For each of the following seven cases, work the case twice and select the best answer. First assume that the foreign currency is the functional currency; then assume that the U.S. dollar is the functional currency.
1. Certain balance sheet accounts in a foreign subsidiary of Shaw Company on December 31, 20X1, have been restated in U.S. dollars as follows:

What total should be included in Shaw’s balance sheet for December 31, 20X1, for these items?
a. $215,000.
b. $225,000.
c. $230,000.
d. $240,000.
2. A wholly owned foreign subsidiary of Nick Inc. has certain expense accounts for the year ended December 31, 20X4, stated in local currency units (LCU) as follows:
Depreciation of Equipment (related assets were purchased January 1, 20X2).. 120,000
Provision for Uncollectible Accounts .......................... 80,000
Rent................................ 200,000
The exchange rates at various dates were as follows:
Dollar Equivalent of 1 LCU
January 1, 20X2............. 0.50
December 31, 20X4 .......... 0.40
Average, 20X4 ............ 0.44

What total dollar amount should be included in Nick's income statement to reflect the preceding expenses for the year ended December 31, 20X4?
a. $160,000.
b. $168,000.
c. $176,000.
d. $183,200.
3. Linser Corporation owns a foreign subsidiary with 2,600,000 local currency units (LCU) of property, plant, and equipment before accumulated depreciation on December 31, 20X4.
Of this amount, 1,700,000 LCU were acquired in 20X2 when the rate of exchange was 1.5 LCU = $1, and 900,000 LCU were acquired in 20X3 when the rate of exchange was 1.6 LCU = $1. The rate of exchange in effect on December 31, 20X4, was 1.9 LCU = $1.
The weighted average of exchange rates that were in effect during 20X4 was 1.8 LCU = $1. Assuming that the property, plant, and equipment are depreciated using the straight-line method over a 10-year period with no salvage value, how much depreciation expense relating to the foreign subsidiary's property, plant, and equipment should be charged in Linser's income statement for 20X4?
a. $144,444.
b. $162,000.
c. $169,583.
d. $173,333.
4. On January 1, 20X1, Pat Company formed a foreign subsidiary. On February 15, 20X1, Pat's subsidiary purchased 100,000 local currency units (LCU) of inventory. Of the original inventory purchased on February 15, 20X1, 25,000 LCU made up the entire inventory on December 31, 20X1. The exchange rates were 2.2 LCU = $1 from January 1, 20X1, to June 30, 20X1, and 2 LCU = $1 from July 1, 20X1, to December 31, 20X1. The December 31, 20X1, inventory balance for Pat's foreign subsidiary should be restated in U.S. dollars in the amount of
a. $10,500.
b. $11,364.
c. $11,905.
d. $12,500.
5. At what rates should the following balance sheet accounts in the foreign currency financial statements be restated into U.S. dollars?

6. A credit-balancing item resulting from the process of restating a foreign entity’s financial statement from the local currency unit to U.S. dollars should be included as a(an)
a. Separate component of stockholders’ equity.
b. Deferred credit.
c. Component of income from continuing operations.
d. Extraordinary item.
7. A foreign subsidiary of the Bart Corporation has certain balance sheet accounts on December 31, 20X2. Information relating to these accounts in U.S. dollars is as follows:

What total should be included in Bart’s balance sheet on December 31, 20X2, as a result of the preceding information?
a. $755,000.
b. $780,000.
c. $870,000.

  • CreatedMay 23, 2014
  • Files Included
Post your question