inventories on hand at the end of 2020 were purchased when the exchange rate was US$1 = CDN$1.195.
Sales, purchases and other expenses occurred evenly throughout the year.
Translate Wilsen's December 31, 2020 Statement of Retained Earnings if Wilsen's functional currency was the U.S. dollar (i.e., the functional currency of the foreign subsidiary is different than the parent's functional currency).

Question 51

Maker Ltd., an American company, acquired US$200,000 of capital assets on January 1, 2018, when the company was established. These assets were being amortized over 10 years on a straight-line basis, with no significant residual value expected. On January 1, 2019, Holdings Inc., a Canadian company with no capital assets of its own, acquired 100% of the outstanding shares of Maker. US$40,000 of the acquisition differential was allocated to the capital assets, which had eight years remaining economic life on the acquisition date. On March 1, 2020, Maker acquired a further $80,000 of capital assets, which had an estimated useful life of eight years from that date.
Exchange rates for the period from January 1, 2018 to December 31, 2020 were:
$\begin{array}{|l|r|}\hline \text { Tanuary } 1,2018 & \text { US } \$ 1.00=C D N \$ 1.05 \\\hline \text { Tanuary } 1,2019 & U S \$ 1.00=C D N \$ 1.06 \\\hline \text { Average for } 2019 & \text { US } \$ 1.00=\text { CDN } \$ 1.0625 \\\hline \text { December } 31,2019 & \text { US } \$ 1.00=\text { CDN } \$ 1.065 \\\hline \text { March } 1,2020 & \text { US } \$ 1.00=\text { CDN } \$ 1.068 \\\hline \text { Average for } 2020 & U S \$ 1.00=\text { CDN } \$ 1.07 \\\hline \text { December } 31,2020 & \text { US } \$ 1.00=\text { CDN } \$ 1.075 \\\hline\end{array}$ If Maker's functional currency is the same as the parent's, what amount will be shown for capital assets (net) on its translated Canadian dollar financial statements as at December 31, 2020?

A) $212,500
B) $224,940
C) $225,830
D) $374,460

Question 52

Maker Ltd., an American company, acquired US$200,000 of capital assets on January 1, 2018, when the company was established. These assets were being amortized over 10 years on a straight-line basis, with no significant residual value expected. On January 1, 2019, Holdings Inc., a Canadian company with no capital assets of its own, acquired 100% of the outstanding shares of Maker. US$40,000 of the acquisition differential was allocated to the capital assets, which had eight years remaining economic life on the acquisition date. On March 1, 2020, Maker acquired a further $80,000 of capital assets, which had an estimated useful life of eight years from that date.
Exchange rates for the period from January 1, 2018 to December 31, 2020 were:
$\begin{array}{|l|r|}\hline \text { Tanuary } 1,2018 & \text { US } \$ 1.00=C D N \$ 1.05 \\\hline \text { Tanuary } 1,2019 & U S \$ 1.00=C D N \$ 1.06 \\\hline \text { Average for } 2019 & \text { US } \$ 1.00=\text { CDN } \$ 1.0625 \\\hline \text { December } 31,2019 & \text { US } \$ 1.00=\text { CDN } \$ 1.065 \\\hline \text { March } 1,2020 & \text { US } \$ 1.00=\text { CDN } \$ 1.068 \\\hline \text { Average for } 2020 & U S \$ 1.00=\text { CDN } \$ 1.07 \\\hline \text { December } 31,2020 & \text { US } \$ 1.00=\text { CDN } \$ 1.075 \\\hline\end{array}$ If Maker is considered to be a foreign subsidiary where its functional currency is the U.S. dollar (i.e., different than the parent's functional currency), what amount will be shown for amortization expense on its translated Canadian dollar financial statements as at December 31, 2020?

A) $27,500
B) $29,010
C) $30,316
D) $29,425

Question 53

Maker Ltd., an American company, acquired US$200,000 of capital assets on January 1, 2018, when the company was established. These assets were being amortized over 10 years on a straight-line basis, with no significant residual value expected. On January 1, 2019, Holdings Inc., a Canadian company with no capital assets of its own, acquired 100% of the outstanding shares of Maker. US$40,000 of the acquisition differential was allocated to the capital assets, which had eight years remaining economic life on the acquisition date. On March 1, 2020, Maker acquired a further $80,000 of capital assets, which had an estimated useful life of eight years from that date.
Exchange rates for the period from January 1, 2018 to December 31, 2020 were:
$\begin{array}{|l|r|}\hline \text { Tanuary } 1,2018 & \text { US } \$ 1.00=C D N \$ 1.05 \\\hline \text { Tanuary } 1,2019 & \text { US } \$ 1.00=\text { CDN } \$ 1.06 \\\hline \text { Average for } 2019 & \text { US } \$ 1.00=\text { CDN } \$ 1.0625 \\\hline \text { December } 31,2019 & \text { US } \$ 1.00=\text { CDN } \$ 1.065 \\\hline \text { March } 1,2020 & \text { US } \$ 1.00=\text { CDN } \$ 1.068 \\\hline \text { Average for } 2020 & \text { US } \$ 1.00=\text { CDN } \$ 1.07 \\\hline \text { December } 31,2020 & \text { US } \$ 1.00=\text { CDN } \$ 1.075 \\\hline\end{array}$ If Maker is considered to be a foreign subsidiary where its functional currency is the U.S. dollar (i.e., different than the parent's functional currency), what is the amount of the exchange gain or loss resulting from the translation of the changes to the acquisition differential for 2019?

A) $175 exchange gain
B) Nil
C) $188 exchange gain
D) $88 exchange gain

Question 54

On December 31, 2019, Hilman Enterprises of Montreal paid $12,000,000 for 100% of the outstanding shares of Wilsen Corp of the United States. Wilsen's fair values approximated its book values on that date.
Wilsen's comparative balance sheets for 2019 and 2020 are shown below:
Balance Sheet as at
December 31 (in U.S. Dollars)
Income Statement for
the Year ended
December 31, 2020
Other Information:
Exchange Rates:
Wilsen paid US$100,000 in dividends on September 30, 2020. The inventories on hand at the end of 2020 were purchased when the exchange rate was US$1 = CDN$1.195.
Sales, purchases and other expenses occurred evenly throughout the year.
Translate Wilsen's 2020 Income Statement if Wilson's functional currency is the same as Hilman Enterprises' functional currency (i.e., the Canadian dollar).

Question 55

On December 31, 2019, Hilman Enterprises of Montreal paid $12,000,000 for 100% of the outstanding shares of Wilsen Corp of the United States. Wilsen's fair values approximated its book values on that date.
Wilsen's comparative balance sheets for 2019 and 2020 are shown below:
Balance Sheet as at
December 31 (in U.S. Dollars)
Income Statement for
the Year ended
December 31, 2020
Other Information:
Exchange Rates:
Wilsen paid US$100,000 in dividends on September 30, 2020. The inventories on hand at the end of 2020 were purchased when the exchange rate was US$1 = CDN$1.195.
Sales, purchases and other expenses occurred evenly throughout the year.
Translate Wilsen's 2020 Income Statement if Wilsen's functional currency was the U.S. dollar (i.e., the functional currency of the foreign subsidiary is different than the parent's functional currency).

Question 56

On December 31, 2019, Hilman Enterprises of Montreal paid $12,000,000 for 100% of the outstanding shares of Wilsen Corp of the United States. Wilsen's fair values approximated its book values on that date.
Wilsen's comparative balance sheets for 2019 and 2020 are shown below:
Balance Sheet as at
December 31 (in U.S. Dollars)
Income Statement for
the Year ended
December 31, 2020
Other Information:
Exchange Rates:
Wilsen paid US$100,000 in dividends on September 30, 2020. The inventories on hand at the end of 2020 were purchased when the exchange rate was US$1 = CDN$1.195.
Sales, purchases and other expenses occurred evenly throughout the year.
Translate Wilsen's December 31, 2020 Balance Sheet if Wilsen's functional currency is the same as Hilman Enterprises' functional currency (i.e., the Canadian dollar).

Question 57

Maker Ltd., an American company, acquired US$200,000 of capital assets on January 1, 2018, when the company was established. These assets were being amortized over 10 years on a straight-line basis, with no significant residual value expected. On January 1, 2019, Holdings Inc., a Canadian company with no capital assets of its own, acquired 100% of the outstanding shares of Maker. US$40,000 of the acquisition differential was allocated to the capital assets, which had eight years remaining economic life on the acquisition date. On March 1, 2020, Maker acquired a further $80,000 of capital assets, which had an estimated useful life of eight years from that date.
Exchange rates for the period from January 1, 2018 to December 31, 2020 were:
$\begin{array}{|l|r|}\hline \text { Tanuary } 1,2018 & \text { US } \$ 1.00=C D N \$ 1.05 \\\hline \text { Tanuary } 1,2019 & U S \$ 1.00=C D N \$ 1.06 \\\hline \text { Average for } 2019 & \text { US } \$ 1.00=\text { CDN } \$ 1.0625 \\\hline \text { December } 31,2019 & \text { US } \$ 1.00=\text { CDN } \$ 1.065 \\\hline \text { March } 1,2020 & \text { US } \$ 1.00=\text { CDN } \$ 1.068 \\\hline \text { Average for } 2020 & U S \$ 1.00=\text { CDN } \$ 1.07 \\\hline \text { December } 31,2020 & \text { US } \$ 1.00=\text { CDN } \$ 1.075 \\\hline\end{array}$ If Maker is considered to be a foreign subsidiary where its functional currency is the U.S. dollar (i.e., different than the parent's functional currency), what amount will be shown for amortization expense on its translated Canadian dollar financial statements as at December 31, 2019?

A) $20,000
B) $21,000
C) $21,200
D) $21,250

Question 58

Maker Ltd., an American company, acquired US$200,000 of capital assets on January 1, 2018, when the company was established. These assets were being amortized over 10 years on a straight-line basis, with no significant residual value expected. On January 1, 2019, Holdings Inc., a Canadian company with no capital assets of its own, acquired 100% of the outstanding shares of Maker. US$40,000 of the acquisition differential was allocated to the capital assets, which had eight years remaining economic life on the acquisition date. On March 1, 2020, Maker acquired a further $80,000 of capital assets, which had an estimated useful life of eight years from that date.
Exchange rates for the period from January 1, 2018 to December 31, 2020 were:
$\begin{array}{|l|r|}\hline \text { Tanuary } 1,2018 & \text { US } \$ 1.00=\mathrm{CDN} \$ 1.05 \\\hline \text { Tanuary } 1,2019 & \text { US } \$ 1.00=\mathrm{CDN} \$ 1.06 \\\hline \text { Average for } 2019 & \text { US } \$ 1.00=\mathrm{CDN} \$ 1.0625 \\\hline \text { December } 31,2019 & \mathrm{US} \$ 1.00=\mathrm{CDN} \$ 1.065 \\\hline \text { March } 1,2020 & \mathrm{US} \$ 1.00=\mathrm{CDN} \$ 1.068 \\\hline \text { Average for } 2020 & \mathrm{US} \$ 1.00=\mathrm{CDN} \$ 1.07 \\\hline \text { December } 31,2020 & \mathrm{US} \$ 1.00=\mathrm{CDN} \$ 1.075\\\hline\end{array}$ If Maker's functional currency is the same as the parent's, what amount will be shown for amortization expense on its translated Canadian dollar financial statements as at December 31, 2020?

A) $27,500
B) $29,010
C) $29,210
D) $30,100

Question 59

On December 31, 2019, Hilman Enterprises of Montreal paid $12,000,000 for 100% of the outstanding shares of Wilsen Corp of the United States. Wilsen's fair values approximated its book values on that date.
Wilsen's comparative balance sheets for 2019 and 2020 are shown below:
Balance Sheet as at
December 31 (in U.S. Dollars)
Income Statement for
the Year ended
December 31, 2020
Other Information:
Exchange Rates:
Wilsen paid US$100,000 in dividends on September 30, 2020. The inventories on hand at the end of 2020 were purchased when the exchange rate was US$1 = CDN$1.195.
Sales, purchases and other expenses occurred evenly throughout the year.
Compute Wilsen's exchange gain or loss for 2020 if Wilson's functional currency is the same as Hilman Enterprises' functional currency (i.e., the Canadian dollar).

Question 60

Maker Ltd., an American company, acquired US$200,000 of capital assets on January 1, 2018, when the company was established. These assets were being amortized over 10 years on a straight-line basis, with no significant residual value expected. On January 1, 2019, Holdings Inc., a Canadian company with no capital assets of its own, acquired 100% of the outstanding shares of Maker. US$40,000 of the acquisition differential was allocated to the capital assets, which had eight years remaining economic life on the acquisition date. On March 1, 2020, Maker acquired a further $80,000 of capital assets, which had an estimated useful life of eight years from that date.
Exchange rates for the period from January 1, 2018 to December 31, 2020 were:
$\begin{array}{|l|r|}\hline \text { Tanuary } 1,2018 & \text { US } \$ 1.00=C D N \$ 1.05 \\\hline \text { Tanuary } 1,2019 & U S \$ 1.00=C D N \$ 1.06 \\\hline \text { Average for } 2019 & \text { US } \$ 1.00=\text { CDN } \$ 1.0625 \\\hline \text { December } 31,2019 & \text { US } \$ 1.00=\text { CDN } \$ 1.065 \\\hline \text { March } 1,2020 & \text { US } \$ 1.00=\text { CDN } \$ 1.068 \\\hline \text { Average for } 2020 & U S \$ 1.00=\text { CDN } \$ 1.07 \\\hline \text { December } 31,2020 & \text { US } \$ 1.00=\text { CDN } \$ 1.075 \\\hline\end{array}$ If Maker's functional currency is the same as the parent's, what amount will be shown for capital assets (net) on its translated Canadian dollar financial statements as at December 31, 2019?

A) $168,000
B) $169,600
C) $170,000
D) $170,400

Question 61

On January 1, 2020, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000.
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2020. Martin's January 1, 2020 Balance Sheet is shown below (in U.S. dollars):
The following exchange rates were in effect during 2020:
Sales, purchases and other expenses occurred evenly throughout the year.
Dividends declared and paid December 31, 2020.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
Calculate Larmer's Consolidated Net Income for 2020 if Martin's functional currency is the U.S. dollar (i.e., the functional currency of the foreign subsidiary is different than the parent's functional currency).

Question 62

On January 1, 2020, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000.
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2020. Martin's January 1, 2020 Balance Sheet is shown below (in U.S. dollars):
The following exchange rates were in effect during 2020:
Sales, purchases and other expenses occurred evenly throughout the year.
Dividends declared and paid December 31, 2020.

Question 63

On January 1, 2020, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000.
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2020. Martin's January 1, 2020 Balance Sheet is shown below (in U.S. dollars):
The following exchange rates were in effect during 2020:
Sales, purchases and other expenses occurred evenly throughout the year.
Dividends declared and paid December 31, 2020.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
Compute Martin's exchange gain or loss for 2020 if Martin's functional currency is the U.S. dollar (i.e., the functional currency of the foreign subsidiary is different than the parent's functional currency).

Question 64

On January 1, 2020, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000.
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2020. Martin's January 1, 2020 Balance Sheet is shown below (in U.S. dollars):
The following exchange rates were in effect during 2020:
Sales, purchases and other expenses occurred evenly throughout the year.
Dividends declared and paid December 31, 2020.

Question 65

On January 1, 2020, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000.
Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2020. Martin's January 1, 2020 Balance Sheet is shown below (in U.S. dollars):
The following exchange rates were in effect during 2020:
Sales, purchases and other expenses occurred evenly throughout the year.
Dividends declared and paid December 31, 2020.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Balance Sheets
Prepare Larmer's December 31, 2020 Consolidated Balance Sheet if Martin's functional currency was the Canadian dollar (i.e. the same functional currency as the parent).