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Advanced Accounting, 11e (Beams/Anthony/Bettinghaus/Smith)

Chapter 14 Foreign Currency Financial Statements


Multiple Choice Questions
1) A U.S. firm has a Belgian subsidiary that uses the British pound as its functional currency. According to
GAAP, the U.S. dollar from Belgian unit's point of view will be
A) its only foreign currency.
B) its local currency.
C) its current rate method currency.
D) its reporting currency.
Answer: D
Objective: LO1
Difficulty: Easy

2) Selvey Inc. is a wholly-owned subsidiary of Parsfield Incorporated, a U.S. firm. The country where
Selvey operates is determined to have a highly inflationary economy according to GAAP definitions.
Therefore, for purposes of preparing consolidated financial statements, the functional currency is
A) its reporting currency.
B) its current rate method currency.
C) the US dollar.
D) its local currency.
Answer: C
Explanation: C) Selvey must use the functional currency of the reporting entity.
Objective: LO3
Difficulty: Easy

3) All of the following factors would be used to define a foreign entity's functional currency, except
A) high volume of intercompany transactions.
B) expenses for foreign entity primarily driven by local factors.
C) financing for foreign entity denominated in local currency.
D) foreign entity's status as a local tax haven for transfer pricing purposes.
Answer: D
Objective: LO1
Difficulty: Easy

4) The primary goal behind consolidating financial statements of a controlled subsidiary is


A) assuring that the subsidiary financial statements are the same under the temporal method or the
current rate method.
B) assuring that the individual nature of the subsidiary entity is not lost in the consolidation.
C) representing the conversion of statements at the historical exchange rate.
D) representing the company's underlying economic condition.
Answer: D
Objective: LO2
Difficulty: Easy

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5) Pelmer has a foreign subsidiary, Sapp Corporation of Germany, whose functional currency is the euro.
Sapp's books are maintained in euros. On December 31, 2011, Sapp 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 U.S. dollars at the current rate, the Account
Receivable is not adjusted on the subsidiary's books before translation.
B) The Account Receivable is remeasured into the functional currency, thus eliminating the need for
translation.
C) The Account Receivable is first adjusted to reflect the current exchange rate in euros and then
translated at the current exchange 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 subsidiary's separate
balance sheet.
Answer: C
Objective: LO2
Difficulty: Moderate

6) Paskin Corporation's wholly-owned Canadian subsidiary has a Canadian dollar functional currency. In
translating the subsidiary's account balances into U.S. dollars for reporting purposes, which one of the
following accounts would be translated at historical exchange rates?
A) Accounts Receivable
B) Notes Payable
C) Capital Stock
D) Retained Earnings
Answer: C
Objective: LO2
Difficulty: Easy

7) A foreign entity is a subsidiary of a U.S. 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 false?
A) The U.S. dollar is the functional currency of this company.
B) Changes in exchange rates between the subsidiary's country and the parent's country are not expected
to affect the foreign entity's 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.
Answer: A
Objective: LO2
Difficulty: Easy

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8) Assume the functional currency of a foreign entity is the U.S. dollar, but the books are kept in euros.
The objective of remeasurement of a foreign entity's accounts is to
A) produce the same results as if the foreign entity's books were maintained in the currency of the largest
customer.
B) produce the same results as if the foreign entity's books were maintained solely in the local currency.
C) produce the same results as if the foreign entity's books were maintained solely in the U.S. dollar.
D) produce the results reflective of the foreign entity's economics in the local currency.
Answer: C
Objective: LO2
Difficulty: Easy

9) Which of the following assets and/or liabilities are considered monetary?


A) Intangible Assets and Plant, Property, and Equipment
B) Bonds Payable and Common Stock
C) Cash and Accounts Payable
D) Notes Receivable and Inventories carried at cost
Answer: C
Objective: LO2
Difficulty: Easy

10) Which of the following statements about the Current Rate method is false?
A) Translation involves restating the functional currency amounts into the reporting currency.
B) All assets and liabilities are translated at the current rate.
C) If the subsidiary maintains their books in their functional currency, the current rate method is used.
D) The effect of exchange rate changes are reported on the income statement as a foreign exchange gain or
loss.
Answer: D
Objective: LO2
Difficulty: Easy

11) Accounts representing an allowance for uncollectible accounts are converted into U.S. dollars at
A) historical rates when the U.S. dollar is the functional currency.
B) current rates only when the U.S. dollar is the functional currency.
C) historical rates regardless of the functional currency.
D) current rates regardless of the functional currency.
Answer: D
Objective: LO2
Difficulty: Easy

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12) Palk Corporation has a foreign subsidiary located in a country experiencing high rates of inflation.
Information concerning this country's inflation rate experience is given below.

Date
January 1, 2009
January 1, 2010
January 1, 2011
January 1, 2012

Index
90
120
150
210

Change
in index

Annual rate
of Inflation

30
30
60

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%.
D) 350.00%.
Answer: C
Explanation: C) [(210 - 90)/90] 100% = 133%
Objective: LO3
Difficulty: Moderate

13) At the time of a business acquisition,


A) identifiable assets and liabilities are allocated the portion of the translation or remeasurement
adjustment that existed on the date of acquisition.
B) a foreign entity's assets and liabilities are translated into U.S. dollars using the current exchange rate in
effect on that date.
C) the difference between investment fair value and translated net assets acquired is treated as a
remeasurement gain or loss on the income statement.
D) the difference between investment fair value and translated net assets acquired is recorded as a
cumulative translation adjustment on the balance sheet.
Answer: B
Objective: LO4
Difficulty: Easy

14) 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.
Answer: D
Objective: LO5
Difficulty: Easy

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15) The following assets of Poole Corporation's Romanian subsidiary have been converted into U.S.
dollars at the following exchange rates:

Accounts receivable
Trademark
Property plant and equipment
Totals

Current
Rates
$850,000
600,000
1,200,000
$2,650,000

Historical
Rates
$875,000
575,000
900,000
$2,350,000

Assume the functional currency of the subsidiary is the U.S. dollar and the books are kept in a different
currency. The assets should be reported in the consolidated financial statements of Poole Corporation and
Subsidiary in the total amount of
A) $2,325,000.
B) $2,350,000.
C) $2,375,000.
D) $2,650,000.
Answer: A
Explanation: A) A/R $850,000 + Trademark $575,000 + Plant $900,000
Objective: LO5
Difficulty: Moderate

16) Which of the following foreign subsidiary accounts will have the same value on consolidated financial
statements, regardless of whether the statements are remeasured or translated?
A) Trademark
B) Deferred Income
C) Accounts Receivable
D) Goodwill
Answer: C
Objective: LO2
Difficulty: Easy

17) Exchange gains or losses from remeasurement 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.
Answer: A
Objective: LO6
Difficulty: Easy

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18) A U.S. parent corporation loans funds to a foreign subsidiary to be used to purchase equipment. The
loan is denominated in U.S. dollars and the functional currency of the subsidiary is the euro. 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.
Answer: B
Objective: LO7
Difficulty: Moderate

19) A foreign subsidiary's accounts receivable balance should be translated for the consolidated financial
statements at
A) the appropriate historical rate.
B) the prior year's forecast rate.
C) the future rate for the next year.
D) the spot rate at year-end.
Answer: D
Objective: LO8
Difficulty: Easy

20) If a U.S. company wants to hedge a prospective loss on its investment in a foreign entity that may
result from a foreign currency fluctuation, the U.S. company should
A) purchase a forward to swap currency of the foreign entity's local country for U.S. currency.
B) purchase a call option to buy currency of the foreign entity's local country.
C) issue a loan in the foreign entity's local country.
D) borrow money in the foreign entity's local country.
Answer: D
Objective: LO9
Difficulty: Easy

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Exercises
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 U.S. parent company.
Codes
C = Current exchange rate
H = Historical exchange rate
A = Average exchange rate
U.S. 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 expense

________

________

8.

Refundable deposits

________

________

9.

Common stock

________

________

10. Accumulated depreciation on


buildings

________

________

11. Deferred income tax liabilities

________

________

12. Accounts payable

________

________

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Answer:

1. Accounts receivable

U.S. dollar is
the functional
currency
C

The foreign
currency is the
functional currency
C

2. Marketable debt securities


carried at cost

3. Inventories carried at cost

4. Deferred income

5. Goodwill

6. Other paid-in capital

7. Depreciation expense

8. Refundable deposits

9. Common stock

10. Accumulated depreciation on


buildings

11. Deferred income tax liabilities

12. Accounts payable

Objective: LO2
Difficulty: Moderate

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2) On January 1, 2012, Planet Corporation, a U.S. company, acquired 100% of Star Corporation of Bulgaria,
paying an excess of 90,000 Bulgarian lev over the book value of Star's net assets. The excess was allocated
to undervalued equipment with a three-year remaining useful life. Star's functional currency is the
Bulgarian lev. Star's books are maintained in the functional currency. Exchange rates for Bulgarian lev for
2012 are:
January 1, 2012
Average rate for 2012
December 31, 2012

$.77
.75
.73

Required:
1. Determine the depreciation expense stated in U.S. dollars on the excess allocated to equipment for 2012.
2. Determine the unamortized excess allocated to equipment on December 31, 2012 in U.S. dollars.
3. If Star's functional currency was the U.S. dollar, what would be the depreciation expense on the excess
allocated to the equipment for 2012?
Answer:
Requirement 1
Depreciation expense in 2012
90,000 lev/3 years $.75/lev = $22,500 depreciation expense
Requirement 2
Unamortized excess at December 31, 2012
90,000 lev 2/3 $.73/lev = $43,800 unamortized excess on equipment
Requirement 3
Remeasured depreciation expense
90,000 lev $.77/lev = $69,300 excess
$69,300/3 years = $23,100 depreciation expense
Objective: LO5
Difficulty: Moderate

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3) Pan Corporation, a U.S. company, formed a British subsidiary on January 1, 2012 by investing 450,000
British pounds () in exchange for all of the subsidiary's no-par common stock. The British subsidiary,
Skillet Corporation, purchased real property on April 1, 2012 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 Skillet's functional currency and its
reporting currency. The British economy does not have high rates of inflation. Exchange rates for the
pound on various dates were:
January 01, 2012 =
April 01, 2012
=
December 31, 2012 =
2012 average rate =

1 =
1 =
1 =
1 =

$1.60
$1.61
$1.68
$1.66

Skillet's adjusted trial balance is presented below for the year ended December 31, 2012.
In Pounds

Debits:
Cash
Accounts receivable
Inventory
Building
Land
Depreciation expense
Other expenses
Cost of goods sold
Total debits

220,000
52,000
59,000
400,000
100,000
7,500
110,000
220,000
1,168,500

Credits
Accumulated depreciation
Accounts payable
Common stock
Retained earnings
Equity adjustment
Sales revenue
Total credits

7,500
111,000
450,000
0
0
600,000
1,168,500

Required: Prepare Skillet's:


1. Translation working papers;
2. Translated income statement; and
3. Translated balance sheet.

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Answer:
Requirement 1

Debits
Cash
Accounts receivable
Inventory
Building
Land
Depreciation expense
Other expenses
Cost of goods sold

Skillet Corporation
Translation Working Papers
220,000 $1.68
52,000 $1.68
59,000 $1.68
400,000 $1.68
100,000 $1.68
7,500 $1.66
110,000 $1.66
220,000 $1.66

= $369,600
=
87,360
=
99,120
= 672,000
= 168,000
=
12,450
= 182,600
= 365,200
_________
$1,956,330

7,500 $1.68
111,000 $1.68
450,000 $1.60
600,000 $1.66

=
=
=
=

Total debits
Credits
Accumulated depreciation
Accounts payable
Common stock
Sales revenue
Retained earnings
Total credits

$12,600
186,480
720,000
996,000
0
$1,915,080

Credit differential
Requirement 2

Sales revenue

$41,250

Skillet Corporation
Translated Income Statement
For the Year Ended December 31, 2012

Expenses:
Cost of goods sold
Depreciation expense
Other expenses

$996,000

(365,200)
(12,450)
(182,600)
________
$435,750

Net income

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Requirement 3

Skillet Corporation
Translated Balance Sheet
December 31, 2012

Cash
Accounts receivable
Inventory
Building-net
Land
Total assets

$369,600
87,360
99,120
659,400
168,000
$1,383,480

Accounts payable
Common stock
Retained earnings
Accumulated other comprehensive income
Total liabilities & equities

$186,480
720,000
435,750
41,250
$1,383,480

Objective: LO5
Difficulty: Moderate

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4) Note to Instructor: This exam item is a continuation of Exercise 3 and proceeds forward with
Skillet's second year of operations.
Skillet Corporation, a British subsidiary of Pan Corporation (a U.S. company) was formed by Pan on
January 1, 2012 in exchange for all of the subsidiary's common stock. Skillet has now ended its second
year of operations on December 31, 2013. Relevant exchange rates are:
January 01, 2013 =
December 31, 2013 =
2013 average rate =

1 =
1 =
1 =

$1.60
$1.75
$1.73

Skillet's adjusted trial balance is presented below for the calendar year 2013. The amount of equity
adjustment carried over from 2012 is a credit balance of $41,250 (in dollars).
In Pounds

Debits:
Cash
Accounts receivable
Inventory
Building
Land
Depreciation expense
Other expenses
Cost of goods sold
Total debits

75,000
362,000
41,000
400,000
100,000
10,000
133,000
380,000
1,501,000

Credits
Accumulated depreciation
Accounts payable
Common stock
Retained earnings
Sales revenue
Total credits

17,500
154,750
450,000
262,500
616,250
1,501,000

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


1. Translation working papers;
2. Translated income statement; and
3. Translated balance sheet.

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Answer:
Requirement 1

Debits
Cash
Accounts receivable
Inventory
Building
Land
Depreciation expense
Other expenses
Cost of goods sold

Skillet Corporation
Translation Working Papers
75,000
362,000
41,000
400,000
100,000
10,000
133,000
380,000

$1.75
$1.75
$1.75
$1.75
$1.75
$1.73
$1.73
$1.73

=
=
=
=
=
=
=
=

Total debits

$2,616,290

Credits
Accumulated depreciation
17,500 $1.75
Accounts payable
154,750 $1.75
Common stock
450,000 $1.60
Sales revenue
616,250 $1.73
Retained earnings
262,500
Accumulated other comprehensive income
Total credits

=
$30,625
=
270,812
=
720,000
= 1,066,113
435,750
41,250
$2,564,550

Credit differential
Requirement 2

Sales revenue

$131,250
633,500
71,750
700,000
175,000
17,300
230,090
657,400

$51,740

Skillet Corporation
Translated Income Statement
for the year ended December 31, 2013

$1,066,113

Expenses:
Cost of goods sold
Depreciation expense
Other expenses

(657,400)
(17,300)
(230,090)

Net income
Retained earnings, January 1, 2013
Retained earnings, December 31, 2013

$161,323
435,750
$597,073

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Requirement 3

Cash
Accounts receivable
Inventory
Building-net
Land
Total assets

Skillet Corporation
Translated Balance Sheet
December 31, 2013

$131,250
633,500
71,750
669,375
175,000
$1,680,875

Accounts payable
Common stock
Retained earnings
Accum. other comprehensive income ($41,250 + $51,740)
Total liabilities & equities
Objective: LO5
Difficulty: Moderate

$270,812
720,000
597,073
92,990
$1,680,875

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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 Polka Corporation, a U.S. corporation, formed a British subsidiary on January 1, 2011 by investing
550,000 British pounds () in exchange for all of the subsidiary's no-par common stock. The British
subsidiary, Stripe Corporation, purchased real property on April 1, 2011 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 40year estimated useful life on a straight-line basis with no salvage value. The U.S. dollar is Stripe's
functional currency, but it keeps its records in pounds. The British economy does not experience high
rates of inflation. Exchange rates for the pound on various dates are:
January 01, 2011
April 01, 2011
December 31, 2011
2011 average rate

=
=
=
=

1
1
1
1

=
=
=
=

$1.60
$1.62
$1.65
$1.64

Stripe's adjusted trial balance is presented below for the year ended December 31, 2011.
In Pounds

Debits:
Cash
Accounts receivable
Notes receivable
Building
Land
Depreciation expense
Other expenses
Salary expense
Total debits

200,000
72,000
99,000
400,000
100,000
7,500
115,000
208,000
1,201,500

Credits
Accumulated depreciation
Accounts payable
Common stock
Retained earnings
Equity adjustment
Sales revenue
Total credits

7,500
100,000
550,000
0
0
544,000
1,201,500

Required: Prepare Stripe's:


1. Remeasurement working papers;
2. Remeasured income statement; and
3. Remeasured balance sheet.
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Answer:
Requirement 1

Stripe Corporation
Remeasurement Working Papers

Debits
Cash
Accounts receivable
Notes receivable
Building
Land
Depreciation expense
Other expenses
Salary expense

200,000
72,000
99,000
400,000
100,000
7,500
115,000
208,000

$1.65
$1.65
$1.65
$1.62
$1.62
x $1.62
$1.64
$1.64

= $330,000
= 118,800
= 163,350
= 648,000
= 162,000
=
12,150
= 188,600
= 341,120
_________
$1,964,020

7,500
100,000
550,000
544,000
0

$1.62
$1.65
$1.60
$1.64

=
=
=
=

Total debits
Credits
Accumulated depreciation
Accounts payable
Common stock
Sales revenue
Retained earnings
Total credits

$12,150
165,000
880,000
892,160
0
$1,949,310

Credit differential
Requirement 2

$14,710

Stripe Corporation
Remeasured Income Statement
For the Year Ended December 31, 2011

Sales revenue

$892,160

Expenses:
Salary expense
Depreciation expense
Other expenses
Income before exchange gains or losses
Exchange gains
Net income
Retained earnings, January 1, 2011
Retained earnings, December 31, 2011

(341,120)
(12,150)
(188,600)
$350,290
14,710
$365,000
0
$365,000

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Requirement 3

Stripe Corporation
Remeasured Balance Sheet
December 31, 2011

Cash
Accounts receivable
Notes receivable
Building-net
Land
Total assets

$330,000
118,800
163,350
635,850
162,000
$1,410,000

Accounts payable
Common stock
Retained earnings
Total liabilities & equities

$165,000
880,000
365,000
$1,410,000

Objective: LO5
Difficulty: Moderate

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6) Note to Instructor: This exam item is a continuation of Exercise 5 and proceeds forward with Stripe's
second year of operations.
Stripe Corporation, a British subsidiary of Polka Corporation (a U.S. company) was formed by Polka on
January 1, 2011 in exchange for all of the subsidiary's common stock. Stripe has now ended its second
year of operations on December 31, 2012. Relevant exchange rates are:
January 01, 2011 = 1 = $1.60
April 01, 2011 = 1 = $1.62
December 31, 2012 = 1 = $1.57
2012 average rate = 1 = $1.56
Stripe's adjusted trial balance is presented below for the calendar year 2012.
In Pounds

Debits:
Cash
Accounts receivable
Notes receivable
Building
Land
Depreciation expense
Other expenses
Salary expense
Total debits

172,000
308,000
98,000
400,000
100,000
10,000
117,000
376,000
1,581,000

Credits
Accumulated depreciation
Accounts payable
Common stock
Retained earnings
Sales revenue
Total credits

17,500
200,000
550,000
213,500
600,000
1,581,000

Required: Prepare Stripe's:


1. Remeasurement working papers;
2. Remeasured income statement; and
3. Remeasured balance sheet.

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Answer:
Requirement 1

Stripe Corporation
Remeasurement Working Papers

Debits
Cash
Accounts receivable
Notes receivable
Building
Land
Depreciation expense
Other expenses
Salary expense

172,000
308,000
98,000
400,000
100,000
10,000
117,000
376,000

$1.57
$1.57
$1.57
$1.62
$1.62
$1.62
$1.56
$1.56

=
=
=
=
=
=
=
=

$270,040
483,560
153,860
648,000
162,000
16,200
182,520
586,560
_________
$2,502,740

17,500
200,000
550,000
600,000
213,500

$1.62
$1.57
$1.60
$1.56

=
=
=
=

$28,350
314,000
880,000
936,000
365,000
$2,523,350

Total debits
Credits
Accumulated depreciation
Accounts payable
Common stock
Sales revenue
Retained earnings
Total credits
Debit differential
Requirement 2

$20,610

Stripe Corporation
Translated Income Statement
For the Year Ended December 31, 2012

Sales revenue

$936,000

Expenses:
Salary expense
Depreciation expense
Other expenses
Income before exchange gains or losses
Exchange loss
Net income
Retained earnings, January 1, 2012
Retained earnings, December 31, 2012

(586,560)
(16,200)
182,520)
$150,720
(20,610)
$130,110
365,000
$495,110

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Requirement 3

Stripe Corporation
Translated Balance Sheet
December 31, 2012

Cash
Accounts receivable
Notes receivable
Building-net
Land
Total assets

$270,040
483,560
153,860
619,650
162,000
$1,689,110

Accounts payable
Common stock
Retained earnings
Total liabilities & equities

$314,000
880,000
495,110
$1,689,110

Objective: LO5
Difficulty: Moderate

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7) On January 1, 2011, Pilgrim Corporation, a U.S. firm, acquired ownership of Settlement Corporation, a
foreign company, for $168,000, when Settlement's stockholders' equity consisted of 300,000 local currency
units (LCU) and retained earnings of 100,000 LCU. At the time of the acquisition, Settlement's assets and
liabilities were fairly valued except for a patent that did not have any recorded book value. All excess
purchase cost was attributed to the patent, which had an estimated economic life of 10 years at the date of
acquisition. The exchange rate for LCUs on January 1, 2011 was $.40. The functional currency for
Settlement is LCU. Settlement's books are maintained in LCU.
A summary of changes in Settlement's stockholders' equity during 2011 and the exchange rates for LCUs
is as follows:
LCU

Stockholders' equity
1/1/11
Net income
Dividends 12/1/11
Equity adjustment
Stockholders' equity
12/31/11

Rates

400,000
100,000
(50,000)

$.40H
.42A
.43H

_______
450,000

.44C

Dollars
$160,000
42,000
(21,500)
17,500
________
$198,000

Required: Determine the following:


1. Fair value of the patent from Pilgrim's investment in Settlement on January 1, 2011 in U.S. dollars.
2. Patent amortization for 2011 in U.S. dollars.
3. Unamortized patent at December 31, 2011 in U.S. dollars.
4. Equity adjustment from the patent in U.S. dollars.
5. Income from Settlement for 2011 in U.S. dollars.
6. Investment in Settlement balance at December 31, 2011 in U.S. dollars.

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Answer:
Requirement 1
Patent Fair Value:
Cost of investment
Book value acquired 400,000 LCU $.40 =
Patent in dollars

$168,000
(160,000)
$8,000

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

20,000

Requirement 2
Patent amortization for 2011:
Patent: 20,000 LCU/10 years = 2,000 LCU per year
2,000 LCU per year $.42 equals amortization of:

$840

Requirement 3
Unamortized patent:
Patent (20,000 LCU - 2,000 LCU) $.44 =

$7,920

Requirement 4
Equity adjustment from patent:
Beginning patent (from Req. 1)
Patent amortization (from Req. 2)
Subtotal
Ending patent (from Req. 3)
Equity adjustment

$8,000
(840)
7,160
7,920
$760

Requirement 5
Income from Settlement:
Equity in income
Less: Patent amortization
Income from Settlement

$42,000
(840)
$41,160

Requirement 6
Investment in Settlement balance at 12/31/11:
Cost, January 1, 2011
Add: Income for 2011 (from Req. 5)
Less: Dividends
Add: Equity adjustment from patent (from Req. 4)
Add: Equity adjustment from translation
Investment balance, December 31, 2011

$168,000
41,160
(21,500)
760
17,500
$205,920

Check:
Book value:
Unamortized patent (from Req. 3)
Investment balance

$198,000
7,920
$205,920

Objective: LO7

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Difficulty: Moderate

8) Plate Corporation, a US company, acquired ownership of Saucer Corporation of Switzerland on


January 1, 2011 for $1,500,000 when Saucer's stockholders' equity in Swiss francs (SF) consisted of 700,000
SF Capital Stock and 300,000 SF Retained Earnings. The exchange rate for Swiss francs was $1.20 on
January 1. All excess purchase cost was attributed to a Trademark that did not have a recorded book
value. The trademark is to be amortized over 20 years.
Saucer's functional currency is Swiss francs and the records are kept in the same currency. A summary of
changes in Saucer's stockholders' equity during 2011 and relevant exchange rates are as follows:

Stockholders' equity
1/1/11
Net income
Dividends 11/1/11
Equity adjustment
Stockholders' equity
12/31/11

In
Francs

Exchange
Rates

1,000,000
250,000
(100,000)

$1.20H
1.15A
1.10H

_________
1,150,000

1.05C

In
Dollars
$1,200,000
287,500
(110,000)
(170,000)
_________
$1,207,500

Required: Determine the following:


1. Fair value of the Trademark from Plate's investment in Saucer on January 1, 2011 in U.S. dollars.
2. Trademark amortization for 2011 in U.S. dollars.
3. Unamortized Trademark at December 31, 2011 in U.S. dollars.
4. Equity adjustment from the Trademark in U.S. dollars.
5. Income from Saucer for 2011 in U.S. dollars.
6. Investment in Saucer balance at December 31, 2011 in U.S. dollars.

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Answer:
Requirement 1
Trademark:
Cost of investment
Book value acquired 1,000,000 $1.20
Fair value of Trademark in dollars

$1,500,000
(1,200,000)
$ 300,000

Trademark in Swiss francs = $300,000/$1.20 =

250,000

Requirement 2
Trademark amortization for 2011:
Trademark: 250,000/20 yr. $1.15 average rate =

$14,375

Requirement 3
Unamortized Trademark:
Trademark (250,000 - 12,500SF) $1.05 exchange rate

$249,375

Requirement 4
Equity adjustment from Trademark:
Beginning Trademark (from Req. 1)
Trademark amortization (from Req. 2)
Less: Ending Trademark (237,500 $1.05)
Equity adjustment

$300,000
(14,375)
(249,375)
$ 36,250

Requirement 5
Income from Saucer:
Equity in income
Less: Trademark amortization
Income from Saucer

$287,500
(14,375)
$273,125

Requirement 6
Investment Balance at December 31, 2011:
Cost, January 1, 2011
Add: Income from Saucer (from Req. 5)
Less: Dividends
Less: Equity adjustment from translation
Less: Equity adjustment from Trademark (from Req. 4)
Investment balance, December 31, 2011

$1,500,000
273,125
(110,000)
(170,000)
(36,250)
$1,456,875

Check:
Share of Saucer's equity
Add: Unamortized Trademark (from Req. 3)
Investment balance, December 31, 2011

$1,207,500
249,375
$1,456,875

Objective: LO7
Difficulty: Moderate

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9) Plane Corporation, a U.S. company, owns 100% of Shipp Corporation, a Libyan company. Shipp's
equipment was acquired on the following dates (amounts are stated in Libyan dinars):
Jan. 01, 2011 Purchased equipment for 40,000 dinars
Jul. 01, 2011 Purchased equipment for 80,000 dinars
Jan. 01, 2012 Purchased equipment for 50,000 dinars
Jul. 01, 2012 Sold equipment purchased on Jan. 01, 2011 for 35,000 dinars
Exchange rates for the Libyan dinars on various dates are:
Jan. 01, 2011
Jul. 01, 2011
Dec. 31, 2011
2011 avg. rate

1 dinar = $.500
1 dinar = $.520
1 dinar = $.530
1 dinar = $.515

Jan. 01, 2012


Jul. 01, 2012
Dec. 31, 2012
2012 avg. rate

1 dinar = $.530
1 dinar = $.505
1 dinar = $.490
1 dinar = $.510

Shipp's equipment has an estimated 5-year life with no salvage value and is depreciated using the
straight-line method, calculating depreciation expense on a monthly basis. Shipp's functional currency is
the U.S. dollar, but the company uses the Libyan dinar as its reporting currency.
Required:
1. Determine the value of Shipp's equipment account on December 31, 2012 in U.S. dollars.
2. Determine Shipp's depreciation expense for 2012 in U.S. dollars.
3. Determine the gain or loss from the sale of equipment on July 1, 2012 in U.S. dollars.
Answer:
Requirement 1
Equipment:
Jul. 01, 2011 (80,000 dinars $.520/dinar) =
$41,600
Jan. 01, 2012 (50,000 dinars $.530/dinar) =
26,500
Total
$68,100
Requirement 2
Depreciation expense:
[(40,000 dinar 1/5 x .5 yr.) ($.500/dinar)] =

$ 2,000

[(80,000 dinar 1/5 x 1 yr.) ($.520/dinar)] =

8,320

[(50,000 dinar 1/5 x 1 yr.) ($.530/dinar)] =

5,300

Total

$ 15,620

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Requirement 3
Equipment sold:
(40,000 dinar $.500/dinar) =

$20,000

Accumulated Depreciation on equipment sold:


[(40,000 dinar 1/5 1.5 yrs.) ($.500/dinar)] =

6,000

Net book value of equipment sold

$14,000

Cash received on July 1, 2012:


(35,000 dinar $.505/dinar) =

17,675

Gain on sale of equipment

$ 3,675

Objective: LO7
Difficulty: Moderate

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10) Phim Inc., a U.S. company, owns 100% of Sera Corporation, a New Zealand company. Sera's
equipment was acquired on the following dates (amounts are stated in New Zealand dollars as NZ$):
Jan. 01, 2011 Purchased equipment for NZ$40,000
Jul. 01, 2011 Purchased equipment for NZ$80,000
Jan. 01, 2012 Purchased equipment for NZ$50,000
Jul. 01, 2012 Sold equipment purchased on Jan. 01, 2011 for NZ$35,000
Exchange rates for the New Zealand dollar on various dates are:
Jan. 01, 2011
Jul. 01, 2011
Dec. 31, 2011
2011 avg. rate

1NZ$ = $.800
1NZ$ = $.820
1NZ$ = $.830
1NZ$ = $.815

Jan. 01, 2012


Jul. 01, 2012
Dec. 31, 2012
2012 avg. rate

1NZ$ = $.830
1NZ$ = $.805
1NZ$ = $.790
1NZ$ = $.810

Sera's equipment has an estimated 5-year life with no salvage value and is depreciated using the straightline method. Sera's functional currency and reporting currency are the New Zealand dollar.
Required:
1. Determine the value of Sera's equipment account on December 31, 2012 in U.S. dollars.
2. Determine Sera's depreciation expense for 2012 in U.S. dollars.
3. Determine the gain or loss from the sale of equipment on July 1, 2012 in U.S. dollars.
Answer:
Requirement 1
Equipment:
Jul. 01, 2011 (NZ$80,000 $.790/NZ$) =
$ 63,200
Jan. 01, 2012 (NZ$50,000 $.790/NZ$) =
39,500
Total
$102,700
Requirement 2
Depreciation expense:
[(NZ$40,000 1/5 x .5 yr.) ($.810/NZ$)] =
[(NZ$80,000 1/5 x 1 yr.) ($.810/NZ$)] =
[(NZ$50,000 1/5 x 1 yr.) ($.810/NZ$)] =
Total

$ 3,240
12,960
8,100
$24,300

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Requirement 3
Equipment sold

NZ$40,000

Accumulated Depreciation on sold equipment


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

12,000

Net book value of equipment sold

NZ$28,000

Cash received on July 1, 2012

35,000

Gain on sale of equipment

NZ$ 7,000

Gain in U.S.$:
(NZ$7,000 $.810/NZ$) =

$ 5,670

Objective: LO7
Difficulty: Moderate

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11) Puddle Incorporated purchased an 80% interest in Soake Company, located in England. Puddle paid
$1,560,000 on January 1, 2011, at a time when the book values of Soake equaled the fair values. Any excess
cost/book value differential was attributed to a patent with a five-year remaining useful life. Soake's
books are kept in the functional currency, pounds. A summary of Soake's equity is shown below for the
first year that Puddle had ownership interest.

Stockholders' Equity - 12/31/10


Net Income
Dividends - 11/1/11
Translation Adjustment
Stockholders' Equity - 12/31/11

In Pounds
Exchange Rates
1,200,000
$1.60H
400,000
$1.62A
(200,000)
$1.64H
1,400,000

$1.65C

In Dollars
$1,920,000
648,000
(328,000)
70,000
$2,310,000

Required:
Determine Puddle's income from Soake for 2011, and the balance of Puddle's Investment in Soake account
at December 31, 2011.

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Answer:
Puddle's income from Soake for 2011
Investment cost of 80% interest in Soake
Less: Book value acquired ($1,920,000 80%)
Patent in dollars at acquisition

$1,560,000
(1,536,000)
$ 24,000

Patent in pounds at acquisition


$24,000/$1.60 exchange rate =

15,000 pounds

Equity in Soake's income ($648,000 80%)


Patent amortization for 2011
15,000 pounds/5 years $1.62 average rate
Income from Soake for 2011

$ 518,400
( 4,860)
$ 513,540

Investment in Soake at December 31, 2011


Investment cost
Add: Income from Soake
Less: Dividends ($328,000 80%)
Add: Equity adjustment from translation
($70,000 80%)
Add: Equity adj. from patent:
Beginning balance
Less: Patent amortization
Less: Unamortized patent at year end
(15,000 - 3,000 = 12,000 pounds) $1.65

$1,560,000
513,540
(262,400)
56,000
$ 24,000
4,860

19,800

660

Investment in Soake December 31, 2011

$1,867,800

Proof of investment balance


Net assets at December 31, 2011 of $2,310,000 80%
Add: Unamortized patent (12,000 pounds $1.65)
Investment balance

$1,848,000
19,800
$1,867,800

Objective: LO7
Difficulty: Moderate

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12) Pew Corporation (a U.S. corporation) acquired all of the stock of Skunk Company (a Brazilian
company) on January 1, 2011 for $9,300,000 when Skunk had 10,000,000 Brazilian real (BR) capital stock
and 5,000,000 BR retained earnings. The book value of Skunk's net assets equaled the fair value on this
date, and any cost/book value differential is due to a patent with a 5-year remaining useful life. Skunk's
functional currency is the BR. Skunk's books are maintained in the functional currency. The exchange
rates for BR's for 2011 are shown below:
January 1, 2011
$0.60
Average for 2011
$0.64
December 31, 2011 $0.68
Required:
1. Calculate the patent value from the business combination on January 1, 2011 in U.S. dollars.
2. Calculate the patent amortization in U.S. dollars for 2011.
3. Prepare the journal entry (in U.S. dollars) required on Pew's books to record the patent amortization for
2011, assuming that Pew accounts for Skunk using the equity method.
Answer:
1. Patent at acquisition of Skunk
Cost of Skunk
Book value acquired: (15,000,000 BR $.60)
Patent in dollars

$9,300,000
9,000,000
$300,000

Patent in BR's ($300,000/$.60)

500,000BR

2. Patent amortization in dollars


Patent amortization in BR's (500,000/5 years)
= 100,000 BR's
Patent amortization in $ (100,000 BR's $.64 average rate)

$64,000

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3. Entry to record patent amortization


Income from Skunk
Investment in Skunk
Other comprehensive incomeEquity
adjustment from translation of patent

$64,000

28,000
36,000

To record patent amortization and the equity adjustment from translation of patent computed as follows:
Beginning patent
Amortization
Equity Adjustment
Ending patent

500,000 BR's
(100,000)
400,000
_______
400,000

$.60
.64

.68

$ 300,000
(64,000)
236,000
36,000
$ 272,000

Objective: LO4
Difficulty: Moderate

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13) Plato Corporation, a U.S. company, purchases all of the outstanding stock of Socrates Company, which
operates outside the U.S. on January 1, 2011. Socrates' net assets have fair values that equal their book
values with the exception of land that has a fair value of 200,000 foreign currency units and equipment
with a fair value of 100,000 foreign currency units. Plato paid $180,000 for this acquisition. The balance
sheets for Plato and Socrates are shown below just before the business combination. Socrates' functional
currency is the foreign currency unit (fcu) and the exchange rate at the date of acquisition was $.40 per
fcu. Socrates uses the fcu for record-keeping purposes.

Current Assets
Land
Buildings - net
Equipment - net
Total Assets
Current Liabilities
Notes Payable
Capital Stock
Retained Earnings
Total Liabilities

Plato ($)
Socrates (fcu)
2,800,000
200,000
600,000
150,000
1,300,000
200,000
2,300,000
50,000
7,000,000
600,000
1,300,000
1,500,000
2,000,000
2,200,000
7,000,000

150,000
100,000
200,000
150,000
600,000

Required:
Prepare a consolidated balance sheet for Plato and subsidiary at January 1, 2011 immediately following
the business combination.
Answer:
Plato Company and Subsidiary
Consolidated Balance Sheet
At January 1, 2011

Current Assets
Land
Buildings - net
Equipment - net
Total Assets
Current Liabilities
Notes Payable
Capital Stock
Retained Earnings
Total Liab & Equity

Calculation
Balance ($)
$2,800,000 - $180,000 + (200,000 $.40)
$ 2,700,000
$600,000 + ((150,000 + 50,000) $.40)
680,000
$1,300,000 + (200,000 $.40)
1,380,000
$2,300,000 + ((50,000 + 50,000) $.40)
2,340,000
$ 7,100,000
$1,300,000 + (150,000 $.40)
$1,500,000 + (100,000 $.40)
$2,000,000
$2,200,000

$ 1,360,000
1,540,000
2,000,000
2,200,000
$ 7,100,000

Objective: LO4
Difficulty: Moderate

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14) On January 1, 2011, Psalm Corporation purchased all the stock of Solomon Corporation for $481,400
when Solomon had capital stock of 180,000 pounds () and retained earnings of 90,000. The book value
of Solomon's assets and liabilities represented the fair value, except for equipment with a 5-year life that
was undervalued by 15,000. Any remaining excess is due to a patent with a useful life of 6 years.
Solomon's functional currency is the pound. Solomon's books are kept in pounds. Relevant exchange rates
for a pound follow:
January 1, 2011
$1.66
Average for 2011
1.65
December 31, 2011 1.64
Required:
1. Determine the equity adjustment on translation of the excess differential assigned to equipment at
December 31, 2011.
2. Determine the equity adjustment on translation of the excess differential assigned to patent at
December 31, 2011.
Answer:
Preliminary computations
Pounds
Cost of investment in Solomon ($481,400/$1.66)
290,000
Book value acquired
270,000
Excess in pounds
20,000
Excess allocated to equipment
Excess allocated to patent
Excess allocated in pounds

15,000
5,000
20,000

Requirement 1
Equity adjustment from excess allocated to equipment on December 31, 2011:
Depreciation of excess based on (15,000/5 years)

3,000

Undepreciated excess balance at year-end based on


(12,000 $1.64 current rate)
Add: Depreciation on excess based on 2011
3,000 $1.65 average rate

$ 19,680

Less: Beginning excess based on U.S. dollars

4,950
24,630
24,900

Equity adjustment from translation of excess allocated


to equipment (loss)

$ 270

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Requirement 2
Equity adjustment from excess allocated to patent on December 31, 2011:
Patent (must be carried in ) $8,300/$1.66 = 5,000
Patent amortization is 5,000 / 6 years =
833
Unamortized excess balance at year-end based on
(4,167 $1.64 current rate)
Add: Amortization of patent based on
(833 $1.65 average rate)

$6,834
1,374
$8,208
$8,300
$ 92

Less: Beginning patent based on U.S. dollars


Equity adjustment from translation of patent (loss)
Objective: LO4
Difficulty: Moderate

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15) Par Industries, a U.S. Corporation, purchased Slice Company of New Zealand for $1,411,800 on
January 1, 2011. Slice's functional currency is the New Zealand dollar (NZ$). Slice's books are kept in
NZ$. The book values of Slice's assets and liabilities were equal to fair values, with the exception of land
which was valued at NZ$1,300,000. Slice's balance sheet appears below:
Current Assets
Land
Buildings - net
Equipment - net
Total Assets

NZ$ 1,510,000
645,000
825,000
220,000
NZ$ 3,200,000

Current Liabilities
Long-Term Debt
Common Stock
Retained Earnings

NZ$ 1,200,000
845,000
800,000
355,000
NZ$ 3,200,000

Relevant exchange rates are shown below:


January 1, 2011 1 NZ$ = $0.78
Average rate 2011 1 NZ$ = $0.79
December 31, 2011 1 NZ$ = $0.80
Required:
Determine the unrealized translation gain or loss at December 31, 2011 relating to the excess allocated to
the undervalued land.
Answer:
Preliminary computations:
Investment cost
$1,411,800
Book value acquired (1,155,000 NZ$ $.78 exchange rate)
900,900
Excess cost over book value acquired
$510,900
Excess allocated to undervalued land (655,000 NZ$ $.78)

$510,900

Equity adjustment from translation on excess allocated to land:


Excess on land at January 1, 2011
Less: Excess on land at December 31, 2011
(655,000 NZ$ $.80 current rate at year-end)
Equity adjustment from translation - gain (credit)

$510,900
524,000
$13,100

Objective: LO4
Difficulty: Moderate

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16) On January 1, 2011, Placid Corporation acquired a 40% interest in Superior Industries, a Canadian
Corporation, for $811,900 when Superior's stockholders' equity consisted of 1,000,000 Canadian dollars
(C$) capital stock and C$500,000 retained earnings. Superior's functional currency is the Canadian dollar
and the books are kept in the same currency. The exchange rate at the time of the purchase was $1.15 per
Canadian dollar. Any excess allocated to patents is to be amortized over 10 years. A summary of changes
in the stockholders' equity of Superior during 2011 and related exchange rates follows:

Stockholders' equity - 1/1/11


Net income
Dividends
Equity adjustment
Stockholders' equity - 12/31/11

Canadian $ Exchange Rate


1,500,000
$1.15 C
300,000
$1.14 A
(200,000)
$1.14 C
1,600,000

U.S. $
$1,725,000
342,000
(228,000)
(31,000)
$1,808,000

$1.13 C

Required: Determine the following:


1. Fair value of the patent from Placid's investment in Superior on January 1, 2011 in U.S. dollars
2. Patent amortization for 2011 in U.S. dollars
3. Unamortized patent at December 31, 2011 in U.S. dollars
4. Equity adjustment from the patent in U.S. dollars
5. Income from Superior for 2011 in U.S. dollars
6. Investment in Superior balance at December 31, 2011 in U.S. dollars
Answer:
1. Excess patent at January 1, 2011:
Cost
Book value of interest acquired
(C$1,500,000 $1.15) 40%
Excess Patent
Excess Patent in C$ = $121,900/$1.15 = C$106,000
2.

3.

$811,900
(690,000)
$121,900

Excess Patent amortization2011:


Excess Patent in C$ = 106,000/10 years $1.14 average
rate =

$12,084

Unamortized Excess Patent at December 31, 2011:


(106,000 - 10,600 C$ amortization) $1.13 current rate

$107,802

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4.

Equity adjustment from Excess Patent:


Beginning balance in U.S. dollars
Less: Amortization for 2011
Less: Ending balance
Equity adjustment from Excess Patent

$121,900
(12,084)
(107,802)
$2,014

Alternatively,
10,600 C$ ($1.15 - $1.14) =
95,400 C$ ($1.15 - $1.13) =

$106
1,908
$2,014

5.

Income from Superior2011:


Equity in income ($342,000 40%)
Less: Excess Patent amortization
Income from Superior2011

$136,800
(12,084)
$124,716

6.

Investment in Superior balance at December 31, 2011:


Cost January 1
Add: Income 2011
Less: Dividends ($228,000 40%)
Less: Equity adjustment ($31,000 40%)
Less: Equity adjustment from Excess Patent
Investment in Superior December 31, 2011

$811,900
124,716
(91,200)
(12,400)
( 2,014)
$831,002

Check: Net assets ($1,808,000 40%)


plus unamortized patent
Investment in Superior at December 31, 2011

$723,200
107,802
$831,002

Objective: LO4
Difficulty: Moderate

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17) On January 1, 2011, Paste Unlimited, a U.S. company, acquired 100% of Sticky Corporation of Italy,
paying an excess of 112,500 euros over the book value of Sticky's net assets. The excess was allocated to
undervalued equipment with a five year remaining useful life. Sticky's functional currency is the euro,
and the books are kept in euros. Exchange rates for the euro for 2011 are:
January 1, 2011
$1.44
Average rate for 2011 1.48
December 31, 2011
1.52
Required:
1. Determine the depreciation expense on the excess allocated to equipment for 2011 in U.S. dollars.
2. Determine the unamortized excess allocated to equipment on December 31, 2011 in U.S. dollars.
3. If Sticky's functional currency was the U.S. dollar, what would be the depreciation expense on the
excess allocated to the equipment for 2011?
Answer: Requirement 1
Depreciation expense in 2011
112,500 euro/5 years $1.48/euro = $33,300 depreciation expense
Requirement 2
Unamortized excess at December 31, 2011
112,500 euro 4/5 $1.52/euro = $136,800 unamortized excess on equipment
Requirement 3
Remeasured depreciation expense
112,500 euro $1.44/euro = $162,000 excess
$162,000/5 years = $32,400 depreciation expense
Objective: LO5
Difficulty: Moderate

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18) Pritt Company purchased all the outstanding stock of Standy Company (a manufacturing company in
Argentina) when the book value of Standy's net assets equaled their fair value. Standy's summarized
balance sheet is shown below on January 1, 2011, the date of acquisition, and on December 31, 2011, when
the exchange rates were $.25 and $.20, respectively. The average exchange rate for 2011 was $.23, and
Standy paid dividends in 2011 amounting to 300,000 pesos when the exchange rate was $.21.
January 1, 2011
(Peso)

December 31,
2011 (Peso)

BALANCE SHEET
Cash
Accounts Receivable
Inventory
Building & Equipment
Accumulated Depreciation
Total Assets

1,400,000
400,000
1,200,000
1,000,000
(200,000)
3,800,000

1,100,000
1,400,000
1,200,000
1,000,000
(300,000)
4,400,000

Accounts Payable
Debt Payable
Common Stock
Retained Earnings
Total Liab. & Equity

300,000
1,000,000
2,000,000
500,000
3,800,000

360,000
1,000,000
2,000,000
1,040,000
4,400,000

Required: If Standy's functional currency and reporting currency are the Argentine peso, compute the
change to other comprehensive income that would result from the translation of these financial
statements at December 31, 2011.
Answer:
Book value of beginning net assets = 2,500,000 pesos
change in exchange rates ($.25 to $.20) = (0.05)
Net income (change in R/E + dividends paid) = 840,000
change in exchange rates ($.23 to $.20) = (0.03)
Less Dividends = (300,000) change in exchange rates
($.21 to $.20) = (0.01)
Other comprehensive incomeTranslation loss
Objective: LO6
Difficulty: Difficult

$(125,000)

( 25,200)

3,000
$(147,200)

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19) Each of the following accounts has been converted to U.S. dollars from a foreign subsidiary's financial
statements. Based on the information given, determine if the U.S. dollar or a foreign currency is the
functional currency of the subsidiary.
F = Foreign Currency
D = U.S. Dollar
N/A = Cannot be determined
1.

Cost of goods sold was converted at a historical rate

___________

2.

Marketable debt securities carried at cost were


converted at the year-end spot rate

___________

3.

Depreciation Expense was converted at the historical


rate at the date of acquisition of the subsidiary

___________

4.

Inventories carried at their historical cost were converted


at the spot rate from year-end

___________

5.

Intangible assets were converted at the historical exchange


rate at the date of acquisition of the subsidiary

___________

6.

Deferred income tax liability was converted at the


year-end spot rate

___________

7.

Property, Plant and Equipment was converted


at the year-end spot rate

___________

8.

Accounts Payable was converted at the year-end


spot rate

___________

9.

Patents were converted at the exchange rate in place at


the date of acquisition of the subsidiary

___________

10. Accumulated depreciation on buildings was converted


at the year-end spot rate

___________

Answer: 1. D, 2. F, 3. D, 4. F, 5. D, 6. N/A 7. F 8. N/A, 9. D, 10. F


Objective: LO2
Difficulty: Moderate

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