ACC9805 - Chapter 10

ACC9805- Chapter 10
Student: ___________________________________________________________________________
1. Gunther Co. established a subsidiary in Mexico on January 1, 2013. The subsidiary engaged in the
following transactions during 2013:
What amount of foreign exchange gain or loss would have been recognized in Gunther's
consolidated income statement for 2013?
A. $800,000 gain.
B. $760,000 gain.
C. $320,000 loss.
D. $280,000 loss.
E. $440,000 loss.
2. A U.S. company's foreign subsidiary had the following amounts in stickles () in 2013:
The average exchange rate during 2013 was 1 = $.96. The beginning inventory was acquired when
the exchange rate was 1 = $1.20. The ending inventory was acquired when the exchange rate was
1 = $.90. The exchange rate at December 31, 2013 was 1 = $.84. 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 2013 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.
3. Westmore Ltd., is a British subsidiary of a U.S. company. Westmore's functional currency is the
pound sterling (). The following exchange rates were in effect during 2013:
Westmore reported sales of 1,500,000 during 2013. What amount (rounded) would have been
included for this subsidiary in calculating consolidated sales?
A. $2,415,000.
B. $2,400,000.
C. $2,385,000.
D. $943,396.
E. $931,677.
4. A net liability balance sheet exposure exists and the foreign currency appreciates. Which of the
following statements is true?
A. There is no translation adjustment.

B. There is a transaction loss.
C. There is a transaction gain.
D. There is a negative translation adjustment.
E. There is a positive translation adjustment.
5. Under the temporal method, inventory at market would be remeasured at what rate?
A. Beginning of the year rate.

B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
6. If a subsidiary is operating in a highly inflationary economy, how are the financial statements to be
restated?
A. Historical rate.
B. Working capital rate.
C. Translation.
D. Remeasurement.
E. Current rate.
7. When preparing a consolidating statement of cash flows, which of the following statements is
false?
A. All operating activity items are translated at an average exchange rate for the period.
B. A change in accounts receivable is translated using the current rate.
C. A change in long-term debt is translated using the historical rate at the date of the change.
D. Dividends paid are translated using the historical rate at the date of the payment.
E. All items follow translation rates used for the balance sheet and the income statement.
8. Esposito is an Italian subsidiary of a U.S. company.

Esposito's ending inventory is valued at the average cost for the last quarter of the year.
The following account balances are available for Esposito for 2013:
Compute the cost of goods sold for 2013 in U.S. dollars using the temporal method.
A. $376,650.
B. $387,750.
C. $388,800.
D. $400,950.
E. $409,050.
9. Perez Company, a Mexican subsidiary of a U.S. company, sold equipment costing 200,000 pesos
with accumulated depreciation of 75,000 pesos for 140,000 pesos on March 1, 2013. The
equipment was purchased on January 1, 2012. Relevant exchange rates for the peso are as follows:
The financial statements for Perez are remeasured by its U.S. parent. What amount of gain or loss
would be reported in its translated income statement?
A. $1,530.
B. $1,575.
C. $1,590.
D. $1,090.
E. $1,650.
10. Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1, 2012. Selected
account balances are available for the year ended December 31, 2013, and are stated in Euro, the
local currency.
Assume the functional currency is the Euro; compute the U.S. balance sheet amount for equipment
for 2013.
A. $81,900.
B. $90,900.
C. $83,700.
D. $88,200.
E. $85,500.
account balances are available for the year ended December 31, 2013, and are stated in Euro, the
local currency.
Assume the functional currency is the Euro; compute the U.S. balance sheet amount for
accumulated depreciation for 2013.
A. $40,950.
B. $41,850.
C. $45,450.
D. $42,750.
E. $44,100.
ACC9805- Chapter 10 Key
1. Gunther Co. established a subsidiary in Mexico on January 1, 2013. The subsidiary engaged in
the following transactions during 2013:
What amount of foreign exchange gain or loss would have been recognized in Gunther's
consolidated income statement for 2013?
A. $800,000 gain.
B. $760,000 gain.
C. $320,000 loss.
D. $280,000 loss.
E. $440,000 loss.
AACSB: Analytic
AACSB: Diversity
AICPA BB: Global
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Hoyle - Chapter 10 #8
Learning Objective: 10-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods.
Learning Objective: 10-02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method and
when they are to be translated using the temporal method.
Learning Objective: 10-04 Remeasure a foreign subsidiarys financial statements using the temporal method and calculate the associated remeasurement
gain or loss.
Topic: Remeasurement of Financial Statements - Temporal Method
Topic: Translation Methods
Topic: Two Translation Combinations
2. A U.S. company's foreign subsidiary had the following amounts in stickles () in 2013:
The average exchange rate during 2013 was 1 = $.96. The beginning inventory was acquired
when the exchange rate was 1 = $1.20. The ending inventory was acquired when the exchange
rate was 1 = $.90. The exchange rate at December 31, 2013 was 1 = $.84. 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 2013 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.
Beginning Inventory [(240,000 $1.20) $288,000] - Purchases [Beginning Inventory 240,000 -

COGS 12,000,000 - Ending Inventory 600,000 = 12,360,000 $.96 = $11,865,600] - Ending
Inventory [(600,000 $.90) $540,000] = COGS $11,613,600
AACSB: Analytic
AACSB: Diversity
AICPA BB: Global
Blooms: Apply
Difficulty: 3 Hard
3. Westmore Ltd., is a British subsidiary of a U.S. company. Westmore's functional currency is the
pound sterling (). The following exchange rates were in effect during 2013:
Westmore reported sales of 1,500,000 during 2013. What amount (rounded) would have been
included for this subsidiary in calculating consolidated sales?
A. $2,415,000.
B. $2,400,000.
C. $2,385,000.
D. $943,396.
E. $931,677.
1,500,000 $1.59 (Avg Rate) = $2,385,000
AACSB: Analytic
AACSB: Diversity
AICPA BB: Global
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 10-03 Translate a foreign subsidiarys financial statements into its parents reporting currency using the current rate method and
calculate the related translation adjustment.
Topic: Translation of Financial Statements - Current Rate Method
4. A net liability balance sheet exposure exists and the foreign currency appreciates. Which of the
following statements is true?
A. There is no translation adjustment.

B. There is a transaction loss.
C. There is a transaction gain.
D. There is a negative translation adjustment.
E. There is a positive translation adjustment.
AACSB: Analytic
AACSB: Diversity
AICPA BB: Global
Accessibility: Keyboard Navigation
Blooms: Analyze
5. Under the temporal method, inventory at market would be remeasured at what rate?
A. Beginning of the year rate.

B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
AACSB: Diversity
AACSB: Reflective thinking
AICPA BB: Global
Blooms: Remember
6. If a subsidiary is operating in a highly inflationary economy, how are the financial statements to
be restated?
A. Historical rate.
B. Working capital rate.
C. Translation.
D. Remeasurement.
E. Current rate.
AACSB: Diversity
AICPA BB: Global
Blooms: Remember
7. When preparing a consolidating statement of cash flows, which of the following statements is
false?
A. All operating activity items are translated at an average exchange rate for the period.
B. A change in accounts receivable is translated using the current rate.
C. A change in long-term debt is translated using the historical rate at the date of the change.
D. Dividends paid are translated using the historical rate at the date of the payment.
E. All items follow translation rates used for the balance sheet and the income statement.
AACSB: Diversity
AICPA BB: Global
Blooms: Remember
8. Esposito is an Italian subsidiary of a U.S. company.

Esposito's ending inventory is valued at the average cost for the last quarter of the year.
The following account balances are available for Esposito for 2013:
Compute the cost of goods sold for 2013 in U.S. dollars using the temporal method.
A. $376,650.
B. $387,750.
C. $388,800.
D. $400,950.
E. $409,050.
Begin Inventory (20,000 $.93 = $18,600) + Purchases (400,000 $.96 = $384,000) - End
Inventory (15,000 $.99 = $14,850) = COGS $387,750
AACSB: Analytic
AACSB: Diversity
AICPA BB: Global
Blooms: Apply
Learning Objective: 10-04 Remeasure a foreign subsidiarys financial statements using the temporal method and calculate the associated remeasurement
gain or loss.
Topic: Remeasurement of Financial Statements - Temporal Method
9. Perez Company, a Mexican subsidiary of a U.S. company, sold equipment costing 200,000
pesos with accumulated depreciation of 75,000 pesos for 140,000 pesos on March 1, 2013. The
equipment was purchased on January 1, 2012. Relevant exchange rates for the peso are as
follows:
The financial statements for Perez are remeasured by its U.S. parent. What amount of gain or
loss would be reported in its translated income statement?
A. $1,530.
B. $1,575.
C. $1,590.
D. $1,090.
E. $1,650.
[Sales Price MNP 140,000 .106 = $14,840] - [BV as Historical Cost MNP 200,000 - Acc. Deprec.
MNP 75,000 = MNP 125,000 .110 = $13,750] = $1,090 Gain
AACSB: Analytic
AACSB: Diversity
AICPA BB: Global
Blooms: Apply
account balances are available for the year ended December 31, 2013, and are stated in Euro,
the local currency.
equipment for 2013.
A. $81,900.
B. $90,900.
C. $83,700.
D. $88,200.
E. $85,500.
90,000 $1.01 = $90,900
AACSB: Analytic
AACSB: Diversity
AICPA BB: Global
Blooms: Apply
account balances are available for the year ended December 31, 2013, and are stated in Euro,
the local currency.
accumulated depreciation for 2013.
A. $40,950.
B. $41,850.
C. $45,450.
D. $42,750.
E. $44,100.
45,000 $1.01 = $45,450
AACSB: Analytic
AACSB: Diversity
AICPA BB: Global
Blooms: Apply
ACC9805- Chapter 10 Summary
Category # of Ques
tions
AACSB: Analytic 8
AACSB: Diversity 11
AACSB: Reflective thinking 3
Accessibility: Keyboard Navigation 4
AICPA BB: Global 11
AICPA FN: Measurement 11
Blooms: Analyze 1
Blooms: Apply 7
Blooms: Remember 3
Difficulty: 2 Medium 9
Difficulty: 3 Hard 2
Hoyle - Chapter 10 11
Learning Objective: 10-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods. 9
Learning Objective: 10- 3

02 Describe guidelines as to when foreign currency financial statements are to be translated using the current rate method an
d when they are to be translated using the temporal method.

03 Translate a foreign subsidiarys financial statements into its parents reporting currency using the current rate method and ca
lculate the related translation adjustment.




04 Remeasure a foreign subsidiarys financial statements using the temporal method and calculate the associated remeasurem
ent gain or loss.

04 Remeasure a foreign subsidiarys financial statements using the temporal method and calculate the associated remeasurem
ent gain or loss.
Topic: Remeasurement of Financial Statements - Temporal Method 2
Topic: Translation Methods 9
Topic: Translation of Financial Statements - Current Rate Method 4
Topic: Two Translation Combinations 3

ACC9805 - Chapter 10

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ACC9805- Chapter 10

A. There is no translation adjustment.

A. Beginning of the year rate.

8. Esposito is an Italian subsidiary of a U.S. company.

Beginning Inventory [(240,000 $1.20) $288,000] - Purchases [Beginning Inventory 240,000 -

1,500,000 $1.59 (Avg Rate) = $2,385,000

A. There is no translation adjustment.

A. Beginning of the year rate.

8. Esposito is an Italian subsidiary of a U.S. company.

90,000 $1.01 = $90,900

45,000 $1.01 = $45,450

AACSB: Reflective thinking 3

Accessibility: Keyboard Navigation 4

AICPA BB: Global 11

AICPA FN: Measurement 11

Learning Objective: 10- 3

Learning Objective: 10- 1

Learning Objective: 10- 1

Learning Objective: 10- 1

Learning Objective: 10- 1

Learning Objective: 10- 1

Learning Objective: 10- 1

Topic: Translation Methods 9

Topic: Translation of Financial Statements - Current Rate Method 4

Topic: Two Translation Combinations 3

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