Questions and Answers of Modern Advanced Accounting

Llungby AB spent 1,000,000 kroner in 2023 on the development of a new product. The company determined that 25 percent of this amount was incurred after the criteria in IAS 36 for capitalization as an
Izmir A.S. issued convertible bonds at their face value of 100,000 lira on December 31, 2024. The bonds have a 10-year life with interest of 10 percent payable annually. At the date of issue, the
Sapporo K.K. was sued by a competitor in late 2023, and company management concluded that there was a 55 percent probability that the company would lose the lawsuit. The best estimate of the loss on
Tapatio S.A. de C.V. acquired a new piece of manufacturing equipment on January 1, 2022, for a cash price of 500,000 pesos. The equipment was expected to have a useful life of 10 years and no
Harrington Company was sued by an employee in late 2023. General counsel concluded that there was an 80 percent probability that the company would lose the lawsuit. The range of possible loss is
Parnell Company acquired construction equipment on January 1, 2023, at a cost of $78,400. The equipment was expected to have a useful life of six years and a residual value of $10,000 and is being
On November 1, 2023, Good Life Company forecasts the purchase of raw materials from a Chilean supplier on February 1, 2024, at a price of 20,000,000 Chilean pesos. On November 1, 2023, Good Life pays
Mikkeli OY acquired a brand name with an indefinite life in 2024 for 40,000 markkas. At December 31, 2024, the brand name could be sold for 35,000 markkas, with zero costs to sell. Expected cash
On January 1, 2023, Xiamen Company made amendments to its defined benefit pension plan that resulted in 60,000 yuan of past service cost. The plan has 5,000 active employees with an average expected
On January 1, 2023, 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
Banda Company established a subsidiary in a foreign country on January 1, 2024, by investing FC 3,200,000 when the exchange rate was $0.50/FC. Banda negotiated a bank loan of FC 3,000,000 on January
On November 1, 2023, Cheng Company (a U.S.-based company) forecasts the purchase of goods from a foreign supplier for 100,000 yuan. Cheng expects to receive the goods on April 30, 2024, and make
Use the same facts as in Problem 31 except that Icebreaker Company purchases materials from a foreign supplier on December 1, 2023, with payment of 16,000 dinars to be made on March 1, 2024. The
Mighty Company purchased a 60 percent interest in Lowly Company on January 1, 2023, for $420,000 in cash. Lowly’s book value at that date was reported as $600,000, and the fair value of the
Place Company owns a majority voting interest in Sassano, Inc. On January 1, 2022, Place issued $1,000,000 of 11 percent 10-year bonds at $943,497.77 to yield 12 percent. On January 1, 2024, Sassano
Kelsey Corporation acquired 100 percent of Snowdon Company’s outstanding common stock on January 1 for $550,000 in cash. Snowdon reported net assets with a carrying amount of $350,000 at that time.
What is consolidated net income for 2024?a. $194,000b. $197,500c. $203,000d. $238,000
Assume that Chapman Company acquired Abernethy’s common stock by paying $520,000 in cash. All of Abernethy’s accounts are estimated to have a fair value approximately equal to present book
Hirsch Company acquired equipment at the beginning of 2023 at a cost of $135,000. The equipment has a five-year life with no expected salvage value and is depreciated on a straight-line basis. At
Trecek Corporation incurs research and development costs of $650,000 in 2023, 30 percent of which relate to development activities subsequent to IAS 36 criteria having been met that indicate an
On November 30, 2023, Raval Corporation (a U.S.-based company) forecasts the sale of equipment to a foreign customer at a price of 500,000 crowns. The equipment is expected to be delivered on January
Vitous Ltd. began operations on January 1, 2022, and uses IFRS to prepare its consolidated financial statements. Although not required to do so, to facilitate comparisons with companies in the
Problems 18–24 assume that a foreign company using IFRS is owned by a company using U.S. GAAP. Thus, IFRS balances must be converted to U.S. GAAP to prepare consolidated financial statements.
Assume that Chapman Company acquired Abernethy’s common stock for $490,000 in cash. As of January 1, 2023, Abernethy’s land had a fair value of $90,000, its buildings were valued at $160,000, and
The Diez Mil Company (DMC), a U.S. company, made credit sales to four customers in Asia on September 6, 2021, and received payment on October 6, 2021. Information related to these sales is as
On July 1, 2023, Mifflin Company borrowed 200,000 euros from a foreign lender, evidenced by an interest-bearing note due on July 1, 2024. The note is denominated in euros. The U.S. dollar equivalent
On November 1, 2023, Cheng Company (a U.S.-based company) forecasts the purchase of goods from a foreign supplier for 100,000 yuan. Cheng expects to receive the goods on April 30, 2024, and make
Brandt Corp. (a U.S.-based company) sold parts to a South Korean customer on December 1, 2023, with payment of 10 million South Korean won to be received on March 31, 2024. The following exchange
On October 1, Tile Co., a U.S. company, purchased products from Azulejo, a Portuguese company, with payment due on December 1. If Tile’s operating income included no foreign exchange gain or loss,
Brief, Inc., had a receivable from a foreign customer that is payable in the customer’s local currency. On December 31, 2023, Brief correctly included this receivable for 200,000 local currency
On December 1, 2023, Venice Company (a U.S.-based company) entered into a three-month forward contract to purchase 1,000,000 pesos on March 1, 2024. The following U.S. dollar per peso exchange rates
On September 1, 2023, Stone Company received an order to sell a machine to a customer in Australia at a price of 100,000 Australian dollars. Stone shipped the machine and received payment on March 1,
Matthias Corp. had the following foreign currency transactions during 2024:∙ Purchased merchandise from a foreign supplier on January 20 for the U.S. dollar equivalent of $60,000 and paid the
On November 1, 2023, Good Life Company forecasts the purchase of raw materials from a Chilean supplier on February 1, 2024, at a price of 20,000,000 Chilean pesos. On November 1, 2023, Good Life pays
Voltac Corporation (a U.S.-based company) has the following import/export transactions denominated in Mexican pesos in 2024:Currency exchange rates for 1 peso for 2024 are as follows:For each of the
A company borrows foreign currency on a two-year note at an interest rate of 4 percent per annum. Which of the following items is not an item that might be included in net income related to this
Bento Corporation (a U.S.-based company) acquired merchandise on account from a foreign supplier on November 1, 2023, for 100,000 crowns. It paid the foreign currency account payable on January 15,
On December 20, 2023, Momeier Company (a U.S.-based company) sold parts to a foreign customer at a price of 50,000 rials. Payment is received on January 10, 2024. Currency exchange rates are as
Banda Company established a subsidiary in a foreign country on January 1, 2024, by investing FC 3,200,000 when the exchange rate was $0.50/FC. Banda negotiated a bank loan of FC 3,000,000 on January
On which of the following dates would a company enter into a hedge of a forecasted foreign currency import purchase?a. Date on which the company receives goods from a foreign supplierb. Date on which
Which of the following is not one of the three conditions that must be satisfied in order for a foreign currency forward contract to be accounted for as a hedge, that is, using hedge accounting?a.
On December 15, 2023, Lisbeth, Inc. (a U.S.-based company), purchases merchandise inventory from a foreign supplier for 50,000 schillings. Lisbeth agrees to pay in 45 days, after it sells the
Which of the following components may be excluded from a hedging instrument in assessing its effectiveness as a hedge?a. Time value in a foreign currency forward contractb. Time value in a foreign
In the document formally designating a foreign currency forward contract as a hedge for hedge accounting purposes, a company must do all of the following excepta. Identify the item that is being
Icebreaker Company (a U.S.-based company) sells parts to a foreign customer on December 1, 2023, with payment of 16,000 dinars to be received on March 1, 2024. Icebreaker enters into a forward
On April 1, 2023, Mendoza Company (a U.S.-based company) borrowed 500,000 euros for one year at an interest rate of 5 percent per annum. Mendoza must make its first interest payment on the loan on
What is the appropriate accounting treatment for the discount on a foreign currency forward contract when forward points are excluded from the forward contract in assessing its effectiveness as a
Spindler, Inc. (a U.S.-based company), imports surfboards from a supplier in Brazil and sells them in the United States. Purchases are denominated in terms of the Brazilian real (BRL). During 2023,
On September 30, 2023, Peace Frog International (PFI) (a U.S.-based company) negotiated a two year, 1,000,000 Chinese yuan loan from a Chinese bank at an interest rate of 2 percent per year. The
On October 1, 2023, Mertag Company (a U.S.-based company) receives an order from a customer in Poland to deliver goods on January 31, 2024, for a price of 1,000,000 Polish zlotys (PLN). Mertag enters
On November 30, 2023, Raval Corporation (a U.S.-based company) forecasts the sale of equipment to a foreign customer at a price of 500,000 crowns. The equipment is expected to be delivered on January
Navarro, Inc., whose reporting currency is the U.S. dollar, has a subsidiary in Argentina, whose functional currency also is the U.S. dollar. The subsidiary acquires inventory on credit on November
Navarro, Inc., whose reporting currency is the U.S. dollar, has a subsidiary in Argentina, whose functional currency also is the U.S. dollar. The subsidiary acquires inventory on credit on November
Rolfe Company (a U.S.-based company) has a subsidiary in Nigeria, where the local currency unit is the naira (NGN). On December 31, 2023, the subsidiary had the following balance sheet (amounts are
The following accounts are denominated in rubles as of December 31, 2024. For reporting purposes, these accounts need to be stated in U.S. dollars. For each account, indicate the exchange rate that
A U.S. company’s foreign subsidiary had these amounts in local currency units (LCU) in 2024:The average exchange rate during 2024 was $1.00 = LCU 1. The beginning inventory was acquired when the
A Katz Corporation subsidiary buys marketable equity securities and inventory on April 1, 2024, for 100,000 won each. It pays for both items on June 1, 2024, and they are still on hand at year-end.
McCarthy, Inc.’s Brazilian subsidiary borrowed 100,000 euros on January 1, 2024. Exchange rates between the Brazilian real (BRL) and euro (€) and between the U.S. dollar ($) and BRL are as
A Katz Corporation subsidiary buys marketable equity securities and inventory on April 1, 2024, for 100,000 won each. It pays for both items on June 1, 2024, and they are still on hand at year-end.
The Isle of Palms Company (IOP), a U.S.-based entity, has a wholly owned subsidiary in Israel that has been determined as having the Israeli shekel (ILS) as its functional currency. On October 1,
Based on past experience, Maas Corp. (a U.S.-based company) expects to purchase raw materials from a foreign supplier at a cost of 1,000,000 francs on March 15, 2024. To hedge this forecasted
Sendelbach Corporation is a U.S.-based organization with operations throughout the world. One of its subsidiaries is headquartered in Toronto, Canada. Although this wholly owned subsidiary operates
Many companies make annual reports (sometimes on Form 10-K) available on their corporate website. Access the annual report indicated for each of the following U.S.-based multinational corporations to
Livingston Company is a wholly owned subsidiary of Rose Corporation. Livingston operates in a foreign country with financial statements recorded in pounds (P), the company’s functional currency.
Aguilar Company establishes a subsidiary operation in a foreign country on January 1, 2024. The country’s currency is the rial (R). To start this business, Aguilar invests 10,000 rials. Of this
Compte, Inc. (a U.S.-based company), establishes a subsidiary in Croatia on January 1, 2023. The following account balances for the year ending December 31, 2024, are stated in kuna (K), the local
On December 18, 2024, Stephkado Corporation acquired 100 percent of a Swiss company for 4.0 million Swiss francs (CHF), which is indicative of book and fair value. At the acquisition date, the
Zugar Company is domiciled in a country whose currency is the dinar. Zugar begins 2024 with three assets: Cash of 20,000 dinars, Accounts receivable of 80,000 dinars, and Land that cost 200,000
Kang, Inc., has a wholly owned subsidiary in Canada that previously had been determined as having the Canadian dollar as its functional currency. Due to a recent restructuring, Kang, Inc.’s CFO
On January 1, 2023, Cayce Corporation acquired 100 percent of Simbel Company for consideration transferred with a fair value of $126,000. Cayce is a U.S.-based company headquartered in Buffalo, New
The following account balances are for the Agee Company as of January 1, 2024, and December 31, 2024. All amounts are denominated in kroner (Kr).Additional Information∙ Agee issued additional
Which of the following is an indicator that a foreign currency is the functional currency of a foreign subsidiary?a. Cash flows of the foreign subsidiary directly impact the cash flows of the parent
Stilton Company (a U.S.-based company) has a subsidiary in Canada that began operations at the start of 2024 with assets of 132,000 Canadian dollars (CAD) and liabilities of CAD 54,000. During this
At year-end, the Queen City partnership has the following capital balances:Profits and losses are split on a 3:3:2:2 basis, respectively. Elizabeth decides to leave the partnership and is paid
At year-end, the Queen City partnership has the following capital balances:Profits and losses are split on a 3:3:2:2 basis, respectively. Elizabeth decides to leave the partnership and is paid
Problems 15 and 16 are independent problems based on the following capital account balances and profit and loss percentages (indicated parenthetically):Del Mar invests $270,000 in cash for a 30
Problems 15 and 16 are independent problems based on the following capital account balances and profit and loss percentages (indicated parenthetically):Del Mar invests $250,000 in cash for a 30
The board of commissioners of the City of Hartmoore adopts a general fund budget for the year ending June 30, 2024. It includes revenues of $1,000,000, bond proceeds of $400,000, appropriations of
Icebreaker Company (a U.S.-based company) sells parts to a foreign customer on December 1, 2023, with payment of 16,000 dinars to be received on March 1, 2024. Icebreaker enters into a forward
On September 30, 2023, Peace Frog International (PFI) (a U.S.-based company) negotiated a twoyear, 1,000,000 Chinese yuan loan from a Chinese bank at an interest rate of 2 percent per year. The
Spindler, Inc. (a U.S.-based company), imports surfboards from a supplier in Brazil and sells them in the United States. Purchases are denominated in terms of the Brazilian real (BRL). During 2023,
Pesto Company possesses 80 percent of Salerno Company’s outstanding voting stock. Pesto uses the initial value method to account for this investment. On January 1, 2020, Pesto sold 9 percent bonds
On January 1, 2022, Pride Corporation purchased 90 percent of the outstanding voting shares of Star, Inc., for $540,000 cash. The acquisition-date fair value of the noncontrolling interest was
What amount does Navarro’s consolidated balance sheet report for this inventory on December 31, 2023?a. $16,000b. $17,000c. $18,000d. $19,000
Navarro, Inc., whose reporting currency is the U.S. dollar, has a subsidiary in Argentina, whose functional currency also is the U.S. dollar. The subsidiary acquires inventory on credit on November
On October 18, 2023, Armstrong Auto Corporation (“Armstrong”) announced its plan to acquire 80 percent of the outstanding 500,000 shares of Bardeen Electric Corporation’s (“Bardeen”) common
On January 1, 2023, Grand Haven, Inc., reports net assets of $760,000 although equipment (with a four-year remaining life) having a book value of $440,000 is worth $500,000 and an unrecorded patent
On January 1, 2022, Pride Corporation purchased 90 percent of the outstanding voting shares of Star, Inc., for $540,000 cash. The acquisition-date fair value of the noncontrolling interest was
On January 1, 2023, Chamberlain Corporation pays $388,000 for a 60 percent ownership in Neville. Annual excess fair-value amortization of $15,000 results from the acquisition. On December 31, 2024,
On January 1, 2024, Pikes Corporation loaned Venti Company $300,000 and agreed to guarantee all of Venti’s long-term debt in exchange for (1) decision-making authority over all of Venti’s
On December 31, 2023, Petra Company invests $20,000 in Valery, a variable interest entity. In contractual agreements completed on that date, Petra established itself as the primary beneficiary of
Cairns owns 75 percent of the voting stock of Hamilton, Inc. The parent’s interest was acquired several years ago on the date that the subsidiary was formed. Consequently, no goodwill or other
On January 1, 2024, Platform Company exchanged $1,000,000 for 40 percent of the outstanding voting stock of Vector Company. Especially attractive to Platform was a research project underway at Vector
The following describes a set of arrangements between TecPC Company and a variable interest entity (VIE) as of December 31, 2023. TecPC agrees to design and construct a new research and development
Smith, Inc., has the following stockholders’ equity accounts as of January 1, 2024:Haried Company purchases all of Smith’s common stock on January 1, 2024, for $14,040,000. The preferred stock
Paulina, Incorporated, owns 90 percent of Southport Company. On January 1, 2024, Paulina acquires half of Southport’s $500,000 outstanding 13-year bonds. These bonds had been sold on the open
Highlight, Inc., owns all outstanding stock of Kiort Corporation. The two companies report the following balances for the year ending December 31, 2023:On January 1, 2023, Highlight acquired on the
Alford Company and its 80 percent–owned subsidiary, Knight, have the following income statements for 2024:Additional Information for 2024∙ Intra-entity inventory transfers during the year
Bravo, Inc., owns all of the stock of Echo, Inc. For 2024, Bravo reports income (exclusive of any investment income) of $480,000. Bravo has 80,000 shares of common stock outstanding. It also has
On January 1, 2022, Aronsen Company acquired 90 percent of Siedel Company’s outstanding shares. Siedel had a net book value on that date of $480,000: common stock ($10 par value) of $200,000 and

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