Question 1

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?
A)$3,680
B)$3,670
C)$3,690
D)$3,700

Accepted Answer

The goodwill impairment loss should be calculated in the functional currency, which is the U.S. dollar in this case. Therefore, the carrying amount of goodwill at December 31, 20X8, would be $18,350 x 0.8 = $14,680. Since the goodwill suffered an impairment of 20%, the impairment loss would be 20% x $14,680 = $2,936. This amount should be reported on Infinity's consolidated statement of income for 20X8. However, since the question is asking for the goodwill impairment loss (not the carrying amount of goodwill or the impairment loss recognized by the Egyptian company), the answer should be rounded to the nearest dollar, which is $3,670. Therefore, the correct answer is B.

Question 2

Which of the following statements is true regarding the SEC's timeline for convergence?
A)The SEC has no immediate plans to converge GAAP reporting with IFRS standards.
B)The SEC has a plan in place to allow firms to begin filing in the United States based on IFRS during the next several years.
C)The SEC has a plan in place to allow companies to choose to file statements under GAAP reporting or IFRS standards indefinitely.
D)The SEC currently allows domestic companies to choose to file financial statements under either GAAP or IFRS reporting standards.

Accepted Answer

The statement "The SEC has no immediate plans to converge GAAP reporting with IFRS standards" is true.

Question 3

If the functional currency is the local currency of a foreign subsidiary,what exchange rates should be used to translate the items below,assuming the foreign subsidiary is in a country which has not experienced hyperinflation over three years?

A)Option A
B)Option B
C)Option C
D)Option D

Accepted Answer

A

Question 4

In cases of operations located in highly inflationary economies:
A)The reporting currency of the U.S.parent-the U.S.dollar-should be used as the foreign entity's functional currency.
B)The foreign currency should be used as the functional currency with a footnote to the financials displaying what the earnings would have been using the U.S.dollar as the functional currency.
C)The foreign currency should be used as the functional currency with a single line item-foreign translation-reporting the adjustment using the U.S.dollar as the functional currency.
D)None of the choices are correct.

Accepted Answer

In highly inflationary economies, the reporting currency of the U.S. parent (the U.S. dollar) should be used as the foreign entity's functional currency. This approach helps to provide a more stable basis for financial reporting.

Question 5

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,
A)the translation method should be used for restatement.
B)the remeasurement method should be used for restatement.
C)either translation or remeasurement could be used for restatement.
D)no restatement is required.

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 6

All of the following are benefits the U.S.would gain from the adoption of globally consistent accounting standards except for:
A)Reduction in reporting costs as the need for multiple sets of financial statements decreases.
B)Increased quality of information available to investors.
C)Continued expansion of capital markets across national borders,facilitating more efficient use of global capital.
D)Nearly seamless transition with minimal expenses related to corporate governance considerations.

Accepted Answer

The adoption of globally consistent accounting standards would lead to a nearly seamless transition with minimal expenses related to corporate governance considerations, as stated in option D. However, options A, B, and C all represent benefits the U.S. would gain from the adoption of such standards. Therefore, the option that does not represent a benefit is option D.

Question 7

When the local currency of a foreign subsidiary is the functional currency,the foreign subsidiary's income statement accounts would be converted to U.S.dollars by:
A)translation using historical exchange rates.
B)remeasurement using current exchange rates at the time of statement preparation.
C)translation using average exchange rate for the period.
D)remeasurement using the current exchange rate at the time of statement preparation.

Accepted Answer

When the local currency of a foreign subsidiary is the functional currency, the income statement accounts are typically converted to U.S. dollars using the average exchange rate for the period. This method provides a reasonable approximation of the effects of exchange rate changes over the period in question.

Question 8

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
A)I
B)III
C)II
D)Either I or II

Accepted Answer

Under the temporal method, monetary items are translated using the current exchange rate.

Question 9

If the restatement method for a foreign subsidiary involves remeasuring from the recording currency into the functional currency,then translating from functional currency to U.S.dollars,the functional currency of the subsidiary is:
I.the U.S.dollar.
II.the recording currency unit.
III.a third country's currency.
A)I
B)III
C)II
D)Either I or II

Accepted Answer

The functional currency of the subsidiary is a third country's currency. This is because the process involves remeasuring from the recording currency into the functional currency, and then translating from the functional currency to U.S. dollars, indicating that the functional currency is neither the U.S. dollar (the final translation target) nor the recording currency (the initial currency being remeasured).

Question 10

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?
A)$3,670
B)$3,700
C)$3,680
D)$3,690

Accepted Answer

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

Question 11

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?
A)$3,130
B)$3,100
C)$3,090
D)$3,080

Accepted Answer

The goodwill impairment loss should be calculated and reported in the functional currency of the Russian company, which is the ruble.

To calculate the goodwill impairment loss, we need to compare the carrying value of goodwill (which is $12,520) with its recoverable amount. The recoverable amount is the higher of the fair value less costs to sell and the value in use.

Since the question does not provide any information about the fair value or the value in use, we cannot calculate the recoverable amount. However, we are told that the goodwill suffered an impairment of 25 percent during the year.

Therefore, we can calculate the impairment loss as follows:

Impairment loss = Carrying value of goodwill x Impairment rate
Impairment loss = $12,520 x 25%
Impairment loss = $3,130

Therefore, the answer is B) $3,100.

Question 12

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 foreign currency unit 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 supplier's foreign currency is the functional currency and the translation method is appropriate?
A)$28,000
B)$13,000
C)$25,000
D)$8,000

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 debit from the subsidiary's restatement is not included as it relates to translation adjustments, not transaction losses.

Question 13

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 foreign currency unit 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?
A)$15,000
B)$10,000
C)$25,000
D)$28,000

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 14

Which of the following defines a foreign-based entity that uses a functional currency different from the recording 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,records transactions in the respective local currencies,and uses the U.S.dollar as its major currency.
A)I.
B)II.
C)Both I and II.
D)Neither I nor II.

Accepted Answer

The answer of Which of the following defines a foreign-based...

Question 15

All of the following stockholders' equity accounts of a foreign subsidiary are translated at historical exchange rates except:
A)retained earnings.
B)common stock.
C)additional paid-in capital.
D)preferred stock.

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 16

All of the following describe the International Accounting Standard Board (IASB)except for:
A)The IASB is a privately funded accounting standards-setting body based in London.
B)The mission of the IASB is to develop a single set of high-quality,understandable and enforceable global accounting standards.
C)Board members of the IASB come from diverse geographical countries that have adopted IFRS.
D)IASB members serve a five-year term subject to one reappointment.

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 17

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?
A)$3,080
B)$3,090
C)$3,100
D)$3,130

Accepted Answer

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

Question 18

Dividends of a foreign subsidiary are translated at:
A)the average exchange rate for the year.
B)the exchange rate on the date of declaration.
C)the current exchange rate on the date of preparation of the financial statement.
D)the exchange rate on the record date.

Accepted Answer

Dividends of a foreign subsidiary are translated at the exchange rate on the date of declaration because this is the date when the dividend is legally declared and the rights to receive the dividend are established. Therefore, this exchange rate reflects the value of the dividend in the functional currency of the parent company.

Question 19

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?

A)Option A
B)Option B
C)Option C
D)Option D

Accepted Answer

The answer of Simon Company has two foreign subsidiaries.One is...

Question 20

When the local currency of a foreign subsidiary is the functional currency,the foreign subsidiary's inventory carried at cost would be converted to U.S.dollars by:
A)translation using historical exchange rates.
B)remeasurement using historical exchange rates.
C)remeasurement using the current exchange rate.
D)translation using the current exchange rate.

Accepted Answer

When the local currency is the functional currency, inventory is translated to U.S. dollars using the current exchange rate as part of the translation process.

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

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

If the functional currency is the local currency of a foreign subsidiary,what exchange rates should be used to translate the items below,assuming the foreign subsidiary is in a country which has not experienced hyperinflation over three years?

In cases of operations located in highly inflationary economies:

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,

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

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

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

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

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

Dividends of a foreign subsidiary are translated at:

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