1.A wholly-owned foreign subsidiary of Import Corporation has certain expense accounts for the year ended December 31, 2014, stated in local currency units (LCU) as follows:

		LCU
Amortization of patent (the patent was acquired on January 1, 2012)		40,000
Provision for doubtful accounts		40,000
Rent		120,000

The exchange rates at various dates are as follows:

		Dollar Equivalent of 1 LCU
December 31, 2014		$0.20
Average for the year ended December 31, 2014		0.24
January 1, 2012		0.25

The subsidiary’s operations were an extension of the parent company’s operations. What total dollar amount should be included in Import’s income statement to reflect the foregoing expenses for the year ended December 31, 2014?

$40,000.

$48,400.

$42,000.

$48,000.

2. A translation adjustment (or translation gain) that is a consequence of the translation of a functional currency that is different from the reporting currency should be

Deferred and amortized over a period not to exceed 40 years.

Included in net income in the period in which it occurs.

Deferred until a subsequent year when a loss occurs and offset it against that loss.

Included as a separate item in the equity section of the balance sheet.

3. When translating foreign currency financial statements for an entity whose functional currency is the local currency of the country in which it is physically located, which of the following accounts is translated using current exchange rates?

Bonds Payable - No; Inventories Carried at Market - Yes

Bonds Payable - Yes; Inventories Carried at Market - Yes

Bonds Payable - No; Inventories Carried at Market - No

Bonds Payable - Yes; Inventories Carried at Market - No

4.

Golf Company acquired 80% of the outstanding stock of Ping Company, a foreign company, in an acquisition accounted for as a purchase transaction. In preparing consolidated statements, the paid-in capital of Ping Company should be translated into dollars at the

The exchange rate was in effect at the date Golf Company purchased the Ping Company stock.

The exchange rate is in effect at the date the capital transactions of the subsidiary took place.

The exchange rate was effective when Ping Company was organized.

The current exchange rate is in effect at the balance sheet date.

Answer rating: 100% (QA)

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