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fundamentals of advanced accounting
Questions and Answers of
Fundamentals Of Advanced Accounting
On January 1, 2008, Parker, Inc., a U.S.-based firm, acquired 100 percent of Suffolk PLC located in Great Britain for consideration paid of 52,000,000 British pounds (£), which was equal to fair
Charles Edward Company established a subsidiary in a foreign country on January 1,2009, by investing FC 3,200,000 when the exchange rate was $0.50/FC. Charles Edward negotiated a bank loan of FC
BellSouth Corporation invested in two wireless communications operations in Brazil in the mid-1990s that it accounted for under the equity method. The following note is taken from BellSouth
A U.S.-based parent company must determine the functional currency of each of its foreign entities to decide an appropriate translation method to use in translating each entity’s financial
A foreign subsidiary of a U.S.-based parent company can have more than one distinct and separable oper¬ ation. For example, a foreign subsidiary can have one operation that sells the parent
Many companies make annual reports available on their corporate Internet home page. Annual reports also can be accessed through the SEC’s EDGAR system at www.sec.gov (under Forms, search for ARS or
Many companies make annual reports available on their corporate Internet home page. Annual reports also can be accessed through the SEC’s EDGAR system at www.sec.gov (under Forms, search for ARS or
Diekmann Company, a U.S.-based company, acquired a 100 percent interest in Rakona A.S. in the Czech Republic on January 1,2008, when the exchange rate for the Czech koruna (Kcs) was $0.05. Rakona’s
On January 1, 2008, Cayce Corporation acquired 100 percent of Simbel Company for consideration paid of $126,000, which was equal to fair value. Cayce is a U.S.-based company headquartered in Buffalo,
Sendelbach Corporation is a U.S.-based organization with operations throughout the world. One of its subsidiaries is headquartered in Toronto. Although this wholly owned company operates primar¬ ily
The following account balances are for the Agee Company as of January 1, 2009, and December 31, 2009. All figures are denominated in kroner (Kr). LO6 January 1, 2009 Accounts payable.(18,000)Accounts
Livingston Company is a wholly owned subsidiary of Rose Corporation. Livingston operates in a foreign country with financial statements recorded in goghs (GH), the company’s functional cur¬ rency.
Kingsfield starts a subsidiary operation in a foreign country on January 1,2009. The country’s cur¬ rency is the kumquat (KQ). To start this business, Kingsfield invests 10,000 kumquats. Of this
Board Company has a foreign subsidiary that began operations at the start of 2009 with assets of 132,000 kites (the local currency unit) and liabilities of 54,000 kites. During this initial year of
Lancer, Inc., starts a subsidiary in a foreign country on January 1,2008. The following account bal¬ ances for the year ending December 31, 2009, are stated in kanquo (KQ), the local currency: LO6
Aerkion Company starts 2009 with two assets: cash of 22,000 LCU (local currency units) and land that originally cost 60,000 LCU when acquired on April 4, 2005. On May 1, 2009, Aerkion rendered
Watson Company has a subsidiary in the country of Alonza where the local currency unit is the kamel (KM). On December 31,2008, the subsidiary has the following balance sheet: LO6 Cash.KM 16,000
Refer to the information in problem 25. Prepare a statement of cash flows in LCU for Fenwicke’s foreign subsidiary and then translate these amounts into U.S. dollars. LO6
Fenwicke Company began operating a subsidiary in a foreign country on January 1, 2009, by acquiring all of its common stock for LCU 40,000, which was equal to fair value. This subsidiary immediately
On December 18, 2009, Stephanie Corporation acquired 100 percent of a Swiss company for 3.7 million Swiss francs (CHF), which is indicative of fair value. At the acquisition date, the exchange rate
The following accounts are denominated as of December 31, 2009, in pesos. For reporting pur¬ poses, these amounts need to be stated in U.S. dollars. For each balance, indicate the exchange rate that
On January 1, Dandu Corporation started a subsidiary in a foreign country. On April 1, the sub¬ sidiary purchased inventory at a cost of 120,000 local currency units (LCU). One-fourth of this
The foreign currency is the functional currency for a foreign subsidiary. At what exchange rate should each of the following accounts be translated?a. Rent Expense. LO6b. Dividends Paid.c.
Gains from remeasuring a foreign subsidiary’s financial statements from the local currency, which is not the functional currency, into the parent’s currency should be reported as a(n)a. Deferred
The functional currency of DeZoort, Inc.’s British subsidiary is the British pound. DeZoort bor¬ rowed pounds as a partial hedge of its investment in the subsidiary. In preparing consolidated
Aforeign subsidiary’s functional currency is its local currency, which has not experienced signifi¬ cant inflation. The weighted average exchange rate for the current year is the appropriate
In accordance with U.S. generally accepted accounting principles, which translation combination is appropriate for a foreign operation whose functional currency is the U.S. dollar? LO6 Method
Which ofthe following items is not remeasured using historical exchange rates under the temporal method? LO6a. Accumulated depreciation on equipment.b. Cost of goods sold.c. Marketable equity
Houston Corporation operates a branch operation in a foreign country. Although this branch deals in pesos, the U.S. dollar is viewed as its functional currency. Thus, a remeasurement is necessary to
In the translated financial statements, which method of translation maintains the underlying valua¬ tion methods used in the foreign currency financial statements?a. Current rate method; income
Ace Corporation starts a subsidiary in a foreign country; the subsidiary has the peso as its func¬ tional currency. On January 1, Ace buys all of the subsidiary’s common stock for 20,000 pesos. On
A U.S. company’s foreign subsidiary had these amounts in foreign currency units (FCU) in 2009:Cost of goodssold. FCU 10,000,000 Ending inventory. 500,000 Beginning inventory. 200,000 LO6 The
Assume that the U.S. dollar is the subsidiary’s functional currency. What balances does a consoli¬ dated balance sheet report as of December 31, 2009? LO6a. Marketable equity securities = $16,000
Assume that the peso is the subsidiary’s functional currency. What balances does a consolidated balance sheet report as of December 31,2009?a. Marketable equity securities = $16,000 and Inventory =
What amount does Salisbury’s consolidated income statement report for cost of goods sold for the year ending December 31,2009? LO6a. $16,000.b. $17,000.c. $18,000.d. $19,000.
What amount does Salisbury’s consolidated balance sheet report for this inventory at December 31, 2008?a. $16,000. LO6b. $17,000.c. $18,000.d. $19,000.
This subsidiary’s functional currency is the U.S. dollar. What total should Rose’s balance sheet include for the preceding items? LO6a. $430,000.b. $435,000.c. $440,000.d. $450,000.
This subsidiary’s functional currency is a foreign currency. What total should Rose’s balance sheet include for the preceding items?a. $430,000. LO6b. $435,000.c. $440,000.d. $450,000.
At what rates should the following balance sheet accounts in foreign statements be translated (rather than remeasured) into U.S. dollars? LO6 Accumulated Depreciation—Equipment Equipmenta- Current
A subsidiary of Byner Corporation has one asset (inventory) and no liabilities. The functional cur¬ rency for this subsidiary is the peso. The inventory was acquired for 100,000 pesos when the
Which of the following statements is true for the translation process (as opposed to remeasurement)? LO6a. A translation adjustment can affect consolidated net income.b. Equipment is translated at
In comparing the translation and the remeasurement process, which of the following is true? LO6a. The reported balance of inventory is normally the same under both methods.b. The reported balance of
What is a subsidiary’s functional currency?a. The parent’s reporting currency. LO6b. The currency in which transactions are denominated.c. The currency in which the entity primarily generates and
Which translation method does FASB SFAS 52 require for operations in highly inflationary coun¬ tries? What is the rationale for mandating use of this method? LO6
When is remeasurement rather than translation appropriate? How does remeasurement differ from translation? LO6
The FASB put forth two theories about the underlying nature of a translation adjustment. What are these theories, and which one did the FASB consider correct? LO6
A translation adjustment must be calculated and disclosed when financial statements of a foreign subsidiary are translated into the parent’s reporting currency. How is this figure computed, and
Clarke Company has a subsidiary operating in a foreign country. In relation to this subsidiary, what does the termfunctional currency mean? How is the functional currency determined? LO6
What are the major procedural differences in applying the current rate and temporal methods of translation? LO6
In translating the financial statements of a foreign subsidiary, why is the value assigned to retained earnings especially difficult to determine? How is this problem normally resolved? LO6
What concept underlies the temporal method of translation? What concept underlies the current rate method of translation? How does balance sheet exposure differ under these two methods? LO6
Under SFAS133, how are gains and losses on financial instruments used to hedge the net investment in a foreign operation reported in the consolidated financial statements? LO6
Why might a company want to hedge its balance sheet exposure? What is the paradox associated with hedging balance sheet exposure? LO6
What causes balance sheet (or translation) exposure to foreign exchange risk? How does balance sheet exposure compare with transaction exposure? LO6
What are the two major issues related to the translation of foreign currency financial statements? LO6
Why would a company hedge a balance sheet exposure and how is this accounted for? LO6
How does a remeasurement differ from a translation? LO6
When is remeasurement rather than translation of foreign currency balances appropriate? LO6
What is a company's functional cur¬ rency? How is this functional currency identified? LO6
What are the different concepts under¬ lying the temporal and current rate methods of translation? How does bal¬ ance sheet exposure differ under these two methods of translation? LO6
What is balance sheet exposure and how does it compare with transaction exposure to foreign exchange risk? LO6
What is a translation adjustment? How is it computed? Where should it be reported in a set of consolidated finan¬ cial statements? LO6
On January 1,2009, Alpha acquired 80 percent of Delta. Of Delta’s total business fair value, $125,000 was allocated to copyrights with a 20-year remaining life. Subsequently, on January 1, 2010,
Politan Company acquired an 80 percent interest in Soludan Company on January 1, 2009. Any portion of Soludan’s business fair value in excess of its corresponding book value was assigned to
On January 1, 2009, Travers Company acquired 90 percent ofYarrow Company’s outstanding stock for $720,000. The 10 percent noncontrolling interest had an assessed fair value of $80,000 on that date.
Mighty Company purchased a 60 percent interest in Lowly Company on January 1, 2009, for $420,000 in cash. Lowly’s book value at that date was reported as $600,000 and the fair value of the
House Corporation has been operating profitably since its creation in 1959. At the beginning of 2009, House acquired a 70 percent ownership in Wilson Company. At the acquisition-date, House prepared
Leftwich recently purchased all of Kew Corporation’s stock and is now consolidating the financial data of this new subsidiary. Leftwich paid a total of $650,000 for the company, which has the
Garrison holds a controlling interest in Robertson’s outstanding stock. For the current year, the following information has been gathered about these two companies:Garrison Robertson LO9
Lake acquired a controlling interest in Boxwood several years ago. During the current fiscal period, the two companies individually reported the following income (exclusive of any investment
On January 1, 2009, Piranto acquires 90 percent of Slinton’s outstanding shares. Financial infor¬ mation for these two companies for the years of 2009 and 2010 follows:2009 LO9 2010 Piranto
gain on intercompany inventory transfers)$90,000 Rogers LO9 240,000 80,000 Clarke uses the initial value method to account for the investment in Rogers. The operating income figures just presented
Up and its 80 percent owned subsidiary (Down) reported the following figures for the year ending December 31, 2010. Down paid dividends of $30,000 during this period.Sales. LO9 Cost of goods sold
Alice Corporation acquired 90 percent ofWonderland, Inc’s outstanding shares several years ago for $610,000. Wonderland, in turn, acquired 10 percent of Alice for $111,000. Annual amortization
Baxter, Inc., owns 90 percent ofWisconsin, Inc., and 20 percent of Cleveland Company. Wisconsin, in turn, holds 60 percent of Cleveland’s outstanding stock. No excess amortization resulted from
Mesa, Inc., obtained 80 percent of Butte Corporation on January 1,2009. Annual amortization of $22,500 is to be recorded on the allocations of Butte’s acquisition-date business fair value. On
On January 1, 2009, Uncle Company purchased 80 percent of Nephew Company’s capital stock for $500,000 in cash and other assets. Nephew had a book value of $600,000 and the 20 percent non¬
On January 1, 2009, Tree Company acquired 70 percent of Limb Company’s outstanding voting stock for $252,000. Limb reported a $300,000 book value and the fair value of the noncontrolling interest
Hastoon Company purchases all of Zedner Company for $420,000 in cash. On that date, the subsidiary has net assets with a $400,000 fair value but a $300,000 book value and tax basis. The tax rate is
What would be the answer to problem II if a consolidated tax return were filed?a. -0-.b. $300. LO9c. $1,500.d. $7,500.
Prybylos, Inc., owns 90 percent of Station Corporation. Both companies have been profitable for many years. During the current year, the parent sold for $100,000 merchandise costing $70,000 to the
Cremmins, Inc., owns 60 percent of Anderson. During the current year, Anderson reported net income of $200,000 but paid a total cash dividend of only $40,000. What deferred income tax liability must
Horton, Inc., owns 90 percent of Juvyn Corporation’s voting stock. The purchase price exceeded book value and fair value by $80,000. Juvyn holds 20 percent of Horton’s voting stock. That purchase
Gardner Corporation holds 80 percent of Healthstone, which, in turn, owns 80 percent of Icede. Operational income figures (without investment income) as well as unrealized upstream gains included in
Bassett Company owns 80 percent of Crimson and Crimson owns 90 percent of Damson, Inc. Oper¬ ational income totals for the current year follow; they contain no investment income. None of these
Which of the following is not a reason for two companies to file separate tax returns? LO9a. The parent owns 68 percent of the subsidiary.b. They have no intercompany transactions.c. Intercompany
How does the amortization of goodwill affect the computation of income taxes on a consolidated tax return? LO9a. It is a deductible expense but only if the parent owns 80 percent of subsidiary’s
Which of the following is correct for two companies that want to file a consolidated tax return as an affiliated group? LO9a. One company must hold at least 51 percent of the other company’s voting
On January 1,2009, a subsidiary buys 10 percent of the outstanding shares of its parent company. Although the total book value and fair value of the parent’s net assets were $4 million, the price
A subsidiary owns shares of its parent company. Which of the following is true concerning the trea¬ sury stock approach? LO9 a.It is one ot several options to account for mutual holdings provided by
In a father-son-grandson business combination, which of the following is true? LO9a. The father company always must have its realized income computed first.b. The computation of a company’s
A subsidiary that has a net operating loss carryforward is acquired. The related deferred income tax asset is $230,000. Because the parent believes that a portion of this carryforward likely will
Jones acquires Wilson, in part because the new subsidiary has an unused net operating loss carryforward for tax purposes. How does this carryforward affect the consolidated figures at the acquisition
In a recent acquisition, the consolidated value of a subsidiary’s assets exceeded the basis appropriate for tax purposes. How does this difference affect the consolidated balance sheet? LO9
If a parent and its subsidiary file separate income tax returns, why will the parent frequently have to recognize deferred income taxes? Why might the subsidiary have to recognize deferred income
Why is the allocation of the income tax expense figure between the members of a business combi¬ nation important? By what methods can this allocation be made? LO9
What are the advantages to a business combination filing a consolidated tax return? Considering these advantages, why do some members of a business combination file separate tax returns? LO9
For income tax purposes, how is affiliated group defined? LO9
In accounting for mutual ownerships, what is the treasury stock approach? LO9
What is the difference between a connecting affiliation and a mutual ownership? LO9
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