Chapter 13 Foreign Currency Financial Statements

Chapter 13 Test Bank
FOREIGN CURRENCY FINANCIAL STATEMENTS
Multiple Choice Questions

LO1
1.
A US firm has a Belgian subsidiary that uses the British pound

as its functional currency. Under FASB statement No. 52, the
US dollar from Belgian units point of view will be
a.
b.
c.
d.
LO1
2.
Selvey Inc. is a completely owned subsidiary of Parsfield

Incorporated a US firm. The country where Selvey operates is
deemed to have a highly inflationary economy under FASB
statement No. 52. Therefore, the functional currency is
a.
b.
c.
d.
LO1
3.
its
its
the
its
reporting currency.
current rate method currency.
US dollar.
local currency.
All of the following factors

functional currency, except
a.
b.
c.
d.
LO2
4.
a foreign currency.
its local currency
its current rate method currency
its reporting currency
would
be
used
to
define
high volume of intercompany transactions.

expenses primarily driven by local factors.
financing denominated in local currency.
status as a local tax haven for transfer pricing purposes.
When the financial statements of a foreign subsidiary one year

after acquisition are consolidated with the parent company,
Retained Earnings is
a.
b.
c.
d.
translated at the
remeasured at the
remeasured at the
None of the above
current exchange rate.

current exchange rate.
historical exchange rate.
answers is correct.
2009 Pearson Education, Inc. publishing as Prentice Hall

13-1
LO2
5.
Peachey has a foreign subsidiary, Schrivener Corporation of

Germany, whose functional currency is the euro. On December 31,
19X2, Schrivener has an account receivable denominated in
British pounds. Which one of the following statements is true?
a. Because all accounts of the subsidiary are translated into
US dollars at the current rate, the Account Receivable is
not adjusted on the subsidiarys books before translation.
b. The Account Receivable is remeasured into the functional
currency and remeasurement obviates translation.
c. The Account Receivable is first adjusted to reflect the
current exchange rates in euros and then translated at the
current rate into dollars.
d. The Account Receivable is adjusted to euros at the current
exchange rate and any resulting gain or loss is included as
a translation adjustment in the stockholders equity
section of the subsidiarys separate balance sheet.
LO2
6.
Paskins Corporations wholly-owned Canadian subsidiary has a

Canadian dollar functional currency. In translating its account
balances into US dollars for reporting purposes, which one of
the following accounts would be translated at historical
exchange rates?
a.
b.
c.
d.
LO2
7.
Accounts Receivable.
Notes Payable.
Capital Stock.
Retained Earnings.
A foreign entity is a subsidiary of a US parent company and has

always used the current rate method to translate its foreign
financial statements on behalf of its parent company. Which one
of the following statements is incorrect?
a. The US dollar will be the functional currency of this
company.
b. Changes in exchange rates between the subsidiarys country
and the parents country are not expected to affect the
foreign entitys cash flows.
c. Translation adjustments are shown in stockholders equity
as increases or decreases in other comprehensive income.
d. Translation adjustments are not shown on the income
statement.

13-2
LO2
8.
The objective of remeasurement is to

a. produce the same results as if the books were maintained in
the currency of the foreign entitys largest customer.
b. produce the same results as if the books were maintained
solely in the local currency.
c. produce the same results as if the books were maintained
solely in the functional currency.
d. produce the results reflective of the entitys economics in
the local currency.
LO2
9.
Which of the following assets and/or liabilities are considered

monetary?
a.
b.
c.
d.
LO2
10.
Which one of the following accounts would be translated at the

historical exchange rate when the local currency is the
functional currency?
a.
b.
c.
d.
LO2
11.
Intangible Assets and Plant, Property, and Equipment.

Bonds Payable and Common Stock.
Cash and Accounts Payable.
Notes Receivable and Inventories carried at cost.
Deferred Income Taxes.

Accumulated Depreciation on Equipment.
Prepaid Insurance.
Additional paid-in capital.
Accounts for
dollars at
uncollectible
accounts
are
converted
into
US
a. historical rates when the US dollar is the functional

currency.
b. current rates only when the US dollar is the functional
currency.
c. historical rates regardless of the functional currency.
d. current rates regardless of the functional currency.

13-3
LO3
12.
Lorikeet Corporation has a foreign subsidiary located in a

country experiencing high rates of inflation. Information
concerning this countrys inflation rate experience is given
below.
Date
January
January
January
January
1,20X1
1,20X2
1,20X3
1,20X4
Index
90
120
150
210
Change
in index
30
30
60
Annual rate
of Inflation
30/100 = 30.00%
30/130 = 23.08%
60/160 = 37.50%
The inflation rate that is used in determining if the

subsidiary is operating in a highly inflationary economy is
a. 37.50%.
b. 90.58%.
c. 133.33%.
LO3
13.
LO5
14.
A US companys foreign subsidiary has as its functional

currency the local currency. Year-end financial statements are
being consolidated. The average rate would be used for which
account of the foreign entity?
a.
b.
c.
d.
Depreciation.
Sales.
Deferred credits.
Deferred tax assets.
When translating foreign subsidiary income statements using the

current rate method, why are some accounts translated at an
average rate?
a. This approach improves matching.
b. This approach accentuates the conservatism principle.
c. This approach smoothes out highly volatile exchange rate
fluctuations.
d. This approach approximates the effect of transactions which
occur continuously during the period.

13-4
LO5
15.
The
following
assets
of
Oriole
Corporations
Romanian
subsidiary have been converted into US dollars at the following
exchange rates:
Current
Historical
Rates
Rates
Accounts receivable
$
850,000 $
875,000
Trademark
600,000
575,000
Property plant and equipment
1,200,000
900,000
Totals
$
2,650,000 $
2,350,000
If the functional currency of the subsidiary is the US dollar, the
assets should be reported in the consolidated financial statements of
Oriole Corporation and Subsidiary in the total amount of
a.
b.
c.
d.
LO5
16.
Which of the following foreign subsidiary accounts will have

the same value on consolidated financials, regardless of
whether the statements are remeasured or translated?
a.
b.
c.
d.
LO6
17.
$2,325,000.
$2,350,000.
$2,375,000.
$2,650,000.
Trademark.
Inventory.
accounts receivable.
Goodwill.
Remeasurement exchange gains or losses appear

a. in the continuing operations section of the consolidated
income statement.
b. as an extraordinary item on the consolidated income
statement.
c. as other comprehensive income typically reported in a
statement of stockholders equity.
d. as an adjustment to the beginning balance of retained
earnings
on the
consolidated Statement
of retained
earnings.

13-5
LO7
18.
A US parent makes a 1,000,000 krona loan worth $108,250 to its

Swedish subsidiary in the current year. The loan is denominated
in US dollars and the functional currency of the subsidiary is
the krona. This intercompany transaction is a foreign currency
transaction of
a. neither the subsidiary nor the parent, as it is eliminated
as part of the consolidation procedure.
b. the subsidiary but not the parent.
c. both the subsidiary and the parent.
d. the parent but not the subsidiary.
LO8
19.
A foreign subsidiarys accounts receivable balance should be

translated for the consolidated financial statements at
a.
b.
c.
d.
LO9
20.
the
the
the
the
appropriate historical rate.

prior years forecast rate.
future rate for the next year.
spot rate at year-end.
If a US company wants to hedge a prospective loss in a foreign

entity from a foreign currency fluctuation, which of the
following actions is recommended?
a. The US company should purchase a forward to swap currency
of the foreign entitys local country for US currency.
b. The US company should purchase a call option to buy
currency of the foreign entitys local country.
c. The US company should issue a loan the foreign entitys
local country.
d. The US company should borrow money in the foreign entitys
local country.

13-6
LO2
Exercise 1
For each of the 12 accounts listed in the table below, select the correct
exchange rate to use when either remeasuring or translating a foreign
subsidiary for its US parent company.
Codes
C
H
A
=
=
=
Current exchange rate

Historical exchange rate
Average exchange rate
US dollar is
the functional
currency
The foreign
currency is the
functional
currency
1. Accounts receivable
2. Marketable debt securities
carried at cost
3. Inventories carried at cost
4. Deferred income
5. Goodwill
6. Other paid-in capital
7. Depreciation
8. Refundable deposits
9. Common stock
10. Accumulated depreciation on
buildings
11. Deferred income tax
liabilities
12. Accounts payable
13-7
LO5
Exercise 2
On January 1, 20X5, Pegler Corporation, a US company, acquired 100%
of Selmic Corporation of Canada, paying an excess of 90,000 Canadian
dollars over the book value of Selmics net assets. The excess was
allocated to undervalued equipment with a three-year remaining useful
life. Selmics functional currency is the Canadian dollar. Exchange
rates for Canadian dollars for 20X5 are:
January 1, 20X5
Average rate for 20X5
December 31, 20X5
$.77
.75
.73
Required:
1. Determine the depreciation expense stated in US dollars on the
excess allocated to equipment for 20X5.
2. Determine the unamortized
December 31, 20X5.
excess
allocated
to
equipment
on
3. If Selmics functional currency was the US dollar, what would be

the depreciation expense on the excess allocated to the
equipment for 20X5?
LO5
Exercise 3
Peake Corporation, a US company, formed a British subsidiary on
January 1, 20X5 by investing 450,000 in exchange for all of the
subsidiarys no-par common stock. The British subsidiary, Searle
Corporation, purchased real property on April 1, 20X5 at a cost of
500,000, with 100,000 allocated to land and 400,000 allocated to a
building. The building is depreciated over a 40-year estimated useful
life on a straight-line basis with no salvage value. The British
pound is Searles functional currency and its reporting currency. The
British economy does not have high rates of inflation. Exchange rates
for the pound on various dates were:
January 01, 20X5
April 01, 20X5
December 31, 20X5
20X5 average rate
=
=
=
=
1
1
1
1
=
=
=
=
$1.50
$1.51
$1.58
$1.56
Searle's adjusted trial balance is presented below for the year ended
December 31, 20X5.
13-8
In Pounds
Debits:
Cash
Accounts receivable
Inventory
Building
Land
Depreciation expense
Other expenses
Cost of good sold
Total debits
Credits
Accumulated depreciation
Accounts payable
Common stock
Retained earnings
Equity adjustment
Sales revenue
Total credits
220,000
52,000
59,000
400,000
100,000
7,500
110,000
220,000
1,168,500
7,500
111,000
450,000
0
0
600,000
1,168,500
Required: Prepare Searle's:

1. Translation working papers;
2. Translated income statement; and
3. Translated balance sheet.
LO5
Exercise 4
Note to Instructor: This exam item is a continuation of Exercise 3
and proceeds forward with Searles second year of operations.
Searle Corporation, a British subsidiary of Peake Corporation (a US
company) was formed by Peake on January 1, 20X5 in exchange for all
of the subsidiary's common stock. Searle has now ended its second
year of operations on December 31, 20X6. Relevant exchange rates are:
January 01, 20X5 = 1 = $1.50
December 31, 20X6 = 1 = $1.65
20X6 average rate = 1 = $1.63
Searle's adjusted trial balance is presented below for the calendar
year 20X6. The amount of equity adjustment carried over from 20X5 is
a credit balance of $41,250 (in dollars).
13-9
In Pounds
Debits:
Cash
Accounts receivable
Inventory
Building
Land
Other expenses
Cost of good sold
Total debits
Credits
Accounts payable
Common stock
Retained earnings
Sales revenue
Total credits
75,000
362,000
41,000
400,000
100,000
10,000
133,000
380,000
1,501,000
17,500
154,750
450,000
262,500
616,250
1,501,000
Required: For Searle's second year of operations, prepare the:

LO5
Exercise 5
Note to Instructor: This exam item is similar to Exercise 3 except
that the exchange rates have been changed and the temporal method is
used instead of the current rate method.
The Pearce Corporation, a US corporation, formed a British subsidiary
on January 1, 20X7 by investing 550,000 in exchange for all of the
subsidiarys no-par common stock. The British subsidiary, Seakam
Corporation, purchased real property on April 1, 20X7 at a cost of
500,000, with 100,000 allocated to land and 400,000 allocated to
the building. The building is depreciated over a 40-year estimated
useful life on a straight-line basis with no salvage value. The US
dollar is Seakams functional currency, but it keeps its records in
pounds. The British economy does not experience high rates of
inflation. Exchange rates for the pound on various dates are:
13-10
January 01, 20X7

April 01, 20X7
December 31, 20X7
20X7 average rate
=
=
=
=
1
1
1
1
=
=
=
=
$1.40
$1.42
$1.45
$1.44
Seakam's adjusted trial balance is presented below for the year ended
December 31, 20X7.
In Pounds
Debits:
Cash
Accounts receivable
Notes receivable
Building
Land
Other expenses
Salary expense
Total debits
Credits
Accounts payable
Common stock
Retained earnings
Equity adjustment
Sales revenue
Total credits
200,000
72,000
99,000
400,000
100,000
7,500
115,000
208,000
1,201,500
7,500
100,000
550,000
0
0
544,000
1,201,500
Required: Prepare Seakam's:

LO5
Exercise 6
Note to Instructor: This exam item is a continuation of Exercise 6
and proceeds forward with Seakams second year of operations.
Seakam Corporation, a British subsidiary of Pearce Corporation (a US
company) was formed by Pearce on January 1, 20X7 in exchange for all
of the subsidiary's common stock. Seakam has now ended its second
year of operations on December 31, 20X8. Relevant exchange rates are:
13-11
January 01, 20X7

April 01, 20X7
December 31, 20X8
20X8 average rate
=
=
=
=
1
1
1
1
=
=
=
=
$1.40
$1.42
$1.37
$1.36
Seakam's adjusted trial balance is presented below for the calendar

year 20X8.
In
Pounds
Debits:
Cash
Accounts receivable
Notes receivable
Building
Land
Other expenses
Salary expense
Total debits
Credits
Accounts payable
Common stock
Retained earnings
Sales revenue
Total credits
172,000
308,000
98,000
400,000
100,000
10,000
117,000
376,000
1,581,000
17,500
200,000
550,000
213,500
600,000
1,581,000
Required: Prepare Seakam's:


13-12
LO7
Exercise 7
On January 1, 20X4, Pearl Corporation, a US firm, acquired a 70%
interest in Segar Corporation, a foreign company, for $120,000, when
Segars stockholders equity consisted of 300,000 local currency
units (LCU) and retained earnings of 100,000 LCU. At the time of the
acquisition, Segars assets and liabilities were fairly valued except
for a patent that did not have any recorded book value. All excess
purchase cost was attributed to the patent, which had an estimated
economic life of 10 years at the date of acquisition. The exchange
rate for LCUs on January 1, 20X4 was $.40.
A summary of changes in Segars stockholders equity during 20X4 and
the exchange rates for LCUs is as follows:
LCU
Rates
Dollars
Stockholders equity
1/1/X4
400,000
$
.40C
$
160,000
Net income
100,000
.42A
42,000
Dividends 12/1/X4
(
50,000 )
.43C
(
21,500 )
Equity adjustment
17,500
Stockholders equity
12/31/X4
450,000
.44C
$
198,000
Required: Determine the following:
1. Fair value of the patent from Pearls investment in Segar on
January 1, 20X4.
2. Patent amortization for 20X4.
3. Unamortized patent at December 31, 20X4.
4. Equity adjustment from the patent.
5. Income from Segar for 20X4.
6. Investment in Segar balance at December 31, 20X4.
LO7
Exercise 8
Peatey Corporation, a US company, acquired a 30% interest in Selby
Corporation of Switzerland on January 1, 20X3 for $3,300,000 when
Selbys stockholders equity in Swiss francs (SF) consisted of
7,000,000 SF Capital Stock and 3,000,000 SF Retained Earnings. The
exchange rate for Swiss francs was $.66 on January 1. All excess
purchase cost was attributed to a trademark that did not have a
recorded book value. Peatey will amortize the trademark over 40
years.
13-13
A summary of changes in Selbys stockholders equity during 20X3 and

relevant exchange rates are as follows:
In
Francs
Stockholders equity
1/1/X3
Net income
Dividends 11/1/X3
Equity adjustment
Stockholders equity
12/31/X3
10,000,000
$
2,500,000
1,000,000 )
11,500,000
Exchange
Rates
.660C $
.650A
.645C
(
(
.64C $
In
Dollars
6,600,000
1,625,000
645,000 )
220,000 )
7,360,000
Required: Determine the following:

1. Fair value of the trademark from Peateys investment in Selby on
January 1, 20X3.
2. Trademark amortization for 20X3.
3. Unamortized trademark at December 31, 20X3.
4. Equity adjustment from the trademark.
5. Income from Selby for 20X3.
6. Investment in Selby balance at December 31, 20X3.

13-14
LO7
Exercise 9
Pelican Corporation, a US company, owns 100% of Swiftlet Corporation, an
Australian company. Swiftlet's equipment was acquired on the following
dates (amounts are stated in Australian dollars):
Jan. 01, 20X1 Purchased equipment for A$40,000
Jul. 01, 20X1 Purchased equipment for A$80,000
Jan. 01, 20X2 Purchased equipment for A$50,000
Jul. 01, 20X2 Sold equipment purchased on Jan. 01, 20X1 for A$35,000
Exchange rates for the Australian dollar on various dates are:
Jan.
Jul.
Dec.
20X1
01, 20X1
1A$ = $.500
01, 20X1
1A$ = $.520
31, 20X1
1A$ = $.530
avg. rate 1A$ = $.515
Jan. 01,
Jul. 01,
Dec. 31,
20X2 avg.
20X2
1A$
20X2
1A$
20X2
1A$
rate 1A$ =
= $.530
= $.505
= $.490
$.510
Swiftlet's equipment has an estimated 5-year life with no salvage value and
is depreciated using the straight-line method. Swiftlet's functional
currency is the US dollar, but the company uses the Australian dollar as
its reporting currency.
Required:
1. Determine the value of Swiftlet's equipment account on December 31, 20X2
in US dollars.
2. Determine Swiftlet's depreciation expense for 20X2 in US dollars.
3. Determine the gain or loss from the sale of equipment on July 1, 20X2 in
US dollars.

13-15
LO7
Exercise 10
Peregrine Falcon Inc., a US company, owns 100% of Starling Corporation, a
New Zealand company. Starling's equipment was acquired on the following
dates (amounts are stated in New Zealand dollars):
Jan. 01, 20X1 Purchased equipment for NZ$40,000
Jul. 01, 20X1 Purchased equipment for NZ$80,000
Jan. 01, 20X2 Purchased equipment for NZ$50,000
Jul. 01, 20X2 Sold equipment purchased on Jan. 01, 20X1 for NZ$35,000
Exchange rates for the New Zealand dollar on various dates are:
Jan.
Jul.
Dec.
20X1
01, 20X1
1NZ$ = $.500
01, 20X1
1NZ$ = $.520
31, 20X1
1NZ$ = $.530
avg. rate 1NZ$ = $.515
Jan. 01,
Jul. 01,
Dec. 31,
20X2 avg.
20X2
1NZ$
20X2
1NZ$
20X2
1NZ$
rate 1NZ$ =
= $.530
= $.505
= $.490
$.510
Starling's equipment has an estimated 5-year life with no salvage value and
is depreciated using the straight-line method. Starling's functional
currency and reporting currency are the New Zealand dollar.
Required:
1. Determine the value of Starling's equipment account on December 31, 20X2
in US dollars.
2. Determine Starling's depreciation expense for 20X2 in US dollars.
3. Determine the gain or loss from the sale of equipment on July 1, 20X2 in
US dollars.

13-16
SOLUTIONS
Multiple Choice Questions
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
{(210 90)/90} x 100% = 133%
Acc. Rec. $850,000 + Trademark $575,000 + Plant

$900,000

13-17
Exercise 1
US dollar is
the functional
currency
The foreign
Currency is the
functional
currency
1. Accounts receivable
2. Marketable debt securities

carried at cost
3. Inventories carried at cost
4. Deferred income
5. Goodwill
6. Other paid-in capital
7. Depreciation
8. Refundable deposits
9. Common stock
11. Deferred income tax

liabilities
12. Accounts payable
10. Accumulated depreciation on

buildings

13-18
Exercise 2
Requirement 1
Depreciation expense in 20X5
C$90,000/3 years x $.75/C$ = $22,500 depreciation expense
Requirement 2
Unamortized excess at December 31, 20X5
C$90,000 x 2/3 x $.73/C$ = $43,800 unamortized excess on equipment
Requirement 3
Remeasured depreciation expense
C$90,000 x $.77/C$ = $69,300 excess
$69,300/3 years = $23,100 depreciation expense

13-19
Exercise 3
Requirement 1
Searle Corporation
Translation Working Papers
Debits
Cash
Accounts receivable
Inventory
Building
Land
Other expenses
Cost of goods sold
220,000
52,000
59,000
400,000
100,000
7,500
110,000
220,000
x
x
x
x
x
x
x
x
$1.58
$1.58
$1.58
$1.58
$1.58
$1.56
$1.56
$1.56
=
=
=
=
=
=
=
=
Total debits
Credits
Accounts payable
Common stock
Sales revenue
Retained earnings
Total credits
7,500
111,000
450,000
600,000
x
x
x
x
$1.58
$1.58
$1.50
$1.56
=
=
=
=
Credit differential
347,600
82,160
93,220
632,000
158,000
11,700
171,600
343,200
1,839,480
11,850
175,380
675,000
936,000
0
1,798,230
41,250
936,000
Requirement 2
Searle Corporation
Translated Income Statement
For the Year Ended December 31, 20X5
Sales revenue
Expenses:
Cost of goods sold
Other expenses
Net income
(
(
(
$
343,200 )
11,700 )
171,600 )
409,500

13-20
Requirement 3
Searle Corporation
Translated Balance Sheet
December 31, 20X5
Cash
Accounts receivable
Inventory
Building-net
Land
Total assets
Accounts payable
Common stock
Retained earnings
Accumulated comprehensive income
Total liabilities & equities
347,600
82,160
93,220
620,150
158,000
1,301,130
175,380
675,000
409,500
41,250
1,301,130

13-21
Exercise 4
Requirement 1
Searle Corporation
Debits
Cash
Accounts receivable
Inventory
Building
Land
Other expenses
Cost of goods sold
75,000
362,000
41,000
400,000
100,000
10,000
133,000
380,000
x
x
x
x
x
x
x
x
$1.65
$1.65
$1.65
$1.65
$1.65
$1.63
$1.63
$1.63
=
=
=
=
=
=
=
=
Total debits
Credits
Accounts payable
Common stock
Sales revenue
Retained earnings
Accumulated comprehensive
income
Total credits
17,500
154,750
450,000
616,250
262,500
x
x
x
x
$1.65
$1.65
$1.50
$1.63
=
=
=
=
Credit differential
123,750
597,300
67,650
660,000
165,000
16,300
216,790
619,400
2,466,190
28,875
255,338
675,000
1,004,487
409,500
41,250
2,414,450
51,740
1,004,487
Requirement 2
Searle Corporation
for the year ended December 31, 20X6
Sales revenue
Expenses:
Cost of goods sold
Other expenses
Net income
Retained earnings, January 1, 20X6
Retained earnings, December 31, 20X6
(
(
(
$
$
619,400 )
16,300 )
216,790 )
151,997
409,500
561,497

13-22
Requirement 3
Searle Corporation
December 31, 20X6
Cash
Accounts receivable
Inventory
Building-net
Land
Total assets
123,750
597,300
67,650
631,125
165,000
1,584,825
Accounts payable
$
Common stock
Retained earnings
Accumulated comprehensive income ($41,250 + $51,740)
$
255,338
675,000
561,497
92,990
1,584,825
Exercise 5
Requirement 1
Seakam Corporation
Debits
Cash
Accounts receivable
Notes receivable
Building
Land
Other expenses
Salary expense
Total debits
200,000
72,000
99,000
400,000
100,000
7,500
115,000
208,000
x
x
x
x
x
x
x
x
$1.45
$1.45
$1.45
$1.42
$1.42
$1.42
$1.44
$1.44
=
=
=
=
=
=
=
=
290,000
104,400
143,550
568,000
142,000
10,650
165,600
299,520
1,723,720

13-23
Credits
Accounts payable
Common stock
Sales revenue
Retained earnings
Total credits
7,500
100,000
550,000
544,000
0
x
x
x
x
$1.42
$1.45
$1.40
$1.44
=
=
=
=
Credit differential
10,650
145,000
770,000
783,360
0
1,709,010
14,710
783,360
Requirement 2
Seakam Corporation
Sales revenue
Expenses:
Salary expense
Other expenses
Income before exchange gains or losses
Exchange gains
Net income
(
(
(
$
$
$
299,520 )
10,650 )
165,600 )
307,590
14,710
322,300
0
322,300
Requirement 3
Seakam Corporation
December 31, 20X7
Cash
Accounts receivable
Notes receivable
Building-net
Land
Total assets
Accounts payable
Common stock
Retained earnings
290,000
104,400
143,550
557,350
142,000
1,237,300
145,000
770,000
322,300
1,237,300

13-24
Exercise 6
Seakam Corporation
Debits
Cash
Accounts receivable
Notes receivable
Building
Land
Other expenses
Salary expense
172,000
308,000
98,000
400,000
100,000
10,000
117,000
376,000
x
x
x
x
x
x
x
x
$1.37
$1.37
$1.37
$1.42
$1.42
$1.42
$1.36
$1.36
=
=
=
=
=
=
=
=
Total debits
Credits
Accounts payable
Common stock
Sales revenue
Retained earnings
Total credits
17,500
200,000
550,000
600,000
213,500
x
x
x
x
$1.42
$1.37
$1.40
$1.36
=
=
=
=
Debit differential
235,640
421,960
134,260
568,000
142,000
14,200
159,120
511,360
2,186,540
24,850
274,000
770,000
816,000
322,300
2,207,150
20,610
816,000
Requirement 2
Seakam Corporation
Sales revenue
Expenses:
Salary expense
Other expenses
Income before exchange gains or losses
Exchange loss
Net income
(
(
(
$
$
$
511,360
14,200
159,120
131,320
20,610
110,710
322,300
433,010

13-25
)
)
)
)
Requirement 3
Seakam Corporation
December 31, 20X8
Cash
Accounts receivable
Notes receivable
Building-net
Land
Total assets
Accounts payable
Common stock
Retained earnings
235,640
421,960
134,260
543,150
142,000
1,477,010
274,000
770,000
433,010
1,477,010
Exercise 7
Requirement 1
Patent Fair Value
Cost of 70% interest
Book value acquired 400,000 LCU x $.40 x 70% =
Patent in dollars
$
$
Patent in LCU = $8,000/$.40 per LCU =
120,000
112,000 )
8,000
20,000
Requirement 2
Patent amortization for 20X4
Patent: 20,000 LCU/10 years = 2,000 LCU per year
2,000 LCU per year x $.42 equals amortization of:
840
7,920
Requirement 3
Unamortized patent
Patent (20,000 LCU 2,000 LCU) x $.44 =

13-26
Requirement 4
Equity adjustment from patent
Beginning patent (from Req. 1)

Patent amortization (from Req. 2)
Subtotal
Ending goodwill 18,000 LCU x $.44 =
Equity adjustment
$
(
8,000
840 )
7,160
7,920
760
Requirement 5
Income from Segar
Equity in income ($42,000 x 70%)
Less: Patent amortization
Income from Segar
29,400
840 )
28,560
Requirement 6
Investment in Segar balance at December 31, 20X4
Cost, January 1, 20X4
Add: Income for 20X4 (from Req. 5)
Less: Dividends ($21,500 x 70%)
Add: Equity adjustment from patent (from Req. 4)
Add: Equity adjustment from translation
($17,500 x 70%)
Investment balance, December 31, 20X4
Check:
Book value: $198,000 x 70% =
Unamortized patent (from Req. 3)
Investment balance
$
(
$
$
120,000
28,560
15,050 )
760
12,250
146,520
138,600
7,920
146,520
Exercise 8
13-27
Requirement 1
Trademark
Cost of 30% interest
Book value acquired 10,000,000 x $.66 x 30% =
Fair value of trademark in dollars
Trademark in $1,320,000/$.66 =
3,300,000
1,980,000 )
1,320,000
2,000,000
Requirement 2
Trademark amortization for 20X3
Trademark: 2,000,000/40 yr. x $.65 average rate =
32,500
1,248,000
Requirement 3
Unamortized trademark
Trademark (2,000,000 50,000SF) x $.64 exchange
rate
Requirement 4
Equity adjustment from trademark
Beginning trademark (from Req. 1)
Trademark amortization (from Req. 2)
Less: Ending trademark (1,950,000 x $.64)
Equity adjustment
$
(
(
1,320,000
32,500 )
1,248,000 )
39,500
487,500
32,500 )
455,000
Requirement 5
Income from Selby
Equity in income ($1,625,000 x 30%)
Less: Trademark amortization
Income from Selby
$
$
Requirement 6
Investment in Segar balance at December 31, 20X3
13-28
Cost, January 1, 20X3

$
Add: Income from Selby (from Req. 5)
Less: Dividends ($645,000 x 30%)
(
Less: Equity adjustment from translation
($220,000 x 30%)
(
Less: Equity adjustment from trademark (from Req. 4)
(
$
Check:
Share of Selbys equity $7,360,000 x 30%
Add: Unamortized trademark (from Req. 3)
$
$
3,300,000
455,000
193,500 )
66,000 )
39,500 )
3,456,000
2,208,000
1,248,000
3,456,000

13-29
Exercise 9
Requirement 1
Equipment:
Jul. 01, 20X1 (A$80,000 x $.520/A$) =
$41,600
Jan. 01, 20X2 (A$50,000 x $.530/A$) =
26,500
Total
$68,100
Requirement 2
Depreciation expense:
{(A$40,000 x 1/5 x .5 yr.)x ($.500/A$)} =
2,000
{(A$80,000 x 1/5 x 1 yr.)x($.520/A$)}
8,320
{(A$50,000 x 1/5 x 1 yr.)x($.530/A$)}
5,300
Total
$15,620
Requirement 3
Equipment sold:
(A$40,000 x $.500/A$)
Accumulated Depreciation on equipment sold:

{(A$40,000 x 1/5 x 1.5 yrs.)x($.500/A$)} =
Net book value of equipment sold
Cash received on July 1, 20X2:
(A$35,000 x $.505/A$) =
Gain on sale of equipment
$20,000
6,000
$14,000
17,675
$ 3,675

13-30
Exercise 10
Requirement 1
Equipment:
Jul. 01, 20X1 (NZ$80,000 x $.490/NZ$) =
$39,200
Jan. 01, 20X2 (NZ$50,000 x $.490/NZ$) =
24,500
Total
$63,700
Requirement 2
Depreciation expense:
{(NZ$40,000 x 1/5 x .5 yr.)x($.510/NZ$)} =
2,040
{(NZ$80,000 x 1/5 x 1 yr.)x($.510/NZ$)}
8,160
{(NZ$50,000 x 1/5 x 1 yr.)x($.510/NZ$)}
5,100
Total
$15,300
Requirement 3
Equipment sold
Accumulated Depreciation on sold equipment
(NZ$40,000 x 1/5 x 1.5 yr.)
Net book value of equipment sold
Cash received on July 1, 20X2
Gain on sale of equipment
Gain in US$:
(NZ$7,000 x $.510/NZ$) =
NZ$40,000
12,000
NZ$28,000
35,000
NZ$ 7,000
$ 3,570

13-31

Chapter 13 Foreign Currency Financial Statements

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Chapter 13 Foreign Currency Financial Statements

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Chapter 13 Test Bank

FOREIGN CURRENCY FINANCIAL STATEMENTS

Multiple Choice Questions

A US firm has a Belgian subsidiary that uses the British pound

Selvey Inc. is a completely owned subsidiary of Parsfield

All of the following factors

high volume of intercompany transactions.

When the financial statements of a foreign subsidiary one year

current exchange rate.

2009 Pearson Education, Inc. publishing as Prentice Hall

Peachey has a foreign subsidiary, Schrivener Corporation of

Paskins Corporations wholly-owned Canadian subsidiary has a

A foreign entity is a subsidiary of a US parent company and has

2009 Pearson Education, Inc. publishing as Prentice Hall

The objective of remeasurement is to

Which of the following assets and/or liabilities are considered

Which one of the following accounts would be translated at the

Intangible Assets and Plant, Property, and Equipment.

Deferred Income Taxes.

a. historical rates when the US dollar is the functional

2009 Pearson Education, Inc. publishing as Prentice Hall

Lorikeet Corporation has a foreign subsidiary located in a

The inflation rate that is used in determining if the

A US companys foreign subsidiary has as its functional

When translating foreign subsidiary income statements using the

2009 Pearson Education, Inc. publishing as Prentice Hall

Which of the following foreign subsidiary accounts will have

Remeasurement exchange gains or losses appear

2009 Pearson Education, Inc. publishing as Prentice Hall

A US parent makes a 1,000,000 krona loan worth $108,250 to its

A foreign subsidiarys accounts receivable balance should be

appropriate historical rate.

If a US company wants to hedge a prospective loss in a foreign

2009 Pearson Education, Inc. publishing as Prentice Hall

Current exchange rate

3. If Selmics functional currency was the US dollar, what would be

Required: Prepare Searle's:

Required: For Searle's second year of operations, prepare the:

January 01, 20X7

Required: Prepare Seakam's:

January 01, 20X7

Seakam's adjusted trial balance is presented below for the calendar

Required: Prepare Seakam's:

2009 Pearson Education, Inc. publishing as Prentice Hall

A summary of changes in Selbys stockholders equity during 20X3 and

Required: Determine the following:

2009 Pearson Education, Inc. publishing as Prentice Hall

2009 Pearson Education, Inc. publishing as Prentice Hall

2009 Pearson Education, Inc. publishing as Prentice Hall

{(210 90)/90} x 100% = 133%

Acc. Rec. $850,000 + Trademark $575,000 + Plant

2009 Pearson Education, Inc. publishing as Prentice Hall

2. Marketable debt securities

3. Inventories carried at cost

6. Other paid-in capital

11. Deferred income tax

12. Accounts payable

10. Accumulated depreciation on

2009 Pearson Education, Inc. publishing as Prentice Hall

2009 Pearson Education, Inc. publishing as Prentice Hall

2009 Pearson Education, Inc. publishing as Prentice Hall

2009 Pearson Education, Inc. publishing as Prentice Hall

2009 Pearson Education, Inc. publishing as Prentice Hall

2009 Pearson Education, Inc. publishing as Prentice Hall