# Certain balance sheet accounts of a foreign subsidiary

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## Certain balance sheet accounts of a foreign subsidiary

Use
the following to answer questions 16-17:

Certain balance sheet accounts of a foreign subsidiary of
the Tulip Co. had been stated in U.S. dollars as follows:

Stated at

Current

Historical

Rates

Rates

Accounts
receivable â current

\$ 280,000

\$ 308,000

Accounts
receivable â long-term

140,000

154,000

Prepaid
insurance

70,000

77,000

Goodwill

112,000

119,000

Totals

\$ 602,000

\$ 658,000

16. If
a foreign currency is the functional currency of this subsidiary, what
total should have been included in Tulip’s balance sheet for the preceding
items?
A) \$609,000

B) \$658,000

C) \$602,000

D) \$630,000

E) \$616,000

17. If
the U.S. dollar is the functional currency of this subsidiary,
what total should have been included in Tulip’s balance sheet for the items
above?
A) \$609,000

B) \$658,000

C) \$602,000

D) \$630,000

E) \$616,000

Use
the following to answer questions 18-19:

A subsidiary of Porter Inc., a U.S. company, was located
in a foreign country. The functional
currency of this subsidiary was the stickle (Â§). The subsidiary acquired inventory on credit
on November 1, 2003, for Â§120,000 that was sold on January 17, 2004 for
Â§156,000. The subsidiary paid for the
inventory on January 31, 2004. Currency
exchange rates between the dollar and the stickle were as follows:

November 1,
2003

\$.19 = Â§1

December 31,
2003

\$.20 = Â§1

January 17,
2004

\$.22 = Â§1

January 31,
2004

\$.23 = Â§1

Average for
2004

\$.24 = Â§1

18. What
figure would have been reported for this inventory on Porter’s consolidated
balance sheet at December 31, 2003?
A) \$24,000

B) \$26,400

C) \$22,800

D) \$27,600

E) \$28,800

19. What
figure would have been reported for cost of goods sold on Porter’s consolidated
income statement at December 31, 2004?
A) \$24,000

B) \$26,400

C) \$22,800

D) \$27,600

E) \$28,800

20. A
U.S. company’s foreign subsidiary had the following amounts in stickles (Â§) in
2004:

Cost of goods sold

Â§
12,000,000

Ending inventory

600,000

Beginning inventory

240,000

The average exchange rate
during 2004 was \$.96 = Â§1. The beginning
inventory was acquired when the exchange rate was \$1.20 = Â§1. The ending inventory was acquired when the
exchange rate was \$.90 = Â§1. The
exchange rate at December 31, 2004 was \$.84 = Â§1. Assuming that the foreign country had a
highly inflationary economy, at what amount should the foreign subsidiary’s cost
of goods sold have been reflected in the U.S. dollar income statement?

A) \$11,253,600

B) \$11,577,600

C) \$11,649,600

D) \$11,613,600

E) \$11,523,600

21. A
historical exchange rate for a foreign subsidiary is best described as
A) The
rate at date of acquisition for a purchase transaction.
B) The
rate when the common stock was originally issued for a purchase transaction.
C) The
average rate from date of acquisition to the date of balance sheet.
D) The
rate when fixed assets were originally issued.
E) The
January 1 exchange rate.

22. A
net asset balance sheet exposure exists and the foreign currency
appreciates. Which of the following
statements is true?
A) There
B) There
is a transaction loss.
C) There
is a transaction gain.
D) There
E) There

23. A
net asset balance sheet exposure exists and the foreign currency
depreciates. Which of the following
statements is true?
A) There
B) There
is a transaction loss.
C) There
is a transaction gain.
D) There
E) There

24. A
net liability balance sheet exposure exists and the foreign currency
appreciates. Which of the following
statements is true?
A) There
B) There
is a transaction loss.
C) There
is a transaction gain.
D) There
E) There

25. A
net liability balance sheet exposure exists and the foreign currency
depreciates. Which of the following
statements is true?
A) There
B) There
is a transaction loss.
C) There
is a transaction gain.
D) There
E) There

26. Which
method of translating a foreign subsidiary’s financial statements is correct?
A) Historical
rate method
B) Working
capital method.
C) Current
rate method.
D) Remeasurement.

E) Temporal
method.

27. Which
method of remeasuring a foreign subsidiary’s financial statements is correct?
A) Historical
rate method
B) Working
capital method.
C) Current
rate method.
D) Translation.

E) Temporal
method.

28. Under
the temporal method, inventory at market would be restated at what rate?
A) Beginning
of the year rate.
B) Average
rate.
C) Current
rate.
D) Historical
rate.
E) Composite
amount.

29. Under
the current rate method, inventory at market would be restated at what rate?
A) Beginning
of the year rate.
B) Average
rate.
C) Current
rate.
D) Historical
rate.
E) Composite
amount.

30. Under
the temporal method, common stock at would be restated at what rate?
A) Beginning
of the year rate.
B) Average
rate.
C) Current
rate.
D) Historical
rate.
E) Composite
amount.

International House, 12 Constance Street, London, United Kingdom,
E16 2DQ

Company # 11483120

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