AAHamlen2e TB Ch07 100412

TEST BANK CHAPTER 7 Consolidating Foreign Currency Financial Statements MUT!PE CH"!CE Use t#e $ollo%ing in$ormation to ans%er &uestions ' ( ') *elo%+

A U.S. company c ompany acquired a French subsidiary on January 1, 2014. The subsidiary’s subsidiary’s tria baances !or January 1 and "ecember #1, 2014 are presented beo$, in euros.

%ash, recei&abes )ant * equipment, net iabiities %apita stoc etained earnins, January 1 "i&idends Saes re&enue peratin e5penses Tota

,anuary '- .)'/ *alances 0r 1Cr2 ' #( #(,000 4 0 0 ,0 0 0 -1(2,000 -11+,000 -1+0,000

666 66 66 707

0ecem*er 3'- .)'/ *alances 0r 1Cr2 ' 20,000 4#+,000 -1/+,000 -11+,000 -1+0,000 10,000 - 3 0 0 ,0 0 0  (/+,000 70 7

8e$ pant * equipment equipment o! '3+,000 $as acquired in in 2014. peratin e5penses e5penses incude incude '+0,000 o! depreciation on pant * equipment, o! $hich '+,000 is reated to pant * equipment purchased in 2014. 95chane rates -:U.S.;' are as !oo$s< January 1, 2014 )ant * equipment acquired A&erae !or 2014 "i&idends decared "ecember #1, 2014

Test Bank, Chapter 7

:1.4+ 1.40 1.#0 1.2/ 1.2+

© Cambridge Business Publishers, 2013 7-1

For &uestions ' ( 4- assume t#at t#e su*sidiary5s $unctional currency is t#e euro6

1.

Toic+ Toic+ Tr Translation anslation gains and losses- ac&uisition o$ e8isting su*sidiary " ' =hat is the transation ain or oss !or 2014>

a. b. c. d.

:+?,+00 ain :+4,/+0 oss :/(,2+0 ain :/(,#+0 oss

A8S< b @einnin e5posed position -'11+,000  '1+0,000  8et income -'300,000 7 '(/+,000 7 "i&idends 9ndin e5posed position position -'11+,000  '1+0,000  '300,000 7 '(/+,000 '(/+,00 0 7 '10,000 Transation oss 2.

9 ' 2 / + ,0 0 0 #+,000 -10,000

rate :1.4+ 1.#0 1.2/

'2?0,000

1.2+

: :#34,2+0 4+,+00 -12,/00 41(,1+0

7 #/2,+00 : +4,/+0

Toic+ Toic+ Tr Translated anslated *alance s#eet- ac&uisition o$ e8isting su*sidiary " ' =hat are transated tota assets !or the subsidiary subsidiary at "ecember #1, 2014>

a. b. c. d.

:/+?,(+0 :+?1,+00 :/+1,(+0 :+/3,(+0

A8S< d #.

Toic+ Translated income statement- ac&uisition o$ e8isting su*sidiary " ' =hat are transated 2014 20 14 operatin opera tin e5penses !or the subsidiary> subsidiary>

a. b. c. d.

:1,001,(+0 : ??4,+00 :1,10?,2+0 : ? 3 ( ,( + 0

A8S

a. b. c. d.

:#3,2+0 : -?,1+0 :4+,+00 :42,/+0

A8S< c +.

Toic+ Translated *alance s#eet- ac&uisition o$ e8isting su*sidiary " ' =hat is the subsidiary’s transated "ecember #1, 2014 retained earnins baance>

a. b. c. d.

:2+0,400 :21(,+00 :24#,1+0 :2/#,000

A8S< a 8otes !or questions 2 B +< Transated !inancia statements< Balance s#eet- '.;3';'/ %ash, recei&abes )ant * equipment, net Tota assets

9 ' 20,000 4#+,000 '4++,000

rate 1.2+ 1.2+

: : 2 2+ +,000 +4#,(+0 : +/3,(+0

iabiities %apita stoc etained earnins Accumuated other comprehensi&e oss Tota iabiities and equity

'1/+,000 11+,000 1(+,000 77 '4++,000

1.2+ 1.4+

: 20/,2+0 1//,(+0 2+0,400 -+4,/+0 : +/ +/3,(+0

!ncome statement- .)'/ Saes peratin e5penses 8et income

'300,000 -(/+,000 ' #+,000

1.#0 1.#0

:1,040,000 -??4,+00 : 4+,+00

Retained earnings- 0ecem*er 3'- .)'/ etained earnin earnins, January 1 8et income "i&idends etained earnins, "ecember #1

'1+0,000 #+,000 -10,000 '1(+,000

1.4+ 1.#0 1.2/

: 21(,+00 4+,+00 -12,/00 : 2+0,400


see beo$


For &uestions < ( ')- assume t#at t#e su*sidiary5s $unctional currency is t#e U6S6 dollar6

/.

Toic+ Toic+ Remeasurement gains and losseslosses- ac&uisition o$ e8isting su*sidiary " ' =hat is the remeasurement ain or oss !or 2014>

a. b. c. d.

:#+,/00 ain :24,/00 oss :#(,2+0 ain :2+,/+0 oss

A8S< a

@einnin e5posed position -'# -'#(,000 000 7 '1(2 1(2,000 00  Saes re&enue 7 ut o! pocet e5penses -'(/+,000 B '+0,000 7 "i&idends 7 )ant * equipment purchase 9ndin e5posed position -'20,000 7 '1/+,000 emeasurement ain (.

9 '-1 '-1#+,00 ,000 300,000 -(1+,000 -10,000 -3+,000

rate :1.4+ 1.#0 1.#0 1.2/ 1.40

'-14+,000

1.2+

: : -1?+, ?+,(+0 1,040,000 -?2?,+00 -12,/00 -11?,000 -21/,3+0 7 -131,2+0 : -#+,/00

Toic+ Toic+ Remeasured *alance s#eet- ac&uisition o$ e8isting su*sidiary " ' =hat are remeasured tota assets !or the subsidiary subsidiary at "ecember #1, 2014>

a. b. c. d.

:+/3,(+0 :/+1,(+0 :/#4,000 :/(2,(+0

A8S

a. b. c. d.

: ??4,+00 : ???,+00 :1,001,(+0 :1,002,000

A8S< c

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?.

Toic+ oic+ Remeasured Remeasured income statement statement " ' =hat is remeasured 2014 net income !or the subsidiary>

a. b. c. d.

:#3,2+0 :/3,(+0 :4+,+00 :(#,3+0

A8S< d 10.

Toic+ Remeasured *alance s#eet- ac&uisition o$ e8isting su*sidiary " ' =hat is the subsidiary’s remeasured "ecember #1, 2014 retained earnins baance>

a. b. c. d.

:213,(+0 :24#,1+0 :2(3,(+0 :2?1,#+0

A8S< c 8otes !or questions ( B 10< emeasured !inancia statements< Balance s#eet- '.;3';'/ %ash, recei&abes )ant * equipment, net Tota assets

9 ' 20,000 4#+,000 '4++,000

iabiities %apita stoc etained earnin earnins Tota iabiities and equity

'1/+,000 11+,000 1(+,000 '4++,000

!ncome statement- .)'/ Saes ut o! pocet operatin e5penses "epreciation e5pense emeasurement ain 8et income

'300,000 -(1+,000 -+0,000 77 ' #+,000


rate 1.2+ see beo$

1.2+ 1.4+ see beo$

1.#0 1.#0 see beo$

: : 2+,000 /2/,(+0 : /+ 1 ,(+ 0

:20/,2+0 1//,(+0 2(3,(+0 : /+ /+1,(+0 :1,040,000 -?2?,+00 -(2,2+0 #+,/00 : (#,3+0

© Cambridge Business Publishers, 2013 7-$

Retained earnings- 0ecem*er 3'- .)'/ etained earnins, January 1 8et income "i&idends etained earnins, "ecember #1 Remeasurement o$ .)'/ dereciation e8ense "epreciation on pant and equipment on hand at the date o! acquisition "epreciation on pant and equipment acquired durin 2014 Tota Remeasurement o$ '.;3';'/ lant = e&uiment )ant * equipment on hand at the date o! acquisition -'400,000 7 '4+,000 )ant * equipment acquired durin 2014 -'3+,000 7 '+,000 Tota

'1+0,000 #+,000 -10,000 '1(+,000

1.4+ see abo&e

1.2/

' 4+,000

1.4+

+,000

1.40

: 21(,+00 (#,3+0 -12,/00 : 2(3,(+0

:

/+,2+0

:

(,000 (2,2+0

'#++,000

1.4+

: +14,(+0

30,000

1.40

112,000 : /2/,(+0

Use t#e $ollo%ing in$ormation to ans%er &uestions '' ( '< *elo%6

n January 1, 2014, a U.S. company estabished a subsidiary in %anada, ha&in the !oo$in baance sheet -sho$n in %anadian doars, or %:< %ash Fi5ed assets, net Tota

%: 100,000 iabiities #00,000 %apita stoc %: 400,000 Tota

%: 200,000 200,000 %: 400,000

At "ecember #1, 2014, the subsidiary reported the !oo$in tria baance< 0r 1Cr2 %: 210,000 2+0,000 -220,000 -200,000 -+00,000 +0,000 410,000 %: 0

%ash Fi5ed assets, net iabiities %apita stoc Saes "epreciation e5pense ther e5penses

95chane rates are as !oo$s< January 1, 2014 A&erae !or 2014 "ecember #1, 2014

:1.02 0.?? 0.?+

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11.

Toic+ Translated and remeasured e8enses " ' =hat is the subsidiary’s transated and remeasured depreciation e5pense !or 2014>

a. b. c. d.

Transated< :4?,+00C emeasured< :+1,000 Transated< :+1,000C emeasured< :4?,+00 Transated< :4(,+00C emeasured< :4?,+00 Transated< :4?,+00C emeasured< :4(,+00

A8S< a Transated< %:+0,000 5 :0.?? D :4?,+00 emeasured< %:+0,000 5 :1.02 D :+1,000 12.

Toic+ Translated income statement " ' =hat is transated 2014 net income !or the subsidiary>

a. b. c. d.

:#3,000 :#?,/00 :#3,100 :#3,400

A8S

a. b. c. d.

:13,400 oss :1+,/00 oss :1+,/00 ain :13,400 ain

A8S< b @einnin net assets 8et income

%:200,000 5 1.02 D 40,000 5 .?? D

9ndin net assets Transation oss

%:240,000 5 .?+ D


:204,000 #?,/00 24#,/00 7 223,000 : 1+,/00


14.

Toic+ Remeasurement gains and losses " ' =hat is the remeasurement ain or oss !or 2014>

a. b. c. d.

:#,400 oss :2,?00 oss :2,?00 ain :#,400 ain

A8S< d @einnin e5posure -%:100,000 B %:200,000 Saes ther e5penses 9ndin e5posure -%:210,000 B %:220,000 emeasurement ain 1+.

%:-100,000 5 1.02 D %:+00,000 5 .?? %:410,000 5 .??

:-102,000 4?+,000 -40+,?00 : -12,?00

%:-10,000 5 .?+ D

7 -?,+00  : #,400

Toic+ Translated *alance s#eet " ' =hat are transated tota assets at "ecember #1, 2014>

a. b. c. d.

:4/?,200 :4+4,+00 :4#(,000 :#1/,400

A8S< c -%:210,000  %:2+0,000 5 :0.?+ D :4#(,000 1/.

Toic+ Remeasured *alance s#eet " ' =hat are remeasured tota assets at "ecember #1, 2014>

a. b. c. d.

:4/?,200 :4+4,+00 :4#(,000 :#1/,400

A8S *elo%6

Eeoria Atantic, a U.S. company, acquired a $hoy7o$ned subsidiary in the U.. on January 1, 2014 !or :2#2,000,000. The subsidiary’s !unctiona currency is the pound. The baance sheet o! the subsidiary at the date o! acquisition $as as !oo$s< Assets %ash * recei&abes Hn&entories 8oncurrent assets, net Tota assets

G 1+,000,000 40,000,000 100,000,000 G1++,000,000

ia*ilities and stoc?#olders@ e&uity iabiities %apita stoc etained earnins Tota iabiities and stochodersI equity

G #0,000,000 30,000,000 4+,000,000 G1++,000,000

The !air &aue o! the subsidiaryIs in&entories, reported usin FHF, $as G/0,000,000, and the !air &aue o! the subsidiaryIs noncurrent assets, $ith a 107year remainin i!e, straiht7ine, $as G3+,000,000. A other assets and iabiities $ere reported at appro5imate !air &aue. "urin 2014 there $as no ood$i impairment. The e5chane rate on January 1, 2014 $as :1.4+;G. The a&erae rate !or 2014 $as :1.40;G, and the rate at the end o! 2014 $as :1.#3;G. 1(.

Toic+ Consolidation o$ international su*sidiary " 3 The e5cess o! acquisition cost o&er boo &aue !or this acquisition, in U.S. doars, is

a. b. c. d.

: 24,1#3,000 : #+,000,000 : +0,(+0,000 :10(,000,000

A8S< c 13.

Toic+ Consolidation o$ international su*sidiary " 3 The entries required to consoidate the baance sheets o! Eeoria Atantic and its U.. subsidiary at the date o! acquisition incude reconition o! ood$i o!

a. b. c. d.

:0 :#0,000,000 :4#,+00,000 :/+,2+0,000

A8S< c


© Cambridge Business Publishers, 2013 7-'

1?.

Toic+ Consolidation o$ international su*sidiary " 3 The entries required to consoidate the baance sheets o! Eeoria Atantic and its U.. subsidiary at the date o! acquisition incude a decrease in the subsidiaryIs noncurrent assets in the amount o!

a. b. c. d.

:0 :1+,000,000 :21,(+0,000 :#/,2+0,000

A8S< c %acuations !or questions 1( 7 1?< Acquisition cost @oo &aue 95cess o! acquisition cost o&er boo &aue Aocated to< Hn&entories 8oncurrent assets Eood$i

 G1/0,000,000 12+,000,000 #+,000,000

:; 1.4+ 1.4+

: :2#2,000,000 131,2+0,000 +0,(+0,000

20,000,000 -1+,000,000  G #0,000,000

1.4+ 1.4+ 1.4+

2?,000,000 -21,(+0,000  : 4#,+00,000

Use t#e $ollo%ing in$ormation to ans%er &uestions .) ( .> *elo%+

"urin the year ended "ecember #1, 201+, a Eerman subsidiary o! a U.S. parent e5perienced the !oo$in e&ents< • • • • • • • • •

Saes re&enue, '1+,000,000 %ash coections !rom customers, '14,/00,000 )urchases o! in&entories, on credit, '10,000,000 %ash payment !or in&entory purchases, '?,300,000 %ost o! saes, '?,+00,000 Sein and administrati&e e5penses, '4,200,000, paid in cash @orro$ed '2+,000,000 !rom a Eerman ban )urchased pant and equipment costin '22,000,000, !or cash "epreciation on pant assets, '1,000,000



The subsidiary’s January 1, 201+ baance sheet appears beo$< %ash Accounts recei&abe Hn&entories, FHF )ant assets, net Hntanibe assets Tota 95chane rates -:;' are< January 1, 201+ A&erae !or 201+ "ecember #1, 201+

'

400,000 1,#00,000 #,000,000 #0,000,000

Accounts payabe oans payabe %apita stoc etained earnins Accumuated other 2,000,000 comprehensi&e income '#/,(00,000 Tota

'

/00,000 20,000,000 4,000,000 1#,+00,000

-1,400,000 '#/,(00,000

:1.+0 1.+# 1.++

Saes, cash coections, purchases, cash payments !or in&entories, and sein and administrati&e e5penses occurred e&eny durin the year. The oan and the pant asset purchase occurred $hen the e5chane rate $as :1.+2. "epreciation consists o! '300,000 on pant assets acquired $hen the rate $as :1.4+, and '200,000 on pant assets acquired $hen the rate $as :1.+2. The endin in&entory $as purchased at the end o! the year, and the beinnin in&entory $as purchased at the end o! the pre&ious year. 20.

Toic+ Translation gain or loss " ' H! the subsidiary’s !unctiona currency is the euro, $hat is its e5posure to transation ains and osses, as o! January 1, 201+>

a. b. c. d.

' 4,000,000 ' -200,000 '1(,+00,000 '1/,100,000

A8S< d 21.

Toic+ Translation gain or loss " ' H! the subsidiary’s !unctiona currency is the euro, $hat is its e5posure to transation ains and osses, as o! "ecember #1, 201+>

a. b. c. d.

' 4,#00,000 ' +00,000 '1+,?00,000 '1/,400,000

A8S< d



22.

Toic+ Translation gain or loss " ' H! the subsidiary’s !unctiona currency is the euro, $hat is the transation ain or oss !or 201+>

a. b. c. d.

: /23,000 ain : 311,000 ain : (?1,000 oss :1,+3?,000 oss

A8S

a. b. c. d.

:1,4/4,000 :1,+00,000 :1,+#0,000 :1,++0,000

A8S< c 24.

Toic+ !ncome statement translation " ' H! the subsidiary’s !unctiona currency is the euro, $hat is transated cost o! saes !or 201+>

a. b. c. d.

:14,#(+,000 :14,+#+,000 :14,(2+,000 :1+,+00,000

A8S

a. b. c. d.

' -200,000 '-13,?00,000 ' 1(,+00,000 ' 1/,100,000

A8S

a. b. c. d.

' /(#,000 ' 1,#40,000 '-#(,400,000 '-40,100,000

A8S< d 2(.

Toic+ Remeasurement gain or loss " ' H! the subsidiary’s !unctiona currency is the U.S. doar, $hat is the remeasurement ain or oss !or 201+>

a. b. c. d.

: /23,000 ain : 311,000 ain : (?1,000 oss :1,+3?,000 oss

A8S< d



23.

Toic+ !ncome statement remeasurement " ' H! the subsidiary’s !unctiona currency is the U.S. doar, $hat is remeasured depreciation e5pense !or 201+>

a. b. c. d.

:1,4/4,000 :1,+00,000 :1,+#0,000 :1,++0,000

A8S< a 2?.

Toic+ !ncome statement remeasurement " ' H! the subsidiary’s !unctiona currency is the U.S. doar, $hat is remeasured cost o! saes !or 201+>

a. b. c. d.

:14,#(+,000 :14,+#+,000 :14,(2+,000 :1+,+00,000

A8S< a 8otes !or questions 20 B 2?< Translation

Transation ain or oss< @einnin net assets  8et income 9ndin net assets Transation ain Hncome statement< Saes re&enue 7 %ost o! saes Eross marin 7 Sein and administrati&e e5penses 7 "epreciation e5pense 8et income

© Cambridge Business Publishers, 2013 7-1#

'1/,100,000 5 1.+0 D #00,000 5 1.+# D '1/,400,000 5 1.++ D

: 24,1+0,000 4+?,000 24,/0?,000 7 2+,420,000 : -311,000

'1+,000,000 5 1.+# D ?,+00,000 5 1.+# D +,+00,000

: 22,?+0,000 14,+#+,000 3,41+,000

4,200,000 5 1.+# D 1,000,000 5 1.+# D ' #00,000

/,42/,000 1,+#0,000 : 4+?,000


Remeasurement

emeasurement ain or oss< @einnin e5posure  Saes 7 )urchases 7 Sein and administrati&e e5penses 7 )ant asset purchase 9ndin e5posure emeasurement oss

'-13,?00,000 5 1.+0 D 1+,000,000 5 1.+# D -10,000,000 5 1.+# D

:-23,#+0,000 22,?+0,000 -1+,#00,000

-4,200,000 5 1.+# D -22,000,000 5 1.+2 D 666666666 '-40,100,000 5 1.++ D

-/,42/,000 -##,440,000 -/0,+//,000 7-/2,1++,000 : 1,+3?,000

Hncome statement< Saes re&enue %ost o! saes Eross marin Sein and administrati&e e5penses "epreciation e5pense emeasurement oss 8et income -oss

'1+,000,000 5 1.+# D ?,+00,000 -1 +,+00,000

: 22,?+0,000 14,#(+,000 3,+(+,000

4,200,000 5 1.+# D 1,000,000 -2 6666666 ' #00,000

/,42/,000 1,4/4,000 1,+3?,000 : -?04,000 

-1 @einnin in&entory  )urchases 7 9ndin in&entory %ost o! saes

' #,000,000 5 1.+0 D 10,000,000 5 1.+# D -#,+00,000 5 1.++ D ' ?,+00,000

: 4,+00,000 1+,#00,000 -+,42+,000 : 14,#(+,000

'

: 1,1/0,000 #04,000 : 1,4/4,000

-2 "epreciation 1 "e preciation 2 Tota


300,000 5 1.4+ D 200,000 5 1.+2 D ' 1,000,000

© Cambridge Business Publishers, 2013 7-1$

#0.

Toic+ Hyerin$lation- !FRS and U6S6 AAP " '- / An Htaian parent company consoidates a @raKiian subsidiary, $hose !unctiona currency is the rea. "urin 201+, the rea is considered to be a hyperin!ationary currency. The subsidiary o$ns and costin 10,000,000, acquired $hen the rea $as $orth '0.?0. At the end o! 201+, $hen the subsidiary’s accounts are transated into euros !or consoidation, the rea is $orth '0.20. The enera price inde5 $as 100 at the date the and $as acquired, and is 400 at the end o! 201+. =hat is the and baance at the end o! 201+, in euros, !oo$in HFS and U.S. EAA)>

a. b. c. d.

HFS ' 3,000,000 ' ?,000,000 '#/,000,000 '40,000,000

U.S. EAA) ' ?,000,000 ' 3,000,000 '40,000,000 '#/,000,000

A8S< a HFS< U.S. EAA)< #1.

10,000,000 5 400;100 5 '0.20 D '3,000,000 10,000,000 5 '0.?0 D '?,000,000

Toic+ Translation and remeasurement c#oices " ' A U.S. parent has a subsidiary ocated in @raKi. Hn $hich situation $i the U.S. parent remeasure the !inancia statements o! the subsidiary !rom rea to U.S. doars>

a. b. c. d.

The subsidiary’s customers are mosty ocated in @raKi. The subsidiary borro$s money !rom @raKiian bans. The subsidiary buys most o! its merchandise !rom @raKiian suppiers. The e&e o! in!ation in @raKi is e5tremey hih.

A8S< d #2.

Toic+ !FRS translation re&uirements " / HFS !or con&ertin the account baances o! an internationa subsidiary in a hyperin!ationary country to the parent’s presentation currency requires

a. b. c. d.

remeasurement o! the subsidiary’s accounts to the parent’s presentation currency. transation o! the subsidiary’s accounts to the parent’s presentation currency. price7e&e adLustment o! the subsidiary’s accounts, and then remeasurement o! the accounts to the parent’s presentation currency. price7e&e adLustment o! the subsidiary’s accounts, and then transation o! the accounts to the parent’s presentation currency.

A8S< d

© Cambridge Business Publishers, 2013 7-1%


##.

Toic+ E8osure to translation gains and losses " ' =hich o! the !oo$in a!!ects e5posure to translation ains and osses>

a. b. c. d.

in&estment in AFS securities borro$in money !rom the ban purchases o! in&entory depreciation e5pense

A8S< d #4.

Toic+ E8osure to translation gains and losses " ' =hich o! the !oo$in a!!ects e5posure to remeasurement ains and osses>

a. b. c. d.

in&estment in AFS securities borro$in money !rom the ban purchases o! in&entory depreciation e5pense

A8S< c #+.

Toic+ E8osure to translation gains and losses " ' A subsidiary’s !unctiona currency is its oca currency. =hich o! the subsidiary’s transactions beo$ $i a!!ect e5posure to transation ains and osses>

a. b. c. d.

e!inancin e5istin notes payabe by issuin more notes payabe. ecordin amortiKation e5pense on intanibe assets. @orro$in money to in&est in pant and equipment. )ayin cash to in&est in hed7!or7tradin securities.

A8S

a. b. c. d.

ecei&abes turno&er -credit saes;a&erae recei&abes Tota assets turno&er -saes;a&erae assets eturn on assets -pro!it;assets e&erae -tota iabiities;tota assets

A8S< d



#(.

Toic+ Remeasurement gain and loss " ' emeasurement ains and osses are

a. b. c. d.

reported on the income statement. reported as a direct adLustment to retained earnins. reported in other comprehensi&e income. not reported.

A8S< a #3.

Toic+ Consolidation o$ an international su*sidiary " 3 A U.S. company consoidates a subsidiary $hose accounts are reported in euros. The subsidiary’s !unctiona currency is the euro. "urin the consolidation elimination entries, consoidated ot#er comre#ensie income chanes because

a. b. c. d.

re&auation and subsequent $rite7o!! o! the subsidiary’s assets and iabiities chane its e5posure to transation ains and osses. the subsidiary no$ has additiona a&aiabe7!or7sae securities $hich chane in &aue. eimination o! the in&estment account on the parent’s boos reduces the subsidiary’s assets. the noncontroin interest in the subsidiary must share in the subsidiary’s equity.

A8S< a #?.

Toic+ Translation and $inancial analysis " . =hen anayKin year7to7year chanes in an internationa subsidiary’s !inancia per!ormance,

a. b. c. d.

transation o&erstates the percentae chane in oca currency income. remeasurement understates the percentae chane in oca currency income. i! the same e5chane rate is used in both years, both remeasurement and transation accuratey report the percentae chane in oca currency income. i! the same e5chane rate is used in both years, transation accuratey reports the percentae chane in oca currency income, but remeasurement does not.

A8S< d

© Cambridge Business Publishers, 2013 7-1&


40.

Toic+ !nterreting translation gains and losses " . A U.S. company has a subsidiary in Me5ico. H! the company’s statement o! stochoders’ equity reports a credit to other comprehensi&e income !or transation adLustments, it means that

a. b. c. d.

the peso has strenthened aainst the U.S. doar and the subsidiary’s !unctiona currency is the peso. the peso has $eaened aainst the U.S. doar and the subsidiary’s !unctiona currency is the U.S. doar. the peso has strenthened aainst the U.S. doar and the subsidiary’s !unctiona currency is the U.S. doar. the peso has $eaened aainst the U.S. doar and the subsidiary’s !unctiona currency is the peso.

A8S< a 41.

Toic+ Analysis o$ translation and remeasurement gain or loss " . =hich statement is most iey to be true concernin transation and remeasurement o! the accounts o! a U.S. parent’s subsidiary in )ortua> Assume the U.S. doar has been steadiy strengthening aainst the euro, and operatin pro!it e5cudes remeasurement ains and osses.

a. b. c. d.

emeasured operatin pro!it as a percent o! assets $i be the same as oca currency operatin pro!it as a percent o! assets. emeasured operatin e5penses $i be hiher than transated operatin e5penses. Transated tota assets $i be hiher than remeasured tota assets. emeasured operatin pro!it as a percent o! assets $i be hiher than transated operatin pro!it as a percent o! assets.

A8S< b


© Cambridge Business Publishers, 2013 7-1'

42.

Toic+ Analysis o$ translated and remeasured $inancial statements " . Se&era years ao, a U.S. company acquired a subsidiary ocated in Sinapore. The U.S. doar has been steadiy weakening $ith respect to the Sinapore doar. =hich statement is most li?ely to be true concernin the transated and remeasured accounts o! the subsidiary>

a. b. c. d.

The transation oss reported in other comprehensi&e income has been steadiy ro$in. emeasured cost o! oods sod is o$er than transated cost o! oods sod. emeasured saes re&enue is hiher than transated saes re&enue. emeasured depreciation e5pense is hiher than transated depreciation e5pense.

A8S< b 4#.

Toic+ Financial analysis " . Assume the U.S. doar has been steadiy $eaenin $ith respect to the Austraian doar. Nour cient, a U.S. company $ith a subsidiary in Austraia, $ants to no$ the e!!ect o! the $eaenin U.S. doar on its consoidated !inancia statements. The subsidiary’s !unctiona currency is the Austraian doar. =hich statement beo$ is true>

a. b. c. d.

Saes re&enue $i be hiher. Transated net income $i be o$er. Transated assets $i be o$er. osses $i be reported in other comprehensi&e income.

A8S< a 44.

Toic+ Translation and remeasurement rocedures " '

A U.S. parent has a $hoy7o$ned subsidiary in S$itKerand. The subsidiary’s accounts are reported in S$iss !rancs. Under $hat circumstances $i the U.S. parent translate the subsidiary’s accounts !rom S$iss !rancs to U.S. doars> a. b. c. d.

The subsidiary’s !unctiona currency is a currency other than the S$iss !ranc or the U.S. doar. The subsidiary’s !unctiona currency is the U.S. doar. S$itKerand has a hihy in!ationary economy. The subsidiary’s !unctiona currency is the S$iss !ranc.

A8S< d



4+.

Toic+ Hyerin$lation- U6S6 AAP and !FRS " '- / A U.. parent has a $hoy o$ned subsidiary in Me5ico, $hose !unctiona currency is the Me5ican peso. The subsidiary reports pant and equipment o! 10,000,000 pesos at the end o! 2014. The Me5ican economy is determined to be hyperin!ationary at the beinnin o! 2014. The peso is $orth G0.01 at the end o! 2014. The pant and equipment $as acquired $hen the e5chane rate $as G0.0+. The enera price7e&e inde5 !or Me5ico rose !rom 100 to 400 durin the time the subsidiary hed the pant and equipment. The reported &aue o! the pant and equipment in pounds, !oo$in HFS and U.S. EAA), is

a. b. c. d.

G+00,000 under HFS and G+00,000 G400,000 under HFS and G+00,000 G+00,000 under HFS and G100,000 G400,000 under HFS and G100,000

under U.S. EAA). under U.S. EAA). under U.S. EAA). under U.S. EAA).

A8S< b HFS< 10,000,000 5 400;100 D 40,000,000 5 .01 D G400,000 U.S. EAA)< 10,000 5 .0+ D G+00,000 4/.

Toic+ C#oice o$ conersion met#od " ' Accordin to U.S. EAA), ho$ shoud a U.S. company $ith an internationa subsidiary decide $hether to use remeasurement or transation to con&ert the !inancia statements o! the subsidiary to U.S. doars>

a. b. c. d.

Transate i! the subsidiary does most o! its business in its o$n country, but remeasure i! the country has hyperin!ation. emeasure i! the subsidiary does most o! its business in U.S. doars, but transate i! the country has hyperin!ation. Transate i! the subsidiary does most o! its business in U.S. doars, but remeasure i! the country has hyperin!ation. emeasure i! the subsidiary does most o! its business in its o$n country, but transate i! the country has hyperin!ation.

A8S< a



4(.

Toic+ Financial analysis- translation and remeasurement " . A U.S. company has a %anadian subsidiary. The U.S. doar has been steadiy weakening aainst the %anadian doar. H! the subsidiary’s !unctiona currency is the U.S. doar, $hich statement beo$ is most iey to be true>

a. b. c. d.

A remeasurement ain $oud be reported. Tota assets $oud be hiher than i! the subsidiary’s !unctiona currency is the %anadian doar. emeasured operatin income -saes ess depreciation and out o! pocet e5penses $oud be hiher than i! the subsidiary’s !unctiona currency is the %anadian doar. emeasured iabiities $oud be o$er than i! iabiities are transated.

A8S< c 43.

Toic+ U6S6 AAP translation and remeasurement- #yerin$lation " ' HFS con&ersion o! an internationa subsidiary’s accounts to the parent’s presentation currency is the same as U.S. EAA) !or non7hyperin!ationary !unctiona currencies,

a. b. c. d.

$ith the e5ception that remeasurement ains and osses are reported in %H. $ith the e5ception that transation ains and osses are reported in income. $ith the e5ception that transation is the ony optionC remeasurement is not ao$ed. $ith no di!!erences.

A8S< d 4?.

Toic+ Consolidation o$ international su*sidiaries " 3 A U.S. company has a subsidiary in the U.., acquired at a cost in e5cess o! the subsidiary’s boo &aue. The U.S. doar has been steadiy weakening $ith respect to the @ritish pound. The subsidiary’s !unctiona currency is the pound. =hich statement is true concernin the e!!ects o! consoidation eiminations  and , reconiKin beinnin7o!7 year re&auations and $rite7o!!s !or the current year>

a. b. c. d.

Additiona net transation osses $i be reported in net income. Additiona net transation osses $i be reported in other comprehensi&e income. Additiona net transation ains $i be reported in net income. Additiona net transation ains $i be reported in other comprehensi&e income

A8S< d



+0.

Toic+ !FRS $or $oreign currency translation " / =hat is Opresentation currency,P as used in HFS>

a. b. c. d.

The subsidiary’s !unctiona currency. The parent company’s reportin currency. The currency in $hich the subsidiary reports its accounts. The currency into $hich the subsidiary’s accounts are remeasured, prior to transation.

A8S< b



PR"BEMS

1.

Toic+ Financial statement translation " ' A U.S. parent acquired a U.. subsidiary on January 1, 2014. The subsidiary’s !unctiona currency is the pound, and its "ecember #1, 2014 tria baance is as !oo$s<  0r 1Cr2 G 130,000 ##0,000 1,0+0,000 -(20,000 -130,000 -430,000 77 -#,000,000 2,(00,000 120,000 G 0

%ash, recei&abes Hn&entories, at cost )ant * equipment, net iabiities %apita stoc etained earnins, beinnin Accumuated other comprehensi&e income e&enues 95penses "i&idends

95chane rates -:;G are< January 1, 2014QQQQQQQQ. :1.#/ A&erae !or 2014QQQQQQQ.. 1.#4 ate $hen di&idends paidQQQQ. 1.#1 "ecember #1, 2014QQQQQQQ 1.#0 Required a. %acuate the transation ain or oss !or 2014. b. Transate the subsidiary’s "ecember #1, 2014 tria baance.

A8S< a.  //0,000

Rate 1.#/

U6S6 : : 3?(,/00

#00,000 -120,000

1.#4 1.#1

402,000 -1+(,200 1,142,400 7 1,0?2,000 : +0,400

@einnin e5posure %hanes in e5posure<  8et income 7 "i&idends

G

9ndin e5posure Transation oss

G 340,000


1.#0


b.

%ash, recei&abes Hn&entories, at cost )ant * equipment, net iabiities %apita stoc etained earnins, beinnin Accumuated other comprehensi&e income e&enues 95penses "i&idends

2.

 0r 1Cr2 G 130,000 ##0,000 1,0+0,000 -(20,000 -130,000 -430,000

77 -#,000,000 2,(00,000 120,000 G 0

Rate 1.#0 1.#0 1.#0 1.#0 1.#/ 1.#/

see a. 1.#4 1.#4 1.#1

U6S6 : 0r 1Cr2 : 2#4,000 42?,000 1,#/+,000 -?#/,000 -244,300 -/+2,300

+0,400 -4,020,000 #,/13,000 1+(,200 : 0

Toic+ Translation and remeasurement gains and losses " ' @eo$ are the 2014 beinnin and endin tria baances o! Fisser, a Eerman subsidiary o! a U.S. company. The subsidiary $as acquired on January 1, 2014. A numbers are in thousands. 0r 1Cr2 ,anuary ' 0ecem*er 3' %ash and recei&abes ' 40,000 ' +0,000 Hn&entories, at cost 100,000 110,000 )ant and equipment, net +00,000 +/0,000 iabiities -400,000 -440,000 %apita stoc -+0,000 -+0,000 etained earnins, January 1 -1?0,000 -1?0,000 Saes -1,400,000 %ost o! oods sod ?+0,000  peratin e5penses #+0,000 "i&idends 666666 /0,000 Tota 707 707

95chane rates -:;' are< January 1, 2014 A&erae !or 2014 "ecember #1, 2014


:1.23 1.#+ 1.40


Additional information:

1. 2. #. 4.

"i&idends $ere decared on 8o&ember 1, 2014, $hen the e5chane rate $as :1.#3. e&enues, in&entory purchases, and out o! pocet operatin e5penses $ere incurred e&eny durin the year. )ant and equipment o! '30,000 $as acquired durin 2014, $hen the rate $as G1.#2. "epreciation o! '20,000 is incuded in operatin e5penses. ! that amount, '4,000 reates to pant and equipment acquired durin 2014.

Required a. Assume the subsidiary’s !unctiona currency is the U.S. doar. %ompute the remeasurement ain or oss !or 2014. b. Assume the subsidiary’s !unctiona currency is the euro. %ompute the transation ain or oss !or 2014.

A8S< a.

emeasurement ain or oss 9

@einnin e5posed position -'40,000 7 '400,000 Saes )urchases -'?+0,000  '10,000 ut o! pocet e5penses -'#+0,000 B '20,000 )ant and equipment purchase "i&idends 9ndin e5posed position emeasurement oss b.

:;9

:

' -#/0,000 1,400,000 -?/0,000 -##0,000 -30,000 -/0,000

1.23 1.#+ 1.#+ 1.#+ 1.#2 1.#3

' -#?0,000

1.40

: -4/0,300 1,3?0,000 -1,2?/,000 -44+,+00 -10+,/00 -32,300 -+00,(00 7 -+4/,000 : 4+,#00

Transation ain or oss 9

@einnin e5posed position -'+0,000  '1?0,000 8et income "i&idends 9ndin e5posed position Transation ain


:;9

:

' 240,000 100,000 -/0,000

1.23 1.#+ 1.#3

' 230,000

1.40

: #0(,200 1#+,000 -32,300 #+?,400 7 #?2,000 : #2,/00


#.

Toic+ Translation gain or loss- translated *alance s#eet " ' A U.S. company !ormed a Spanish subsidiary on January 1, 201+. The subsidiary’s baance sheets !or January 1 and "ecember #1, 201+ are presented beo$, in euros.

%ash, recei&abes Hn&entories, at cost on7term assets, at cost, net Tota assets iabiities %apita stoc etained earnins Tota iabiities and equity

,anuary '- .)'4 0ecem*er 3'- .)'4 ' 1+,000 ' 20,000 2+0,000 #+0,000 6(+0,000 1,0+0,000 ' 1,01+,000 ' 1,420,000

'

'

(1+,000 #00,000 0 1,01+,000

' 1,0(0,000 #00,000 +0,000 ' 1,420,000

"urin 201+, the subsidiary reported '+0,000 in net income and paid no di&idends. 95chane rates -U.S. :;' are< January 1, 201+ :1.4+ 201+ a&erae 1.#+ "ecember #1, 201+ 1.#0 Ht is no$ "ecember #1, 201+. The subsidiary’s !unctiona currency is the euro. Required a. %acuate the 201+ transation ain or oss !or the subsidiary. b. )repare the subsidiary’s transated "ecember #1, 201+ baance sheet.

A8S< a.

@einnin e5posed position %hanes in e5posed position<  8et income 9ndin e5posed position Transation oss


9 '#00,000

rate 1.4+

U6S6 : :4#+,000

+0,000

1.#+

'#+0,000

1.#0

/(,+00 +02,+00 7 4++,000 : 4(,+00


b. 9 Assets %ash, recei&abes Hn&entories, at cost on7term assets, net Tota assets ia*ilities = e&uity iabiities %apita stoc etained earnins Accumuated other comprehensi&e income Tota iabiities * equity

4.

rate

U6S6 :

'

20,000 #+0,000 1,0+0,000 '1,420,000

1.#0 1.#0 1.#0

:

2/,000 4++,000 1,#/+,000 :1,34/,000

'1,0(0,000 #00,000 +0,000 6666666 '1,420,000

1.#0 1.4+ 1.#+

:1,#?1,000 4#+,000 /(,+00 -4(,+00 :1,34/,000

Toic+ Translation and consolidation o$ an international su*sidiary " '- 3 Scienti!ic Hnc. is a Sinapore subsidiary o! )reston %ompany, U.S. company. n January 1, 2014, )reston acquired a o! the &otin stoc o! Scienti!ic !or S:2+,000,000. Scienti!ic’s stochoders’ equity totaed S:+,000,000 at the date o! acquisition. The S:20,000,000 e5cess o! acquisition cost o&er boo &aue $as aocated as !oo$s< • • •

S:-10,000,000 to pant * equipment $ith a 107year remainin i!e, straiht7ine S:3,000,000 to pre&iousy unrecorded intanibes $ith a 47year i!e, straiht7ine S:22,000,000 to ood$iC there $as no impairment in 2014

Ht is no$ "ecember #1, 2014. Scienti!ic’s !unctiona currency is the Sinapore doar. 95chane rates are as !oo$s< January 1, 2014 A&erae !or 2014 "ecember #1, 2014 "ate o! di&idend decaration


:0.?0;S: 0.3+;S: 0.30;S: 0.32;S:


Scienti!ic’s tria baances at January 1 and "ecember #1, 2014, are beo$.

%urrent assets )ant * equipment iabiities %apita stoc etained earnins, 1;1 Accumuated other comprehensi&e income "i&idends Saes re&enue %ost o! oods sod peratin e5penses

,anuary '- .)'/ 0r 1Cr2 S: +,000,000 +0,000,000 -+1,000,000 -1,000,000 -#,000,000

77

66666666 S: 0

0ecem*er 3'- .)'/ 0r 1Cr2 S: 3,000,000 ++,000,000 -+4,000,000 -1,000,000 -#,000,000

77 2,000,000 -(0,000,000 +1,000,000 12,000,000 S: 0

Required a. %acuate Scienti!ic’s transation ain or oss !or the year. b. Transate Scienti!ic’s "ecember #1, 2014 tria baance into U.S. doars. c. =hen )reston consoidates Scienti!ic at "ecember #1, 2014, there $i be an additiona transation ain or oss due to increased e5posure !rom the consoidation process. %acuate the additiona transation ain or oss that $i be reported due to the consoidation process.

A8S< a. @einnin e5posure %hane in e5posure  8et income 7 "i&idends 9ndin e5posure Transation oss


S: S: 4,000,000

(,000,000 -2,000,000 S: ?,000,000

rate 0.?0

0.3+ 0.32 0.30

: : #,/00,000

+,?+0,000 -1,/40,000 (,?10,000 7 (,200,000 : (10,000


b.

%urrent assets )ant * equipment iabiities %apita stoc etained earnins, 1;1 Accumuated other comprehensi&e income "i&idends Saes re&enue %ost o! oods sod peratin e5penses

S: 0r 1Cr2 S: 3,000,000 ++,000,000 -+4,000,000 -1,000,000 -#,000,000

77 2,000,000 -(0,000,000 +1,000,000 12,000,000 S: 0

rate 0.30 0.30 0.30 0.?0 0.?0 see schedue 0.32 0.3+ 0.3+ 0.3+

: 0r 1Cr2 : /,400,000 44,000,000 -4#,200,000 -?00,000 -2,(00,000

(10,000 1,/40,000 -+?,+00,000 4#,#+0,000 10,200,000 : 0

c. @einnin additiona e5posure %hane in additiona e5posure )*9 $rite7o!! Hntanibes $rite7o!! 9ndin additiona e5posure Transation oss


S: S:20,000,000

rate 0.?0

: : 13,000,000

1,000,000 -2,000,000

0.3+ 0.3+

S:1?,000,000

0.30

3+0,000 -1,(00,000 1(,1+0,000 7 1+,200,000 : 1,?+0,000


+.

Toic+ Translation o$ $inancial statements " ' A subsidiary o! a U.S. parent starts business on January 1, 2014. Hts !unctiona currency is the euro. The subsidiary’s baance sheets !or January 1 and "ecember #1, 2014 are presented beo$, in euros.

%ash, recei&abes Hn&entories, at cost on7term assets, at cost Tota assets

,anuary '- .)'/ ' 10,000 40,000 (00,000 ' (+0,000

0ecem*er 3'- .)'/ ' 20,000 ?0,000 +#0,000 ' /40,000

iabiities %apita stoc etained earnins Tota iabiities and equity

' ++0,000 200,000 0 ' (+0,000

' 420,000 200,000 20,000 ' /40,000

"urin 2014, the subsidiary reports the !oo$in e&ents< 1. 2. #. 4. +. /. (.

Saes re&enue $as '2,000,000 -e&eny throuh the year. Hn&entory purchases $ere '1,200,000 -e&eny throuh the year. %ost o! oods sod $as '1,1+0,000. 9ndin in&entory $as purchased on "ecember #1, 2014. ut o! pocet operatin e5penses $ere '/+0,000 -e&eny throuh the year. "epreciation and amortiKation e5penses $ere '1(0,000. "i&idends o! '10,000 $ere decared and paid $hen the e5chane rate $as :1.++;'.

95chane rates -U.S. :;' are< January 1, 2014 2014 a&erae "ecember #1, 2014

:1.4+ 1.+0 1./0

Required a. %acuate the transation ain or oss !or 2014. b. Transate the subsidiary’s 2014 income statement into U.S. doars. c. Transate the subsidiary’s "ecember #1, 2014 baance sheet into U.S. doars.



A8S< a. @einnin e5posure %hanes in e5posure<  8et income -see b. beo$ 7 "i&idends 9ndin e5posure Transation ain

9 '200,000

#0,000 -10,000

rate 1.4+

: :2?0,000

1.+0 1.++

4+,000 -1+,+00 #1?,+00 7 #+2,000 :-#2,+00

'220,000

1./0

9 ' 2,000,000 -1,1+0,000 -/+0,000 -1(0,000 ' #0,000

rate 1.+0 1.+0 1.+0 1.+0

: :#,000,000 -1,(2+,000 -?(+,000 -2++,000 : 4+,000


9 ' 20,000 ?0,000 +#0,000 ' /40,000

rate 1./0 1./0 1./0

: : #2,000 144,000 343,000 :1,024,000

iabiities %a pita stoc etained earnins Accumuated other comprehensi&e income Tota iabiities and equity

' 420,000 200,000 20,000 666666 ' /40,000

1./0 1.4+ -1

: /(2,000 2?0,000 2?,+00 #2,+00 :1,024,000

b. Saes re&enue %ost o! oods sod ut o! pocet operatin e5penses "epreciation and amortiKation e5penses 8et income c.

-1

:4+,000 7 :1+,+00 D :2?,+00



/.

Toic+ Remeasurement o$ $inancial statements " ' A subsidiary o! a U.S. parent starts business on January 1, 2014. Hts !unctiona currency is the U.S. doar. The subsidiary’s baance sheets !or January 1 and "ecember #1, 2014 are presented beo$, in euros.


,anuary '- .)'/ ' 10,000 40,000 (00,000 ' (+0,000

0ecem*er 3'- .)'/ ' 20,000 ?0,000 +#0,000 ' /40,000

iabiities %apita stoc etained earnins Tota iabiities and equity

' ++0,000 200,000 0 ' (+0,000

' 420,000 200,000 20,000 ' /40,000

"urin 2014, the subsidiary reports the !oo$in e&ents< 1. 2. #. 4. +. /. (.

Saes re&enue $as '2,000,000 -e&eny throuh the year. Hn&entory purchases $ere '1,200,000 -e&eny throuh the year. %ost o! oods sod $as '1,1+0,000. 9ndin in&entory $as purchased on "ecember #1, 2014. ut o! pocet operatin e5penses $ere '/+0,000 -e&eny throuh the year. "epreciation and amortiKation e5penses $ere '1(0,000. "i&idends o! '10,000 $ere decared and paid $hen the e5chane rate $as :1.++;'.

95chane rates -U.S. :;' are< January 1, 2014 2014 a&erae "ecember #1, 2014

:1.4+ 1.+0 1./0

Required a. %acuate the remeasurement ain or oss !or 2014. b. emeasure the subsidiary’s 2014 income statement into U.S. doars. c. emeasure the subsidiary’s "ecember #1, 2014 baance sheet into U.S. doars.



A8S< a. @einnin e5posure %hanes in e5posure<  Saes re&enue 7 Hn&entory purchases 7 ut o! pocet e5penses 7 "i&idends 9ndin e5posure emeasurement oss

9 '-+40,000

rate 1.4+

: :-(3#,000

2,000,000 -1,200,000 -/+0,000 -10,000

1.+0 1.+0 1.+0 1.++

'-400,000

1./0

#,000,000 -1,300,000 -?(+,000 -1+,+00 -+(#,+00 7 -/40,000 : //,+00

b. Saes re&enue %ost o! oods sod ut o! pocet operatin e5penses "epreciation and amortiKation e5penses emeasurement oss 8et income -oss

9 ' 2,000,000 -1,1+0,000 -/+0,000 -1(0,000

rate 1.+0 -1 1.+0 1.4+ see schedue

: :#,000,000 -1,(14,000 -?(+,000 -24/,+00

9 ' 40,000 1,200,000 -?0,000 '1,1+0,000

rate 1.4+ 1.+0 1./0

: : +3,000 1,300,000 -144,000 :1,(14,000

9 ' 20,000 ?0,000 +#0,000 ' /40,000

rate 1./0 1./0 1.4+

: : #2,000 144,000 (/3,+00 :?44,+00

' 420,000 200,000 20,000 ' /40,000

1./0 1.4+ -1

:/(2,000 2?0,000 -1(,+00 :?44,+00

'

77 #0,000

-//,+00 : -2,000

-1 @einnin in&entory )urchases 9ndin in&entory %ost o! oods sod c. %ash, recei&abes Hn&entories, at cost on7term assets, at cost Tota assets iabiities %apita stoc etained earnins Tota iabiities and equity -1 :-2,000 B :1+,+00 D :1(,+00



(.

Toic+ Consolidation o$ an international su*sidiary su*se&uent to ac&uisition " 3 S$ire td., ocated in Ron on, is a $hoy7o$ned subsidiary o! )ato %ompany, a U.S. company. n January 1, 201+, )ato acquired a o! the &otin stoc o! S$ire !or R:100,000,000. S$ire’s stochoders’ equity totaed R:#0,000,000 at the date o! acquisition. The R:(0,000,000 e5cess o! acquisition cost o&er boo &aue $as aocated entirey to ood$i. )ato %ompany uses the compete equity method to account !or its in&estment in the subsidiary, on its o$n boos.

Ht is no$ "ecember #1, 201+. S$ire’s tria baance is sho$n beo$. Eood$i impairment durin 201+ $as R:+,000,000. 95chane rates are as !oo$s< January 1, 201+ A&erae !or 201+ "ecember #1, 201+

:0.1/;R: :0.20;R: :0.2+;R:

S$ire’s !unctiona currency is the Ron on doar. Hts tria baances at January 1 and "ecember #1, 201+ are beo$.

%urrent assets )ant * equipment, net iabiities %apita stoc etained earnins, January 1 Accumuated other comprehensi&e income Saes re&enue %ost o! oods sod peratin e5penses

,anuary '- .)'4 0r 1Cr2 R: 14,000,000 4//,000,000 -4+0,000,000 -10,000,000 -20,000,000 77

R:

66666666 0

0ecem*er 3'- .)'4 0r 1Cr2 R:1+,000,000 +00,000,000 -4(/,000,000 -10,000,000 -20,000,000 77 -2+0,000,000 120,000,000 121,000,000 R: 0

Required a. %acuate S$ire’s transation ain or oss !or 201+. b. Transate S$ire’s "ecember #1, 201+ tria baance into U.S. doars. c. )repare the Lourna entries )ato maes on its o$n boos to -1 record the initia in&estment, -2 reconiKe S$ire’s 201+ net income and -# reconiKe the 201+ chane in S$ire’s accumuated other comprehensi&e income. d. )resent, in Lourna entry !orm, the eiminatin entries necessary to consoidate the "ecember #1, 201+ !inancia statements o! )ato and S$ire. %eary sho$ your cacuations. e. Hndependenty cacuate the net amount o! the adLustments to other comprehensi&e income in eiminatin entries  and .



A8S< a. @einnin e5posure %hane in e5posure D 8et income 9ndin e5posure Transation ain

HK: R:#0,000,000

rate 0.1/

: : 4,300,000

?,000,000

0.20

R:#?,000,000

0.2+

1,300,000 /,/00,000 7 ?,(+0,000 : -#,1+0,000

b. HK: 0r 1Cr2 R:1+,000,000 +00,000,000 -4(/,000,000 -10,000,000 -20,000,000 77 -2+0,000,000 120,000,000 121,000,000 R: 0

%urrent assets )ant * equipment, net iabiities %apita stoc etained earnins, January 1 Acc. other comprehensi&e income Saes re&enue %ost o! oods sod peratin e5penses

c. -1 Hn&estment in S$ire

rate 0.2+ 0.2+ 0.2+ 0.1/ 0.1/ see sch. 0.20 0.20 0.20

: 0r 1Cr2 : #,(+0,000 12+,000,000 -11?,000,000 -1,/00,000 -#,200,000 -#,1+0,000 -+0,000,000 24,000,000 24,200,000 : 0

1/,000,000 %ash

1/,000,000

-2 9quity in 8H o! S$ireD -?,000,000 B +,000,000 5 0.20 D :300,000 Hn&estment in S$ire 300,000 9quity in 8H o! S$ire 300,000 -# Hn&estment in S$ire

#,1+0,000 ther comprehensi&e income

#,1+0,000

The "ecember #1, 201+ in&estment baance is :1/,000,000  :300,000  :#,1+0,000 D :1?,?+0,000.



d. -% 9quity in 8H o! S$ire

300,000 Hn&estment in S$ire

300,000

-9 %a pita stoc etained earnins, Jan. 1 Accumuated other comprehensi&e income

1,/00,000 #,200,000 #,1+0,000 Hn&estment in S$ire

(,?+0,000

- Eood$i -1

1(,+00,000 Hn&estment in S$ire -2 ther comprehensi&e income

11,200,000 /,#00,000

-1 Eood$i D (0,000,000 5 :0.2+ -2 :11,200,000 D :1?,?+0,000 7 :300,000 7 :(,?+0,000 - peratin e5penses -# ther comprehensi&e income -# -4

1,000,000 2+0,000

Eood$i -4 peratin e5penses D ood$i impairment oss D '+,000,000 5 0.20 Eood$i reduction D '+,000,000 5 0.2+

1,2+0,000

e. @einnin additiona e5posure %hane in additiona e5posure< Eood$i impairment 9ndin additiona e5posure Transation ain caused by additiona e5posure


HK: R:(0,000,000

rate 0.1/

: :11,200,000

-+,000,000

0.20

-1,000,000 10,200,000 71/,2+0,000

'/+,000,000

0.2+

:-/,0+0,000


3.

Toic+ Remeasurement o$ $inancial statements " ' A U.S. parent acquired a subsidiary in 8e$ eaand on Juy 1, 2014, the beinnin o! its !isca year. The subsidiary’s !unctiona currency is the U.S. doar. Hts Juy 1, 2014 and June #0, 201+ tria baances are as !oo$s, in 8e$ eaand doars -8:< ,uly '- .)'/ ,une 3)- .)'4 0r 1Cr2 0r 1Cr2 %ash, recei&abes 8: #00,000 8: 2+0,000 Hn&entories, at cost ++0,000 /20,000 )ant * equipment, net 1,300,000 1,?+0,000 iabiities -1,+00,000 -1,#00,000 %apita stoc -#00,000 -#00,000 etained earnins, beinnin -3+0,000 -3+0,000 "i&idends 130,000 Saes re&enue -+,+00,000 95penses 6666666 4,?+0,000 8: 0 8: 0

95chane rates -:;8: are< Juy 1, 2014QQQQQQQQ. A&erae !or !isca 201+QQQ... ate $hen di&idends decaredQ. June #0, 201+QQQQQQQQ

:0.30 0.3# 0.33 0.?0

Additiona in!ormation< 1. 2. #.

4.

95penses incude cost o! oods sod o! 8:#,000,000 and depreciation o! 8:/0,000. Saes re&enue, merchandise purchases, and out o! pocet e5penses $ere incurred e&eny throuhout the year. )ant and equipment o! 8:210,000 $as purchased $hen the e5chane rate $as 8:0.31. "epreciation o! 8:20,000 $as taen on the ne$ pant and equipment !or !isca 201+. The endin in&entory $as purchased on June #0, 201+.

Required a. %acuate the remeasurement ain or oss !or !isca 201+. b. %acuate the subsidiary’s remeasured tota operatin e5penses !or !isca 201+. peratin e5penses consist o! cost o! oods sod, out o! pocet e5penses, and depreciation e5pense. c. %acuate the subsidiary’s remeasured net income !or !isca 201+.



A8S< a. N:

@einnin e5posure -8:#00,000 B 8:1,+00,000 %hanes in e5posure< Saes re&enue Merchandise purchases ut o! pocet e5penses )*9 purchases "i&idends 9ndin e5posure -8:2+0,000 B 8:1,#00,000 emeasurement oss b. @einnin in&entory )urchases 9ndin in&entory %ost o! oods sod ut o! pocet e5penses "e preciation e5pense<

Tota operatin e5penses c. Saes re&enue peratin e5penses emeasurement oss 8et income


rate

:

8: -1,200,000

0.30

: -?/0,000

+,+00,000 -#,0(0,000 -1,3?0,000 -210,000 -130,000

0.3# 0.3# 0.3# 0.31 0.33

4,+/+,000 -2,+43,100 -1,+/3,(00 -1(0,100 -1+3,400 -340,#00

8: -1,0+0,000

0.?0

7 -?4+,000 : -104,(00

++0,000 5 :0.30 #,0(0,000 5 :0.3# -/20,000 5 :0.?0 #,000,000 1,3?0,000 5 :0.3# 20,000 5 :0.31 40,000 5 :0.30 4,?+0,000

: 440,000 2,+43,100 -++3,000 : 2,4#0,100 1,+/3,(00 1/,200 #2,000

43,200 :4,04(,000

: 4,+/+,000 -4,04(,000 -104,(00 : 41#,#00


?.

Toic+ Consolidation o$ an international su*sidiary " 3 A U.S. parent acquired a U.. subsidiary on January 1, 2014, !or an acquisition cost o! G300,000. The e5cess paid o&er boo &aue $as attributed to ood$i. There is no ood$i impairment !or 2014. The subsidiary’s !unctiona currency is the pound. Hts January 1 and "ecember #1, 2014 tria baances are as !oo$s, in pounds<

%ash, recei&abes Hn&entories, at cost )ant * equipment, net iabiities %apita stoc etained earnins, beinnin "i&idends Saes re&enue 95penses

,anuary '- .)'/ 0r 1Cr2 G 100,000 1(+,000 /00,000 -43+,000 -100,000 -2?0,000

6666666 G 0

0ecem*er 3'- .)'/ 0r 1Cr2 G 110,000 200,000 /+0,000 -4#0,000 -100,000 -2?0,000 /0,000 -1,300,000 1,/00,000 G 0

95chane rates -:;G are< January 1, 2014QQQQQQQQ. :1.4+ A&erae !or 2014QQQQQQQ.. 1.40 ate $hen di&idends paidQQQQ. 1.#/ "ecember #1, 2014QQQQQQQ 1.#+ Additiona in!ormation< 1. 2. #. 4.

95penses incude cost o! oods sod o! G1,000,000 and depreciation o! G20,000. Saes re&enue, merchandise purchases, and out o! pocet e5penses $ere incurred e&eny throuhout the year. )ant and equipment o! G(0,000 $as purchased $hen the e5chane rate $as :1.42. "epreciation o! G+,000 $as taen on the ne$ pant and equipment !or 2014. The endin in&entory $as purchased on "ecember #1, 2014.

Required The consoidation $orin paper, in doars, is beo$. Fi in the eimination entries %, 9 and  necessary to consoidate the parent and subsidiary’s tria baances.

© Cambridge Business Publishers, 2013 7-#0


Parent 0r 1Cr2

Su*sidiary 0r 1Cr2

: #00,000

: 143,+00

Hn&entories, at cost

/+0,000

2(0,000

)ant * equipment, net

2,#00,000

3((,+00

%ash, recei&abes

0r

Cr

Consol

Eood$i Hn&estment in subsidiary iabiities %apita stoc etained earnins, beinnin Accumuated other comprehensi&e income "i&idends Saes re&enue 9quity in net income o! subsidiary 95penses Totas


1,#10,000 -#,2(3,400

-+30,+00

-200,000

-14+,000

-/00,000

-420,+00

43,400

43,400

77

31,/00

-#,400,000

-2,+20,000

-230,000 #,1+0,000 707

2,240,000 707


A8S< Parent 0r 1Cr2

Su*sidiary 0r 1Cr2

: #00,000

: 143,+00

//-4))

Hn&entories, at cost

/+0,000

2(0,000

>.)-)))

)ant * equipment, net

2,#00,000

3((,+00

3-'77-4))

%ash, recei&abes

Eood$i Hn&estment in subsidiary iabiities %apita stoc etained earnins, be. Accumuated other comprehensi&e income

9quity in net income o! subsidiary 95penses

Cr

1R2 443-4))

Consol

443-4)) '>-/))1C2 4'7-'))1E2 4>/-4))1R2

1,#10,000

GG

-#,2(3,400

-+30,+00

-200,000

-14+,000

1E2 '/4-)))

1.))-)))2

-/00,000

-420,+00

1E2 /.)-4))

1<))-)))2

43,400

43,400

1R2 /'-)))

77

31,/00

"i&idends Saes re&enue

0r

-#,400,000

Totas


707

/-/))1E2

>-/))

'-<))1C2

GG

-2,+20,000

-230,000 #,1+0,000

13-4->))2

14->.)-)))2 1C2.)-)))

GG

2,240,000

6666666

6666666 4-3>)-)))

707

'-//)-)))

'-//)-)))


G)G

10.

Toic+ !FRS and U6S6 AAP $or #ig#ly in$lationary country " '- / A VeneKuean subsidiary o$ns and acquired !or 100,000,000 boi&ares !uertes -@sF $hen the e5chane rate $as :0.+0;@sF. The rate at the end o! the current year is :0.0+, and the price e&e inde5 has increased !rom 100 at the date the and $as acquired to 1200 at the end o! the current year. The subsidiary’s !unctiona currency is the @sF. The parent’s reportin -presentation currency is the U.S. doar.

Required a. At $hat &aue $i the and be reported in the consoidated baance sheet, i! the subsidiary’s parent !oo$s U.S. EAA) and VeneKuea is not considered to be a hihy in!ationary country> At $hat &aue $i the and be reported in the consoidated baance sheet, i! the subsidiary’s parent !oo$s HFS and VeneKuea is not considered to be a hihy in!ationary country> b. At $hat &aue $i the and be reported in the consoidated baance sheet, i! the subsidiary’s parent !oo$s U.S. EAA) and VeneKuea has been decared a hihy in!ationary country> c. At $hat &aue $i the and be reported in the consoidated baance sheet, i! the subsidiary’s parent !oo$s HFS and VeneKuea has been decared a hihy in!ationary country> d. H! you ans$ered questions b. and c. correcty, $hen hyperin!ation e5ists the and is reported at di!!erent amounts dependin on i! the parent !oo$s U.S. EAA) or HFS. Under $hat circumstances $i the U.S. EAA) and HFS amounts be the same>

A8S< a.

b.

c.

d.

Usin both U.S. EAA) and HFS, the and is translated into U.S. doars usin the current rate< 100,000,000 5 0.0+ D :+,000,000. The and is remeasured into U.S. doars e&en thouh the subsidiary’s !unctiona currency is the @sF. 100,000,000 5 :0.+0 D :+0,000,000. The and is price7e&e adLusted to @sF o! current purchasin po$er, and then translated into U.S. doars. 100,000,000 5 -1200;100 D 1,200,000,000 5 :0.0+ D :/0,000,000. The HFS and U.S. EAA) amounts $i be the same ony i! the chane in the price e&e and the chane in the e5chane rate mirror each other. For e5ampe, the e5chane rate chanes !rom :0.+0 to :0.0+, one7tenth o! the oriina rate. H! the price7e&e inde5 simiary chaned !rom 100 to 1000, HFS and U.S. EAA) $oud produce the same and &aue, in U.S. doars< U.S. EAA)< 100,000,000 5 :0.+0 D :+0,000,000 HFS< 100,000,000 5 1000;100 D 1,000,000,000 5 :0.0+ D :+0,000,000



11.

Toic+ Translation and remeasurement " ' A U.S. company $ith a June #0 !isca year7end estabished a subsidiary in Sinapore on Juy 1, 2014. Foo$in is in!ormation on the acti&ities o! the subsidiary durin !isca 201+, a in thousands o! Sinapore doars -S:< Su*sidiary Balance S#eet ,uly '- .)'/ and ,une 3)- .)'4

%ash

,uly '.)'/

,une 3).)'4

S:10,000

S:1(,000 iabiities

Accounts recei&abe

0

Hn&entories -cost

Tota

3,000 %apita stoc

40,000

)ant assets, net

230,000 S:#++,000 Tota

,une 3).)'4

S:100,000

S:?+,000

2+0,000

2+0,000

77

10,000

+0,000 etained earnins

#00,000 S:#+0,000

,uly '.)'/

66666 S:#+0,000

66666 S:#++,000

The !oo$in e&ents occurred durin !isca 201+< 1. 2. #. 4. +. /.

Saes -e&eny throuh the year S:300,000 Hn&entory purchases -a !or cash, e&eny throuh the year 400,000 %ost o! oods sod #?0,000 )urchase o! pant assets !or cash -on 8o&ember 1, 2014 +0,000 "epreciation e5pense -S:/0,000 on the pant assets acquired Juy 1, 2014, S:10,000 on the pant assets purchased 8o&ember 1, 2014 (0,000 ther operatin e5penses -a !or cash, e&eny throuh the year ##0,000

95chane rates are as !oo$s -:;S:< Juy 1, 2014 8o&ember 1, 2014 March 1+, 201+ June #0, 201+ A&erae !or !isca 201+

:0.+? 0./0 0./2 0./4 0./1

Required a. %acuate the remeasurement ain or oss !or !isca 201+. b. %acuate the transation ain or oss !or !isca 201+. c. )resent the transated baance sheet as o! June #0, 201+. d. =hat is the remeasured baance !or June #0, 201+ pant assets, net>

© Cambridge Business Publishers, 2013 7-##


A8S< a. S:

rate

:

S:-?0,000

.+?

: -+#,100

300,000

./1

433,000

7 Hn&entory purchases

-400,000

./1

-244,000

7 )ant asset purchases

-+0,000

./0

-#0,000

-##0,000

./1

-201,#00

@einnin e5posed position  Saes

7 ut o! pocet e5penses

-40,400 9ndin e5posed position

S:-(0,000

./4

7 -44,300

emeasurement oss

:

4,400

b.

@einnin e5posed position

S:

rate

S:2+0,000

.+?

:14(,+00

10,000

./1

/,100

 8et income

:

1+#,/00 9ndin e5posed position

S:2/0,000

./4

7 1//,400

Transation ain

:-12,300

c.

S:

%ash

rate

1(,000

./4

3,000

./4

+0,000

./4

)ant assets, net

230,000

./4

Tota

#++,000

Accts recei&abe Hn&entories

d.

-#00,000 7 /0,000 5 .+? D -+0,000 7 10,000 5 ./0 D


:

S:

10,330 iabiities +,120 %ap. stoc #2,000 9

rate

:

?+,000

./4

/0,300

2+0,000

.+?

14(,+00

10,000

/,100

1(?,200 A%H

666666

12,300

22(,200 Tota

#++,000

22(,200

:141,/00 24,000 :1/+,/00

© Cambridge Business Publishers, 2013 7-#$

12.

Toic+ Translated $inancial statements- ac&uisition o$ an e8isting comany " ' The "ecember #1, 201+ tria baance o! A", a @ritish subsidiary o! =aton %orporation, appears beo$, e5pressed in pounds. The pound is A"’s !unctiona currency.

Additional information: 1. The baance in the cumuati&e transation adLustment account at "ecember #1, 2014 $as :4,000,000 -credit. 2. The doar baance o! transated retained earnins at "ecember #1, 2014 $as :1,400,000. #. =hen A" $as acquired by =aton, the e5chane rate $as :1.#0;G. 8o capita stoc chanes ha&e occurred since then. 4. 95chane rates -:;G $ere as !oo$s<

January 1, 201+ A&erae !or 201+ "ecember #1, 201+ +.

/. (.

:1./0 :1.+4 :1.+0

Saes, purchases, and e5penses other than depreciation occurred e&eny throuhout the year. The endin in&entories $ere purchased $hen the e5chane rate $as :1.+2. A" acquired its pant and equipment prior to its acquisition by =aton, $hen the e5chane rate $as :1.2+. A"’s tria baance at "ecember #1, 201+ is as !oo$s, in pounds< A0" Trial *alance- 0ecem*er 3'- .)'4

%ash, recei&abes Hn&entories, at cost )ant * equipment iabiities %apita stoc etained earnins, 1;1 Saes %ost o! saes "epreciation e5pense ther e5penses

0r 1Cr2 G 2,+00,000 #,000,000 12,?00,000 -12,+00,000 -2,000,000 -#,000,000 -40,000,000 #2,000,000 300,000 /,#00,000 G 0

Required a. )repare a schedue cacuatin the transation ain or oss !or 201+. b. )repare a transated income statement !or 201+. c. )repare a transated baance sheet at "ecember #1, 201+.

© Cambridge Business Publishers, 2013 7-#%


A8S< a. @einnin net assets 8et income 9ndin net assets Transation oss b. Saes %ost o! saes "epreciation e5pense ther e5penses 8et income c. %ash, recei&abes Hn&entories )ant * equipment Tota iabiities %apita stoc etained earnins Accumuated other comprehensi&e income Tota

G +,000,000 5 1./0 D ?00,000 5 1.+4 D G +,?00,000 5 1.+0 D

:

3,000,000 1,#3/,000 :?,#3/,000 7 3,3+0,000 : +#/,000

G40,000,000 5 1.+4 #2,000,000 5 1.+4 300,000 5 1.+4 /,#00,000 5 1.+4 G ?00,000

: /1,/00,000 -4?,230,000 -1,2#2,000 -?,(02,000 : 1,#3/,000

G

2,+00,000 5 1.+ #,000,000 5 1.+ 12,?00,000 5 1.+ G 13,400,000

:

#,(+0,000 4,+00,000 1?,#+0,000 : 2(,/00,000

G 12,+00,000 5 1.+ 2,000,000 5 1.# #,?00,000 -1

: 13,(+0,000 2,/00,000 2,(3/,000

666666666-2 G 13,400,000

#,4/4,000 :2(,/00,000

-1 9ndin retained earnins, in pounds, D G#,000,000  G?00,000 D G#,?00,000 Transated endin retained earnins D :1,400,000  :1,#3/,000 D :2,(3/,000 -2 Transated endin A%H D :4,000,000 credit  :+#/,000 debit D :#,4/4,000 credit



1#.

Toic+ Consolidation o$ an international su*sidiary- date o$ ac&uisition " / )enn %orporation, a U.S. company, acquired a o! the outstandin stoc o! Stocard %ompany, a Maaysian company, on January 1, 2014. The currency o! Maaysia is the rinit -§). )enn paid $2/,000 !or Stocard’s stoc. n that date the e5chane rate $as :0.#2+;§. StocardIs !unctiona currency is the rinit. The condensed baance sheets o! )enn and Stocard as o! January 1, 2014 are sho$n beo$. A numbers in the probem are in thousands. Assets %ash and recei&abes Hn&entories )roperty, pant and equipment, net Hn&estment in Stocard Tota assets

Penn Cor6 : 1,200 2,300 2+,000 2/,000 :++,000

Stoc?ard Co6 § +00 1,000 12,000 66666666 § 1#,+00

:40,000 10,000 +,000 :++,000

§ 12,000 200 1,#00 § 1#,+00

ia*ilities and stoc?#olders@ e&uity iabiities %apita stoc etained earnins Tota iabiities and stochodersI equity

StocardIs assets and iabiities are reported at amounts appro5imatin !air &aue, e5cept that it has pre&iousy unreported identi!iabe intanibe assets, appropriatey capitaiKed per ASC Topic 805, $ith a !air &aue o! §2,000 on January 1, 2014. Required a. )repare a schedue cacuatin the e5cess o! acquisition cost o&er Stocard’s boo &aue at the acquisition date, and its aocation to S tocard’s net assets and ood$i. b. )repare a $orin paper to consoidate the baance sheets o! )enn and Stocard at January 1, 2014.

A8S< (all numers in thousands! a. §

Acquisition cost @oo &aue 95cess e&auation< Hdenti!iabe intanibes Eood$i

© Cambridge Business Publishers, 2013 7-#&

30,000 -1,+00 (3,+00 -2,000 (/,+00

:;§ .#2+ .#2+

U6S6 : : 2/,000 -43(.+ 2+,+12.+

.#2+ .#2+

-/+0 :24,3/2.+


b.

%ash * recei&abes Hn&entories )roperty, pant and equipment Hntanibes Hn&estment in Stocard Eood$i iabiities %apita stoc etained earnins Tota 14.

Penn 0r 1Cr2 : 1,200 2,300

Stoc?ard 0r 1Cr2 : 1/2.+ #2+.0

2+,000

#,?00.0

0r

-

Cr

23,?00 /+0 77

/+0.0 43(.+ -9 2+,+12.+ -

2/,000 - 24,3/2.+ -40,000 -10,000 -+,000 707

Consol6 0r 1Cr2 : 1,#/2.+ #,12+

-#,?00.0 -/+.0 -422.+ 707

-9 -9

/+.0 422.+

24,3/2.+ -4#,?00 -10,000 -+,000 707

Toic+ Consolidation o$ an international su*sidiary- one year a$ter ac&uisition " / Use the in!ormation in probem 1# !or )enn %orporation and its subsidiary Stocard %o. Ht is no$ "ecember #1, 2014 -one year a!ter the acquisition. The tria baances o! )enn and Stocard at "ecember #1, 2014, in U.S. doars and rinits, respecti&ey, are as !oo$s<

%ash * recei&abes Hn&entories )roperty, pant and equipment, net Hn&estment in Stocard iabiities %apita stoc etained earnins, January 1 Accumuated other comprehensi&e income 9quity in net income o! Stocard Saes re&enue 95penses Tota

Penn 0r 1Cr2 : 1,400 #,100 2?,+00 2/,?40.+ -41,000 -10,000 -+,000 -1/.+ -?24 -12+,000 121,000 707

Stoc?ard 0r 1Cr2 /00 § 2,400 1/,+00

-1+,000 -200 -1,#00 77 77 -+2,000 4?,000 707

Additional information: 1. The re&auation o! intanibes is to be straiht7ine amortiKed o&er 10 years. There is no impairment o! ood$i !or 2014. 2. The a&erae e5chane rate !or 2014 is :0.##;§, and the "ecember #1, 2014 e5chane rate is :0.##2;§.


© Cambridge Business Publishers, 2013 7-#'

Required a. Transate Stocard’s "ecember #1, 2014 tria baance into U.S. doars. b. Veri!y )enn’s "ecember #1, 2014 baances !or Hn&estment in Stocard, accumuated other comprehensi&e income, and equity in net income o! Stocard. )enn’s other comprehensi&e income is comprised ony o! its interest in Stocard. c. )repare a $orin paper to consoidate the "ecember #1, 2014 tria baances o! )enn and Stocard.

A8S< Transation o! Stocard’s "ecember #1, 2014 trial balance: U6S6 : § 0r 1Cr2 :;§ 0r 1Cr2 %ash * recei&abes /00 .##2 1??.2 Hn&entories 2,400 .##2 (?/.3 )roperty, pant and equipment, net 1/,+00 .##2 +,4(3 iabiities -1+,000 .##2 -4,?30 %apita stoc -200 .#2+ -/+ etained earnins, January 1 -1,#00 .#2+ -422.+ Acc. other comp. income 77 -1 -1/.+ Saes re&enue -+2,000 .## -1(,1/0 95penses 4?,000 .## 1/,1(0 Tota 707 707

a.

(1) §

95posed position, January 1, 2014 8et income

1,+00 #,000

:;§ .#2+ .##

95posed position, "ecember #1, 2014 Transation ain

4,+00

.##2

b. 9quity in net income o! Stocard< Stocard’s net income -#,000 5 .## e&auation $rite7o!! -2,000;10 5 .## 9quity in net income o! Stocard

U6S6 : 43(.+ ??0.0 1,4((.+ 71,4?4.0 -1/.+

:??0 -// :?24

Accumuated other comprehensi&e income< )enn reconiKes Stocard’s transation ain, as cacuated abo&e. Hn&estment in Stocard, "ecember #1, 2014< Hn&estment, January 1, 2014  9quity in net income o! Stocard  Stocard’s transation ad Lustment Hn&estment, "ecember #1, 2014

© Cambridge Business Publishers, 2013 7-$0

:2/,000.0 ?24.0 1/.+ :2/,?40.+


c.

Consolidation working paper

%ash * recei&abes Hn&entories ))*9, net Hntanibes Hn&estment in Stocard Eood$i iabiities %apita stoc etained earnins, beinnin Accumuated other comprehensi&e income 9quity in net income o! Stocard Saes re&enue 95penses Tota

Penn 0r 1Cr2 1,400 #,100 2?,+00 77 2/,?40.+

77 -41,000 -10,000 -+,000 -1/.+

Stoc?ard 0r 1Cr2 1??.2 (?/.3 +,4(3 77 77

77 -4,?30 -/+ -422.+ -1/.+

-?24 -12+,000 121,000 707

-1(,1/0 1/,1(0 707

0r

-

Cr

//4

//.4 - ?24 -% +04 -9 2+,+12.+ -

- 2+,#?3

2+,#?3 -4+,?30 -10,000 -+,000

-9 /+ -9 422.+ -9 -

1/.+ 0.4

-%

?24

-

Consol 0r 1Cr2 1,+??.2 #,3?/.3 #4,?(3 +?(./ 77

+4?.+ -

//

-+/+./

77 -142,1/0 1#(,2#/ 707

Use t#e $ollo%ing in$ormation to ans%er &uestions '4 and '< *elo%+

A U.S. company has a subsidiary in @raKi. The subsidiary’s beinnin and endin tria baances !or 201+ are as !oo$s<

%ash Fi5ed assets, net iabiities %apita stoc etained earnins, beinnin Saes "epreciation e5pense ther e5penses

,anuary '- .)'4 0r 1Cr2  400,000 1,300,000 -2,000,000 -2#0,000 #0,000

6666666  0

0ecem*er 3'- .)'4 0r 1Cr2  410,000 2,100,000 -2,210,000 -2#0,000 #0,000 -#,100,000 #00,000 2,(00,000  0

95chane rates are as !oo$s -:;< January 1, 201+ :0.+2 A&erae !or 201+ 0.+/ "ecember #1, 201+ 0./0



1+.

Toic+ Translation gain or loss " ' Assume the subsidiary’s !unctiona currency is the rea.

Required %acuate the transation ain or oss, appearin as a component o! 201+ transated other comprehensi&e income.

A8S<

1/.

@einnin net assets 8et income

'200,000 5 0.+2 D 100,000 5 0.+/ D

9ndin net assets Transation ain

'#00,000 5 0./0 D

:104,000 +/,000 1/0,000 7 130,000 : 20,000

Toic+ Remeasurement gain or loss " ' Assume the subsidiary’s !unctiona currency is the U.S. doar. Saes and out7o!7pocet e5penses $ere incurred e&eny throuhout the year. Fi5ed asset purchases !or the year occurred $hen the e5chane rate $as :0.+3.

Required %acuate the remeasurement ain or oss, appearin as a component o! 201+ remeasured net income.

A8S< @einnin e5posure Saes ut o! pocet e5penses Fi5ed asset purchases

-1,/00,000 5 0.+2 #,100,000 5 0.+/ -2,(00,000 5 0.+/ -/00,000 5 0.+3

9ndin e5posure emeasurement oss

-1,300,000 5 0./0


: -3#2,000 1,(#/,000 -1,+12,000 -#43,000 -?+/,000 7-1,030,000 : 124,000


Use t#e $ollo%ing in$ormation to ans%er &uestions '7 and ' *elo%+

n January 2, 2014, %arney %orporation, headquartered in the U.S., opened a branch in )aris. An initia in&estment o! :+00,000 $as made on that dateC the e5chane rate $as :1.40;'. "urin 2014, the !oo$in cash transactions occurred at the )aris branch< Jan.2 raniKation costs incurred -+7yr.i!e, straiht7ine D ' +0,000 Apr.1 )urchase o! equipment -107yr. i!e, straiht7ine D '120,000 Throuhout the year, cash saes o! '1,#00,000 $ere made and cash operatin costs o! '1,240,000 $ere incurred. A !u year o! depreciation is taen on the equipment. The e5chane rate $as :1.4+ on Apri 1 and :1.43 on "ec. #1. Saes and cash operatin costs are assumed to be made at the a&erae e5chane rate o! :1.4/. 1(.

Toic+ Remeasurement gain or loss- remeasured $inancial statements " '

Required )repare a baance sheet as o! "ecember #1, 2014, and a 2014 income statement !or the )aris branch, in U.S. doars, assumin the !unctiona currency o! the )aris branch is the U.S. doar. Hncude a separate schedue !or the cacuation o! the remeasurement ain or oss !or 2014.

A8S< "ecember #1, 2014 baance sheet %ash raniKation costs, net 9quipment, net Tota

9 '#?0,000 40,000 103,000 '+#3,000

rate 1.43 1.40 1.4+

US: :+((,200 +/,000 1+/,/00 :(3?,300

%apita stoc etained earnins Tota

'+00,000 #3,000 '+#3,000

1.40 -1

:(00,000 3?,300 :(3?,300

-1

2014 income statement

Saes %ash operatin e5penses "epreciation e5pense AmortiKation e5pense emeasurement ain 8et income


9 ' 1,#00,000 -1,240,000 -12,000 -10,000 66666666 ' #3,000

rate 1.4/ 1.4/ 1.4+ 1.40 -2

US: : 1,3?3,000 -1,310,400 -1(,400 -14,000 ##,/00 : 3?,300


-2

Schedue o! 2014 remeasurement ain 9 @einnin e5posed position ' +00,000 raniKation costs -+0,000 9quipment -120,000 Saes 1,#00,000 %ash operatin costs -1,240,000 66666666 9ndin e5posed position ' #?0,000 emeasurement ain

13.

rate 1.40 1.40 1.4+ 1.4/ 1.4/

1.43

US: : (00,000 -(0,000 -1(4,000 1,3?3,000 -1,310,400 +4#,/00 7 +((,200 : -##,/00

Toic+ Translation gain or loss- translated $inancial statements " '

Required epeat the requirements o! question 1(, assumin the !unctiona currency o! the )aris branch is the euro.

A8S< "ecember #1, 2014 baance sheet %ash raniKation costs, net 9quipment, net Tota

9 '#?0,000 40,000 103,000 '+#3,000

rate 1.43 1.43 1.43

US: :+((,200 +?,200 1+?,340 :(?/,240

%a pita stoc etained earnins Accumuated other comprehensi&e income Tota

'+00,000 #3,000 6666666 '+#3,000

1.40 -1 -2

:(00,000 ++,430 40,(/0 :(?/,240

9 rate ' 1,#00,000 1.4/ -1,2/2,000 1.4/ ' #3,000

US: : 1,3?3,000 -1,342,+20 : ++,430

-1

2014 income statement

Saes peratin e5penses 8et income -2

Schedue o! 2014 transation ain

@einnin e5posed position 8et income 9ndin e5posed position Transation ain

© Cambridge Business Publishers, 2013 7-$#

9 ' +00,000 #3,000

rate 1.40 1.4/

' +#3,000

1.43

US: :(00,000 ++,430 (++,430 7 (?/,430 :-40,(/0


Use t#e $ollo%ing in$ormation to ans%er &uestions '> and .) *elo%+

Seaco, Hnc. is a %anadian subsidiary o! a U.S. company. The subsidiary bean operations on January 1, 2014 $ith assets consistin o! a cash baance o! %:411,200, acquired by issuin stoc. Nou are required to con&ert SeacoIs !inancia statements to U.S. doars as a !irst step in the consoidation process. Financia statements o! Seaco as o! "ecember #1, 2014 are as !oo$s, in %anadian doars< 0ecem*er 3'- .)'/ Balance S#eet 1C:2

%ash ecei&abes Hn&entories and 9quipment -net Tota

#0,000 2#,+00 42,+00 22,000 #20,000 4#3,000

)ayabes %apita stoc etained earnins Tota

2,000 411,200 24,300 4#3,000

U.S.:;%: e5chane rates are< January 1, 2014 2014 a&erae "ecember #1, 2014

.)'/ !ncome Statement 1C:2 Saes 404,000 %ost o! saes -###,000 "epreciation e5p. -2(,+00 ther e5pense -13,(00 8et income 24,300

:1.02 0.?+ 0.?0

The and and equipment $ere acquired $hen the e5chane rate $as :1.02. Merchandise purchases, saes and other e5penses occurred e&eny o&er the year. The endin in&entory $as purchased $hen the e5chane rate $as :0.?2.


© Cambridge Business Publishers, 2013 7-$$

1?.

Toic+ Translation and $inancial analysis " '- . Assume the !unctiona currency o! Seaco is the %anadian doar.

Required a. )repare a transated 2014 income statement and the "ecember #1, 2014 baance sheet !or Seaco, in U.S. doars. Sho$ a separate schedue cacuatin the transation ain or oss !or 2014. b. %ompute the !oo$in ratios, !or both the oca currency !inancia statements and the transated !inancia statements<

-1 -2 -#

%urrent ratio "ebt to assets ratio Eross pro!it percentae

%omment on simiarities and di!!erences bet$een the oca currency and transated ratios. A8S< a. "ecember #1, 2014 baance sheet %ash ecei&abes Hn&entories and 9quipment Tota )ayabes %apita stoc etained earnins Accumuated other comprehensi&e income Tota

#0,000 5 .?0 2#,+00 5 .?0 42,+00 5 .?0 22,000 5 .?0 #20,000 5 .?0

: 2(,000 21,1+0 #3,2+0 1?,300 233,000 :#?4,200

2,000 5 .?0 411,200 5 1.02 -1 -2

:

2014 income statement and statement o! retained earnins Saes 404,000 5 .?+ %ost o! saes ###,000 5 .?+ "e preciation e5pense 2(,+00 5 .?+ ther e5pense 13,(00 5 .?+ 8et income 24,300 @einnin retained earnins 9ndin retained earnins -1

© Cambridge Business Publishers, 2013 7-

%$1,300 41?,424 2#,+/0 -+0,+34 :#?4,200

:#3#,300 #1/,#+0 2/,12+ 1(,(/+ 2#,+/0 0 : 2#,+/0


Transation adLustment !or 2014 @einnin net assets 8et income

411,200 5 1.02 24,300 5 .?+

9ndin net assets Transation oss -2 b.

:41?,424 2#,+/0 442,?34 7 #?2,400 : +0,+34

4#/,000 5 .?0

oca currency ratios< %urrent ratio "ebt to assets Eross pro!it W

-#0,000  2#,+00  :42,+00;2,000 D 43 to 1 2,000;4#3,000 D 0.+W -404,000 7 ###,000;404,000 D 1(./W

Transated ratios are the same as abo&e, because $hen transatin !rom %anadian doars to U.S. doars, the numerator and denominator o! each ratio are mutipied by the same e5chane rate. 20.

Toic+ Remeasurement and $inancial analysis " '- . Assume the !unctiona currency o! Seaco is the U.S. doar.

Required epeat the requirements o! question 1? abo&e.

A8S< a. "ecember #1, 2014 @aance Sheet %ash #0,000 5 .?0 ecei&abes 2#,+00 5 .?0 Hn&entories 42,+00 5 .?2 and 22,000 5 1.02 9quipment #20,000 5 1.02 Tota )ayabes %apita stoc etained earnins Tota


2,000 5 .?0 411,200 5 1.02 -#

: 2(,000 21,1+0 #?,100 22,440 #2/,400 :4#/,0?0 :

1,300 41?,424 14,3// :4#/,0?0

AAHamlen2e TB Ch07 100412

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