Question 1

In cases of operations located in highly inflationary economies:

Accepted Answer

In highly inflationary economies, U.S. GAAP requires the use of the U.S. dollar as the functional currency for the foreign entity.

Question 2

All of the following are benefits the U.S.will gain from the adoption of globally consistent accounting standards except for:

Accepted Answer

The adoption of globally consistent accounting standards may require significant expenses related to corporate governance considerations such as changes to accounting systems and staff training. Therefore, there may not be a nearly seamless transition with minimal expenses related to corporate governance considerations.

Question 3

Simon Company has two foreign subsidiaries.One is located in France,the other in England.Simon has determined the U.S.dollar is the functional currency for the French subsidiary,while the British pound is the functional currency for the English subsidiary.Both subsidiaries maintain their books and records in their respective local currencies.What methods will Simon use to convert each of the subsidiary's financial statements into U.S.dollars?

Accepted Answer

D

Question 4

Under the temporal method,which of the following is usually used to translate monetary amounts to the functional currency?
I.The current exchange rate
II The historical exchange rate
III.Average exchange rate

Accepted Answer

The answer of Under the temporal method,which of the following...

Question 5

When the local currency of the foreign subsidiary is the functional currency,a foreign subsidiary's income statement accounts would be converted to U.S.dollars by:

Accepted Answer

When the local currency is the functional currency, the income statement accounts are translated using the average exchange rate for the period.

Question 6

Barcode Corporation acquired 70% of the common stock of a Russian company on January 1,20X6.The goodwill associated with this acquisition was $12,520.Exchange rates at various dates during 20X6 follow:

Goodwill suffered an impairment of 25 percent during the year.If the functional currency is the U.S.dollar,how much goodwill impairment loss should be reported on Barcode's consolidated statement of income for 20X6?

Accepted Answer

The answer of Barcode Corporation acquired 70% of the common...

Question 7

Mazeppa,Inc.is a multinational entity with its head office located in Toronto,Canada.Its main foreign subsidiary is in Paris,France,but the primary economic environment in which the foreign subsidiary generates and expends cash is in the United States.Based on this information,which of the following statements is most likely true for Mazeppa,Inc.?

Accepted Answer

The reporting currency is the currency in which the parent company, Mazeppa, Inc., prepares its financial statements, which is likely the Canadian dollar since the head office is in Toronto, Canada.

Question 8

If the restatement method for a foreign subsidiary involves remeasuring from the local currency into the functional currency,then translating from functional currency to U.S.dollars,the functional currency of the subsidiary is:
I.U.S.dollar.
II.Local currency unit.
III.A third country's currency.

Accepted Answer

The restatement method described involves remeasuring from the local currency into the functional currency and then translating into U.S. dollars, which indicates that the functional currency is a third country's currency.

Question 9

If the U.S.dollar is the currency in which the foreign affiliate's books and records are maintained,and the U.S.dollar is also the functional currency,

Accepted Answer

When the U.S. dollar is both the currency in which the foreign affiliate's books and records are maintained and the functional currency, no restatement is required because the financial statements are already in the reporting currency.

Question 10

All of the following stockholders' equity accounts of a foreign subsidiary are translated at historical exchange rates except:

Accepted Answer

Retained earnings are translated at historical exchange rates, except for the portion that represents undistributed earnings of a foreign subsidiary, which are translated at the current rate. However, in this question, retained earnings are the exception to the rule stated, implying that they are not translated at historical rates like the other options (common stock, additional paid-in capital, and preferred stock), which are typically translated at historical rates.

Question 11

The balance in Newsprint Corp.'s foreign exchange loss account was $10,000 on December 31, 20X8, before any necessary year-end adjustment relating to the following:
(1) Newsprint had a $15,000 debit resulting from the restatement in dollars of the accounts of its wholly owned foreign subsidiary for the year ended December 31, 20X8.
(2) Newsprint had an account payable to an unrelated foreign supplier, payable in the supplier's local currency unit (LCU) on January 15, 20X9. The U.S. dollar-equivalent of the payable was $50,000 on the December 1, 20X8, invoice date and $53,000 on December 31, 20X8.
-Based on the information provided,in Newsprint's 20X8 consolidated income statement,what amount should be included as foreign exchange loss in computing net income,if the LCU is the functional currency and the translation method is appropriate?

Accepted Answer

The foreign exchange loss includes the $3,000 loss from the payable ($53,000 - $50,000) and the $10,000 existing balance, totaling $13,000. The $15,000 translation adjustment is not included in net income as it is part of other comprehensive income.

Question 12

Barcode Corporation acquired 70% of the common stock of a Russian company on January 1,20X6.The goodwill associated with this acquisition was $12,520.Exchange rates at various dates during 20X6 follow:

Goodwill suffered an impairment of 25 percent during the year.If the functional currency is the Russian ruble,how much goodwill impairment loss should be reported on Barcode's consolidated statement of income for 20X6?

Accepted Answer

The answer of Barcode Corporation acquired 70% of the common...

Question 13

Which of the following statements is true regarding the SEC's timeline for convergence?

Accepted Answer

The statement that the SEC has no immediate plans to converge GAAP reporting with IFRS standards is true, as the SEC has not set a specific timeline for convergence and has instead focused on promoting the use of IFRS through measures such as allowing foreign private issuers to file using IFRS and accepting financial statements prepared using IFRS as a basis for reconciliation to GAAP. The other options are not accurate or complete representations of the SEC's current stance on convergence.

Question 14

When the local currency of the foreign subsidiary is the functional currency,a foreign subsidiary's inventory carried at cost would be converted to U.S.dollars by:

Accepted Answer

When the local currency is the functional currency, the translation method is used, and inventory is translated using the current exchange rate.

Question 15

Infinity Corporation acquired 80 percent of the common stock of an Egyptian company on January 1,20X8.The goodwill associated with this acquisition was $18,350.Exchange rates at various dates during 20X8 follow:  Goodwill suffered an impairment of 20 percent during the year.If the functional currency is the U.S.dollar,how much goodwill impairment loss should be reported on Infinity's consolidated statement of income for 20X8?

Accepted Answer

The answer of Infinity Corporation acquired 80 percent of the...

Question 16

The balance in Newsprint Corp.'s foreign exchange loss account was $10,000 on December 31, 20X8, before any necessary year-end adjustment relating to the following:
(1) Newsprint had a $15,000 debit resulting from the restatement in dollars of the accounts of its wholly owned foreign subsidiary for the year ended December 31, 20X8.
(2) Newsprint had an account payable to an unrelated foreign supplier, payable in the supplier's local currency unit (LCU) on January 15, 20X9. The U.S. dollar-equivalent of the payable was $50,000 on the December 1, 20X8, invoice date and $53,000 on December 31, 20X8.
-Based on the information provided,in Newsprint's 20X8 consolidated income statement,what amount should be included as foreign exchange loss in computing net income,if the U.S.dollar is the functional currency and the remeasurement method is appropriate?

Accepted Answer

Under the remeasurement method, the foreign exchange loss account is used to record gains and losses resulting from the remeasurement of foreign currency transactions in the functional currency.

In this case, there are two transactions that need to be considered:

(1) The restatement of accounts of the foreign subsidiary results in a $15,000 debit to the foreign exchange loss account.

(2) The payable to the foreign supplier represents a liability denominated in a foreign currency. The payable is remeasured at the end of the year using the exchange rate on December 31, 20X8. The increase in the U.S. dollar-equivalent of the payable from $50,000 to $53,000 represents a $3,000 loss, which is recorded in the foreign exchange loss account.

Therefore, the total foreign exchange loss for the year is $15,000 + $3,000 = $18,000.

However, the balance in the foreign exchange loss account at the beginning of the year was $10,000. Therefore, the amount that should be included as foreign exchange loss in computing net income is $18,000 - $10,000 = $8,000.

The answer choice D is the closest to the correct answer, as it reflects a total foreign exchange loss of $28,000. However, this answer choice is incorrect since it does not take into account the beginning balance in the foreign exchange loss account.

Question 17

Dividends of a foreign subsidiary are translated at:

Accepted Answer

Dividends of a foreign subsidiary are translated at the exchange rate on the date of declaration, as this is when the obligation to pay the dividend is established. The other options may not accurately reflect the exchange rate at the time the obligation was established.

Question 18

All of the following describe the International Accounting Standard Board (IASB)except for:

Accepted Answer

Board members of the IASB are indeed selected from diverse geographical backgrounds, but their selection is not limited to countries that have adopted IFRS. Their diversity aims to ensure that the IASB's standards are globally applicable and consider a wide range of financial reporting systems and practices.

Question 19

Infinity Corporation acquired 80 percent of the common stock of an Egyptian company on January 1,20X8.The goodwill associated with this acquisition was $18,350.Exchange rates at various dates during 20X8 follow:

Goodwill suffered an impairment of 20 percent during the year.If the functional currency is the Egyptian Pound,how much goodwill impairment loss should be reported on Infinity's consolidated statement of income for 20X8?

Accepted Answer

The answer of Infinity Corporation acquired 80 percent of the...

Question 20

Which of the following defines a foreign-based entity that uses a functional currency different from the local currency?
I.A U.S.subsidiary in Britain maintains its accounting records in pounds sterling,with the majority of its transactions denominated in pounds sterling.
II.A U.S.subsidiary in Peru conducts virtually all of its business in Latin America,and uses the U.S.dollar as its major currency.

Accepted Answer

A foreign-based entity that uses a functional currency different from the local currency is one that conducts its business primarily in a currency other than the local currency. In option II, the U.S. subsidiary in Peru uses the U.S. dollar as its major currency, which is different from the local currency (Peruvian sol), fitting the definition.

Quiz 12: Multinational Accounting: Issues in Financial Reporting and Translation of Foreign Entity Statements