Advanced Accounting CH 10

advanced accounting ch 10, 18, 9
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What is a subsidiary's functional currency?
A) The currency in which the entity primarily generates and expends cash.
B) Always the currency of the country in which the company has its headquarters.
C) The parent's reporting currency.
D)The currency in which transactions are denominated.
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In comparing the translation and the remeasurement process, which of the following is true?
a)
The reported balance of inventory is normally the same under both methods.
b) The reported balance of sales is normally the same under both methods.
c) The reported balance of equipment is normally the same under both methods.
d) The reported balance of depreciation expense is normally the same under both methods.
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Terms in this set (50)
In comparing the translation and the remeasurement process, which of the following
is true?
a)
d) The reported balance of depreciation expense is normally the same under both
methods.
Which of the following statements is true for the translation process (as opposed to
remeasurement)?
A translation adjustment is created by the change in the relative value of a

subsidiary's net assets caused by exchange rate fluctuations.

subsidiary's monetary assets and monetary liabilities caused by exchange rate
fluctuations.
A translation adjustment can affect consolidated net income.

Equipment is translated at the historical exchange rate in effect at the date of its
purchase.
A subsidiary of Byner Corporation has one asset (inventory) and no liabilities. The
functional currency for this subsidiary is the peso. The inventory was acquired for
100,000 pesos when the exchange rate was $0.16 = 1 peso. Consolidated
statements are to be produced, and the current exchange rate is $0.19 = 1 peso.
Which of the following statements is true for the consolidated financial statements?
A remeasurement gain must be reported.

A positive translation adjustment must be reported.
A negative translation adjustment must be reported.
A remeasurement loss must be reported.
At what rates should the following balance sheet accounts in foreign statements be
translated (rather than remeasured) into U.S. dollars?
Accumulated
Depreciation—Equipment Equipment
Current Current
Historical Historical
Historical Current
Current Average for year
Current Current
Explanation
All asset accounts are translated at current rates.
Stated at
Current Rates Historical Rates

Accounts receivable, current $ 200,000 $ 220,000
Accounts receivable, long term 100,000 110,000
Prepaid insurance 50,000 55,000
Goodwill 80,000 85,000
$ 430,000 $ 470,000
This subsidiary's functional currency is a foreign currency. What total should Rose's
balance sheet include for the preceding items?
$440,000.
$430,000.
$435,000.
$450,000.
$430,000.
Explanation
Because the foreign currency is the functional currency, a translation is required. All
assets accounts are translated at current rates.
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Only $1/month
Newberry, Inc., whose reporting currency is the U.S. dollar ($), has a subsidiary in
Argentina, whose functional currency also is the $. The subsidiary acquires
inventory on credit on November 1, 2014, for 100,000 pesos that is sold on January
17, 2015, for 130,000 pesos. The subsidiary pays for the inventory on January 31,
2015. Currency exchange rates are as follows:
November 1, 2014 $ 0.16 = 1 peso

December 31, 2014 0.17 = 1
January 17, 2015 0.18 = 1
January 31, 2015 0.19 = 1
A)
What amount does Newberry's consolidated balance sheet report for this inventory
at December 31, 2014?
$19,000.
$17,000.
$18,000.
$16,000.
B)
What amount does Newberry's consolidated income statement report for cost of
goods sold for the year ending December 31, 2015?
$18,000.
$19,000.
$17,000.
$16,000.
A) $16,000.
Explanation
The U.S. dollar is the foreign subsidiary's functional currency, so a remeasurement
is appropriate. Inventory is translated at the historical exchange rate [100,000 ×
$0.16 = $16,000].
B) $16,000.
Explanation
is appropriate. Cost of goods sold is translated at the historical rate in effect when
the inventory was acquired [100,000 × $0.16 = $16,000].
Problem 10-14 (LO 10-1)
In the translated financial statements, which method of translation maintains the
underlying valuation methods used in the foreign currency financial statements?
Monetary/nonmonetary method.
Current rate method; income statement translated at average exchange rate for the
year.
Temporal method.
Current rate method; income statement translated at exchange rate at the balance
sheet date.
Temporal method.
Explanation
By translating items carried at historical cost by the historical exchange rate, the
temporal method maintains the underlying valuation method used by the foreign
subsidiary.
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?
Method Treatment of Translation Adjustment

Current rate Gain or loss in net income
Temporal Other comprehensive income
Current rate Other comprehensive income
Temporal Gain or loss in net income
Explanation
When the U.S. dollar is the functional currency, U.S. GAAP requires remeasurement
using the temporal method with remeasurement gains and losses reported in
income.
A foreign subsidiary's functional currency is its local currency, which has not
experienced significant inflation. The weighted average exchange rate for the
current year is the appropriate exchange rate for translating
Wages Expense Wages Payable

Yes Yes
Yes No
No Yes
No No
Yes No
Explanation
Wages expense is translated at the average exchange rate; wages payable are
translated at the current exchange rate.
A large private not-for-profit entity's statement of activities should report the net
change for net assets that are
Unrestricted Permanently Restricted

No Yes
Yes No
No No
Yes Yes
Yes Yes
A private not-for-profit entity receives three large cash donations:
One gift of $70,000 is unrestricted.

One gift of $90,000 is restricted to pay the salary of the organization's workers.
One gift of $120,000 is restricted forever with the income to be used to provide food
for needy families.
Which of the following statements is not true?

Temporarily restricted net assets have increased by $90,000.
When the donated money is spent for salaries, unrestricted net assets will increase
and decrease by the same amount.
Permanently restricted net assets have increased by $210,000.
When the donated money is spent for salaries, temporarily restricted net assets will
decrease.
A private not-for-profit university charges its students tuition of $1 million. However,
financial aid grants total $220,000. In addition, the school receives a $100,000 grant
restricted for faculty salaries. Of this amount, it spent $30,000 appropriately this
year. On the statement of activities, the school reports three categories: (1)
revenues and support, (2) net assets reclassified, and (3) expenses. Which of the
following is not true?
In the unrestricted net assets, the revenues and support should total $1 million.
Unrestricted net assets shows the $220,000 as a direct reduction to the tuition
revenue balance.
Unrestricted net assets should show an increase of $30,000 for net assets
reclassified.
Unrestricted net assets should recognize expenses of $30,000.
A private not-for-profit entity has the following activities performed by volunteers who
work at no charge. In which case should no contribution be reported?
A carpenter builds a porch on the back of one building so that patients can sit
outside.
A computer expert repairs the organization's computer.
An accountant does the organization's financial reporting.
A local librarian comes each day to read to the patients.
Explanation:
The work of the librarian does not enhance a nonfinancial asset nor does it require a
specialized skill that would be purchased if not donated.
The financial reporting for private not-for-profit entities primarily focuses on
Inherent differences of various not-for-profit entities that impact reporting
presentations.
Standardization of fund information reported.
Basic information for the organization as a whole.
Distinctions between current fund and noncurrent fund presentations.
Explanation:
In its original standards for not-for-profit entities, FASB wanted to get away from
financial reporting based on fund accounting. The statements were designed to
provide information about the private not-for-profit entity as a whole.
On December 30, 2015, Leigh Museum, a not-for-profit entity received a $7,000,000
donation of Day Co. common stock shares with donor-stipulated requirements as
follows:
The museum is to sell shares valued at $5,000,000 and use the proceeds to erect a
public viewing building.
The museum is to retain shares valued at $2,000,000 and use the dividends to
support current operations.
As a consequence of its receipt of the Day Co. shares, how much should Leigh
report as temporarily restricted net assets on its 2015 statement of financial
position?
$0.
$5,000,000.
$2,000,000.
$7,000,000.
$5,000,000.
Explanation:
The money to be used for the building is temporarily restricted for that purpose
whereas the other $2 million is permanently restricted so that only the subsequent
income earned can be used.
A local citizen gives a not-for-profit entity a cash donation that is restricted for
research activities. The money should be recorded in
Unrestricted Net Assets.
Temporarily Restricted Net Assets.
Permanently Restricted Net Assets.
Deferred Revenue.
Use of the money is limited to the donor's specified purpose.

Theresa Johnson does volunteer work for a local not-for-profit entity as a community
service. She replaces without charge an administrator who would have otherwise
been paid $31,000. Which of the following statements is true?
The charity should make no entry.

The charity should recognize a reduction in expenses of $31,000.
The charity should recognize a restricted gain of $31,000.
The charity should recognize a contribution of $31,000 as an increase in unrestricted
net assets as well as salary expense of $31,000.
This donated service meets the rules for recognition. The expense and the
contributed support are both reported.
Only $1/month
Which of these forms must most tax-exempt organizations file annually with the
Internal Revenue Service?
1203.
990.
501(c)(3).
501.
990.
Form 990 is the annual informational form that most tax-exempt organizations are
required to file by the IRS.
Belwood University is a private not-for-profit school that has tax-exempt status.
Which of the following is most likely to be the type of tax-exempt status that Belwood
holds?
501(c)(4).
501(c)(3).
501(c)(5).
501(c)(6).
501(c)(3).
Explanation:
As an educational institution, Belwood University will qualify as a 501(c)(3) tax-
exempt organization.
A group of high school seniors performs volunteer services for patients at a nearby
nursing home. The nursing home would not otherwise provide these services, such
as wheeling patients in the park and reading to them. At the minimum wage rate,
these services amount to $21,320, but their actual value is estimated to be $27,400.
In the nursing home's statement of activities, what amount should be reported as
public support?
$6,080.
$27,400.
$0.
$21,320.
$0.
Explanation:
These volunteer services, although important, do not meet the criteria for
recognition. They do not require a specialized skill that would be otherwise
purchased. They do not enhance a nonfinancial asset.
A voluntary health and welfare entity receives a gift of new furniture having a fair
value of $2,100. The group then gives the furniture to needy families following a
flood. How should the charity record receipt and distribution of this donation?
Recognize contributed support of $2,100 and community expenditures of $2,100.

Record contributed support of $2,100 and community assistance expense of $2,100.
Recognize revenue of $2,100.
Make no entry.
A voluntary health and welfare entity has the following expenditures:
Research to cure disease $ 60,000

Fund-raising costs 70,000
Work to help disabled 40,000
Administrative salaries 90,000
How should the charity report these items?

Program service expenses of $190,000 and supporting service expenses of
$70,000.
$100,000.
$90,000.
$160,000.
$160,000.
Assume that the U.S. dollar is the subsidiary's functional currency. What balances
does a consolidated balance sheet report as of December 31, 2015?
a.
Marketable equity securities = $16,000 and Inventory = $16,000.
b.
c.
d.
c.
temporal method
inventory (at cost) is remeasured at historical cost .16
marketable equity securities are are current rate at .19

A U.S. company's foreign subsidiary had these amounts in foreign currency units
(FCU) in 2015:
The average exchange rate during 2015 was $0.80 = FCU 1. The beginning
inventory was acquired when the exchange rate was $1.00 = FCU 1. Ending
inventory was acquired when the exchange rate was $0.75 = FCU 1. The exchange
rate at December 31, 2015, was $0.70 = FCU 1. Assuming that the foreign country
is highly inflationary, at what amount should the foreign subsidiary's cost of goods
sold be reflected in the U.S. dollar income statement?
a.
$7,815,000.
b.
$8,040,000.
c.
$8,065,000.
d.
$8,090,000.
c.
$8,065,000.
begining inv. 2000 000x1 =200000
purchases 10300000 x .8=824000
ending inventory (500000)x.75=(375000)
COGS= 10,000,000 8,065,000
Which of the following items is remeasured using historical exchange rates under
the temporal method?
a.
Accumulated depreciation on equipment.
b.
Cost of goods sold.
c.
Marketable equity securities.
d.
Retained earnings.
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 foreign exchange gain.
b.
Translation adjustment in Other Comprehensive Income.
c.
Extraordinary item, net of income taxes.
d.
Part of continuing operations.
d.
Charged students $1.2 million in tuition.
tuition recieveables 120000
tuition revenurs
URNA
b.
Received a donation of investments that had cost the owner $100,000 but was worth
$300,000 at the time of the gift. According to the gift's terms, the university must hold
the investments forever but can spend the dividends for any purpose. Any changes
in the value of these securities must be held forever and cannot be spent.
investments 300000
contributions-PRNA
Received a cash donation of $700,000 that must be used to acquire laboratory
equipment.
cash 700,000
contributions-TRNA
+TRNA
Gave scholarships in the amount of $100,000 to students.
scholarships 100,000
tuition recievable
(URNA)
Paid salary expenses of $310,000 in cash
salary expenses 310,000
cash
(URNA)
f.
Learned that a tenured faculty member is contributing his services in teaching for
this year and will not accept his $80,000 salary.
salary expense 80,000
contribution revenue service
URNA
g.
Spent $200,000 of the money in (c) on laboratory equipment (no time restriction is
assumed on this equipment).
equipment 200,000
cash
release from restrictions-TRNA 200,000

release from restrictions URNA
h.
Learned that at the end of the year, the investments in (b) are worth $330,000.
investments 30,000
unrealized gain on investment
PRNA
i.
Received dividends of $9,000 cash on the investments in (b).
cash
investment-URNA 9000
j.
Computed depreciation expense for the period of $32,000.
depreciation expense
accumulated depreciation
where do all expenses fall under
URNA
k.
The school's board of trustees decides to set aside $100,000 of previously
unrestricted cash for the future purchase of library books.
cash- restricted internally-library books
cash 100,000
l.
Received an unconditional promise of $10,000, which the school fully expects to
collect in three years although its present value is only $7,000. The school assumes
that the money cannot be used until the school receives it.
pledge receivable
contribution-TRNA
m.
Received an art object as a gift that is worth $70,000 and that qualifies as a work of
art. The school prefers not to record this gift
Collections- sometimes not as assets
NO ENTRY
n.
Paid utilities and other general expenses of $212,000.
Utilties and other general expenses
cash
o.
Received free services from alumni who come to campus each week and put books
on the shelves in the library. Over the course of the year, the school would have
paid $103,000 to have this work done.
no specialized skill NO ENTRY
Which of the following combinations correctly describes the relationship between
foreign currency transactions, exchange rate changes, and foreign exchange gains
and losses?
import purchase
foreign currency: depreciates
foreign exchange: gain
2.
In accounting for foreign currency transactions, which of the following approaches is
used in the United States?
a.
One-transaction perspective; accrue foreign exchange gains and losses.
b.
One-transaction perspective; defer foreign exchange gains and losses.
c.
Two-transaction perspective; defer foreign exchange gains and losses.
d.
Two-transaction perspective; accrue foreign exchange gains and losses.
d.
3.
On October 1, 2015, Mud Co., a U.S. company, purchased parts from Terra, a
Portuguese company, with payment due on December 1, 2015. If Mud's 2015
operating income included no foreign exchange gain or loss, the transaction could
have
a.
Resulted in an extraordinary gain.
b.
Been denominated in U.S. dollars.
c.
Generated a foreign exchange gain to be reported as a deferred charge on the
balance sheet.
d.
Generated a foreign exchange loss to be reported as a separate component of
stockholders' equity.
b.
$10,000.
4.
Post, Inc., had a receivable from a foreign customer that is payable in the customer's
local currency. On December 31, 2015, Post correctly included this receivable for
200,000 local currency units (LCU) in its balance sheet at $110,000. When Post
collected the receivable on February 15, 2016, the U.S. dollar equivalent was
$95,000. In Post's 2016 consolidated income statement, how much should it report
as a foreign exchange loss?
a.
Page 444
$-0-.
b.
$10,000.
c.
$15,000.
d.
$25,000.
C
On July 1, 2015, Houghton Company borrowed 200,000 euros from a foreign lender
evidenced by an interest-bearing note due on July 1, 2016. The note is denominated
in euros. The U.S. dollar equivalent of the note principal is as follows:
In its 2016 income statement, what amount should Houghton include as a foreign
exchange gain or loss on the note?
a.
$35,000 gain.
b.
$35,000 loss.
c.
$10,000 gain.
d.
$10,000 loss.
D
a.
$35,000 gain.
b.
$35,000 loss.
c.
$10,000 gain.
d.
$10,000 loss.
D
New Colony Corporation (a U.S. company) made a sale to a foreign customer on
September 15, 2015, for 100,000 foreign currency units (FCU). It received payment
on October 15, 2015. The following exchange rates for 1 FCU apply:
sept 15- .40

sept 30- .42
oct 15- .37
Prepare all journal entries for New Colony in connection with this sale, assuming
that the company closes its books on September 30 to prepare interim financial
statements.
accts recievable 40,000
sales
accts recievable
Foreign exchange gain (100,000x (.42-.40))
foreign exchange loss 5000

accts recievable
cash 37000
accts receivable
advanced accounting ch 10, 18, 9

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Gravity

👆

In comparing the translation and the remeasurement process, which of the following is true?
a)
d) The reported balance of depreciation expense is normally the same under both methods.

👆

1/50
Created by
madison_gallagher4
In comparing the translation and the remeasurement process, which of the following
is true?
a)
d) The reported balance of depreciation expense is normally the same under both
methods.
Which of the following statements is true for the translation process (as opposed to
remeasurement)?


fluctuations.
A translation adjustment can affect consolidated net income.
Equipment is translated at the historical exchange rate in effect at the date of its
purchase.
A subsidiary of Byner Corporation has one asset (inventory) and no liabilities. The
functional currency for this subsidiary is the peso. The inventory was acquired for
100,000 pesos when the exchange rate was $0.16 = 1 peso. Consolidated
statements are to be produced, and the current exchange rate is $0.19 = 1 peso.
Which of the following statements is true for the consolidated financial statements?
A remeasurement gain must be reported.

A negative translation adjustment must be reported.
A remeasurement loss must be reported.
translated (rather than remeasured) into U.S. dollars?
Accumulated
Depreciation—Equipment Equipment
Current Current
Historical Historical
Historical Current
Current Average for year
Current Current
Explanation
Stated at
Current Rates Historical Rates

Accounts receivable, current $ 200,000 $ 220,000
Accounts receivable, long term 100,000 110,000
Prepaid insurance 50,000 55,000
Goodwill 80,000 85,000
$ 430,000 $ 470,000
This subsidiary's functional currency is a foreign currency. What total should Rose's
$440,000.
$430,000.
$435,000.
$450,000.
$430,000.
Explanation
Because the foreign currency is the functional currency, a translation is required. All
assets accounts are translated at current rates.
Only $1/month
Argentina, whose functional currency also is the $. The subsidiary acquires
inventory on credit on November 1, 2014, for 100,000 pesos that is sold on January
17, 2015, for 130,000 pesos. The subsidiary pays for the inventory on January 31,
2015. Currency exchange rates are as follows:
November 1, 2014 $ 0.16 = 1 peso

December 31, 2014 0.17 = 1
January 17, 2015 0.18 = 1
January 31, 2015 0.19 = 1
A)
What amount does Newberry's consolidated balance sheet report for this inventory
at December 31, 2014?
$19,000.
$17,000.
$18,000.
$16,000.
B)
What amount does Newberry's consolidated income statement report for cost of
goods sold for the year ending December 31, 2015?
$18,000.
$19,000.
$17,000.
$16,000.
A) $16,000.
Explanation
is appropriate. Inventory is translated at the historical exchange rate [100,000 ×
$0.16 = $16,000].
B) $16,000.
Explanation
is appropriate. Cost of goods sold is translated at the historical rate in effect when
the inventory was acquired [100,000 × $0.16 = $16,000].
Problem 10-14 (LO 10-1)
underlying valuation methods used in the foreign currency financial statements?
Monetary/nonmonetary method.
Current rate method; income statement translated at average exchange rate for the
year.
Temporal method.
Current rate method; income statement translated at exchange rate at the balance
sheet date.
Temporal method.
Explanation
subsidiary.
combination is appropriate for a foreign operation whose functional currency is the
U.S. dollar?
Method Treatment of Translation Adjustment

Current rate Gain or loss in net income
Temporal Other comprehensive income
Current rate Other comprehensive income
Explanation
using the temporal method with remeasurement gains and losses reported in
income.
experienced significant inflation. The weighted average exchange rate for the
current year is the appropriate exchange rate for translating
Wages Expense Wages Payable

Yes Yes
Yes No
No Yes
No No
Yes No
Explanation
Wages expense is translated at the average exchange rate; wages payable are
A large private not-for-profit entity's statement of activities should report the net
change for net assets that are
Unrestricted Permanently Restricted

No Yes
Yes No
No No
Yes Yes
Yes Yes
A private not-for-profit entity receives three large cash donations:
One gift of $70,000 is unrestricted.

One gift of $90,000 is restricted to pay the salary of the organization's workers.
One gift of $120,000 is restricted forever with the income to be used to provide food
for needy families.
Which of the following statements is not true?

Temporarily restricted net assets have increased by $90,000.
When the donated money is spent for salaries, unrestricted net assets will increase
and decrease by the same amount.
When the donated money is spent for salaries, temporarily restricted net assets will
decrease.
A private not-for-profit university charges its students tuition of $1 million. However,
financial aid grants total $220,000. In addition, the school receives a $100,000 grant
restricted for faculty salaries. Of this amount, it spent $30,000 appropriately this
year. On the statement of activities, the school reports three categories: (1)
revenues and support, (2) net assets reclassified, and (3) expenses. Which of the
following is not true?
Unrestricted net assets shows the $220,000 as a direct reduction to the tuition
revenue balance.
Unrestricted net assets should show an increase of $30,000 for net assets
reclassified.
Unrestricted net assets should recognize expenses of $30,000.
A private not-for-profit entity has the following activities performed by volunteers who
work at no charge. In which case should no contribution be reported?
A carpenter builds a porch on the back of one building so that patients can sit
outside.
A computer expert repairs the organization's computer.
An accountant does the organization's financial reporting.
Explanation:
The work of the librarian does not enhance a nonfinancial asset nor does it require a
specialized skill that would be purchased if not donated.
The financial reporting for private not-for-profit entities primarily focuses on
Inherent differences of various not-for-profit entities that impact reporting
presentations.
Standardization of fund information reported.
Distinctions between current fund and noncurrent fund presentations.
Explanation:
In its original standards for not-for-profit entities, FASB wanted to get away from
financial reporting based on fund accounting. The statements were designed to
provide information about the private not-for-profit entity as a whole.
On December 30, 2015, Leigh Museum, a not-for-profit entity received a $7,000,000
donation of Day Co. common stock shares with donor-stipulated requirements as
follows:
The museum is to sell shares valued at $5,000,000 and use the proceeds to erect a
public viewing building.
The museum is to retain shares valued at $2,000,000 and use the dividends to
support current operations.
As a consequence of its receipt of the Day Co. shares, how much should Leigh
report as temporarily restricted net assets on its 2015 statement of financial
position?
$0.
$5,000,000.
$2,000,000.
$7,000,000.
$5,000,000.
Explanation:
The money to be used for the building is temporarily restricted for that purpose
whereas the other $2 million is permanently restricted so that only the subsequent
income earned can be used.
A local citizen gives a not-for-profit entity a cash donation that is restricted for
research activities. The money should be recorded in
Unrestricted Net Assets.
Permanently Restricted Net Assets.
Deferred Revenue.
Use of the money is limited to the donor's specified purpose.

Theresa Johnson does volunteer work for a local not-for-profit entity as a community
service. She replaces without charge an administrator who would have otherwise
been paid $31,000. Which of the following statements is true?
The charity should make no entry.

The charity should recognize a reduction in expenses of $31,000.
The charity should recognize a restricted gain of $31,000.
This donated service meets the rules for recognition. The expense and the
contributed support are both reported.
Only $1/month
Which of these forms must most tax-exempt organizations file annually with the
Internal Revenue Service?
1203.
990.
501(c)(3).
501.
990.
Form 990 is the annual informational form that most tax-exempt organizations are
required to file by the IRS.
Belwood University is a private not-for-profit school that has tax-exempt status.
Which of the following is most likely to be the type of tax-exempt status that Belwood
holds?
501(c)(4).
501(c)(3).
501(c)(5).
501(c)(6).
501(c)(3).
Explanation:
As an educational institution, Belwood University will qualify as a 501(c)(3) tax-
exempt organization.
A group of high school seniors performs volunteer services for patients at a nearby
nursing home. The nursing home would not otherwise provide these services, such
as wheeling patients in the park and reading to them. At the minimum wage rate,
these services amount to $21,320, but their actual value is estimated to be $27,400.
In the nursing home's statement of activities, what amount should be reported as
public support?
$6,080.
$27,400.
$0.
$21,320.
$0.
Explanation:
These volunteer services, although important, do not meet the criteria for
recognition. They do not require a specialized skill that would be otherwise
purchased. They do not enhance a nonfinancial asset.
A voluntary health and welfare entity receives a gift of new furniture having a fair
value of $2,100. The group then gives the furniture to needy families following a
flood. How should the charity record receipt and distribution of this donation?
Recognize contributed support of $2,100 and community expenditures of $2,100.

Recognize revenue of $2,100.
Make no entry.
A voluntary health and welfare entity has the following expenditures:
Research to cure disease $ 60,000

Fund-raising costs 70,000
Work to help disabled 40,000
Administrative salaries 90,000
How should the charity report these items?

$70,000.
$100,000.
$90,000.
$160,000.
$160,000.
Assume that the U.S. dollar is the subsidiary's functional currency. What balances
does a consolidated balance sheet report as of December 31, 2015?
a.
b.
c.
d.
c.
temporal method
inventory (at cost) is remeasured at historical cost .16
marketable equity securities are are current rate at .19

A U.S. company's foreign subsidiary had these amounts in foreign currency units
(FCU) in 2015:
The average exchange rate during 2015 was $0.80 = FCU 1. The beginning
inventory was acquired when the exchange rate was $1.00 = FCU 1. Ending
inventory was acquired when the exchange rate was $0.75 = FCU 1. The exchange
rate at December 31, 2015, was $0.70 = FCU 1. Assuming that the foreign country
is highly inflationary, at what amount should the foreign subsidiary's cost of goods
sold be reflected in the U.S. dollar income statement?
a.
$7,815,000.
b.
$8,040,000.
c.
$8,065,000.
d.
$8,090,000.
c.
$8,065,000.
begining inv. 2000 000x1 =200000

purchases 10300000 x .8=824000
ending inventory (500000)x.75=(375000)
COGS= 10,000,000 8,065,000
Which of the following items is remeasured using historical exchange rates under
the temporal method?
a.
Accumulated depreciation on equipment.
b.
Cost of goods sold.
c.
d.
Retained earnings.
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 foreign exchange gain.
b.
Translation adjustment in Other Comprehensive Income.
c.
Extraordinary item, net of income taxes.
d.
d.
Charged students $1.2 million in tuition.
tuition recieveables 120000
tuition revenurs
URNA
b.
Received a donation of investments that had cost the owner $100,000 but was worth
$300,000 at the time of the gift. According to the gift's terms, the university must hold
the investments forever but can spend the dividends for any purpose. Any changes
in the value of these securities must be held forever and cannot be spent.
investments 300000
contributions-PRNA
Received a cash donation of $700,000 that must be used to acquire laboratory
equipment.
cash 700,000
contributions-TRNA
+TRNA
Gave scholarships in the amount of $100,000 to students.
scholarships 100,000
tuition recievable
(URNA)
Paid salary expenses of $310,000 in cash
salary expenses 310,000
cash
(URNA)
f.
Learned that a tenured faculty member is contributing his services in teaching for
this year and will not accept his $80,000 salary.
salary expense 80,000
contribution revenue service
URNA
g.
Spent $200,000 of the money in (c) on laboratory equipment (no time restriction is
assumed on this equipment).
equipment 200,000
cash
release from restrictions-TRNA 200,000

release from restrictions URNA
h.
Learned that at the end of the year, the investments in (b) are worth $330,000.
investments 30,000
unrealized gain on investment
PRNA
i.
Received dividends of $9,000 cash on the investments in (b).
cash
investment-URNA 9000
j.
Computed depreciation expense for the period of $32,000.
depreciation expense
accumulated depreciation
where do all expenses fall under
URNA
k.
The school's board of trustees decides to set aside $100,000 of previously
unrestricted cash for the future purchase of library books.
cash- restricted internally-library books
cash 100,000
l.
Received an unconditional promise of $10,000, which the school fully expects to
collect in three years although its present value is only $7,000. The school assumes
that the money cannot be used until the school receives it.
pledge receivable
contribution-TRNA
m.
Received an art object as a gift that is worth $70,000 and that qualifies as a work of
art. The school prefers not to record this gift
Collections- sometimes not as assets
NO ENTRY
n.
Paid utilities and other general expenses of $212,000.
Utilties and other general expenses
cash
o.
Received free services from alumni who come to campus each week and put books
on the shelves in the library. Over the course of the year, the school would have
paid $103,000 to have this work done.
no specialized skill NO ENTRY
Which of the following combinations correctly describes the relationship between
foreign currency transactions, exchange rate changes, and foreign exchange gains
and losses?
import purchase
foreign currency: depreciates
foreign exchange: gain
2.
In accounting for foreign currency transactions, which of the following approaches is
used in the United States?
a.
One-transaction perspective; accrue foreign exchange gains and losses.
b.
One-transaction perspective; defer foreign exchange gains and losses.
c.
Two-transaction perspective; defer foreign exchange gains and losses.
d.
d.
3.
On October 1, 2015, Mud Co., a U.S. company, purchased parts from Terra, a
Portuguese company, with payment due on December 1, 2015. If Mud's 2015
operating income included no foreign exchange gain or loss, the transaction could
have
a.
Resulted in an extraordinary gain.
b.
Been denominated in U.S. dollars.
c.
Generated a foreign exchange gain to be reported as a deferred charge on the
balance sheet.
d.
Generated a foreign exchange loss to be reported as a separate component of
stockholders' equity.
b.
$10,000.
4.
Post, Inc., had a receivable from a foreign customer that is payable in the customer's
local currency. On December 31, 2015, Post correctly included this receivable for
200,000 local currency units (LCU) in its balance sheet at $110,000. When Post
collected the receivable on February 15, 2016, the U.S. dollar equivalent was
$95,000. In Post's 2016 consolidated income statement, how much should it report
as a foreign exchange loss?
a.
Page 444
$-0-.
b.
$10,000.
c.
$15,000.
d.
$25,000.
C
a.
$35,000 gain.
b.
$35,000 loss.
c.
$10,000 gain.
d.
$10,000 loss.
D
a.
$35,000 gain.
b.
$35,000 loss.
c.
$10,000 gain.
d.
$10,000 loss.
D
New Colony Corporation (a U.S. company) made a sale to a foreign customer on
September 15, 2015, for 100,000 foreign currency units (FCU). It received payment
on October 15, 2015. The following exchange rates for 1 FCU apply:
sept 15- .40

sept 30- .42
oct 15- .37
Prepare all journal entries for New Colony in connection with this sale, assuming
that the company closes its books on September 30 to prepare interim financial
statements.
accts recievable 40,000
sales
accts recievable
Foreign exchange gain (100,000x (.42-.40))
foreign exchange loss 5000

accts recievable
cash 37000
accts receivable
Only $1/month
ST_EXAM 2
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Current Rate Method is also referred to as

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translation
Temporal Method is also referred to as
remeasurement
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Created by
savannah_chapman7
Current Rate Method is also referred to as

translation
Temporal Method is also referred to as
remeasurement
Functional Currency/Method/Adjustment
USD --> Temporal --> Gain (loss) in Net Income
Foreign currency --> Current rate method --> separate component of OCI (equity)
a. The parent's reporting currency.
b. The currency used by the parent to acquire the subsidiary.
c. The currency in which the entity primarily generates and expends cash.
d. Always the currency of the country in which the company has its headquarters.
C (Definition of functional currency)
In comparing the current rate and temporal methods of translation, which of the
following is true?
a. The reported balance of accounts receivable is normally the same under both
methods.
b. The reported balance of inventory is normally the same under both methods.
c. The reported balance of equipment is normally the same under both methods.
d. The reported balance of depreciation expense is normally the same under both
methods.
A (Comparison of current rate and temporal methods)
Which of the following statements is true for the translation process using the current
rate method?
a. A translation adjustment can affect consolidated net income.
b. Equipment is translated at the historical exchange rate in effect at the date of its
purchase.
c. A translation adjustment is created by the change in the relative value of a
fluctuations.
d. A translation adjustment is created by the change in the relative value of a
D (Translation process (current rate method))
Only $1/month
A foreign subsidiary of Thun Corporation has one asset (inventory) and no liabilities.
The functional currency for this subsidiary is the yuan. The inventory was acquired for
100,000 yuan when the exchange rate was $0.16 = 1 yuan. Consolidated statements
are to be produced, and the current exchange rate is $0.12 = 1 yuan. Which of the
following statements is true for the consolidated financial statements?
a. A remeasurement gain must be reported.
b. A positive translation adjustment must be reported.
c. A negative translation adjustment must be reported.
d. A remeasurement loss must be reported.
C (Determine appropriate translation method and resulting translation adjustment)
Because the yuan is the functional currency, the financial statements must be translated
using the current rate method. Therefore, answers a. and d. can be eliminated. Because
the subsidiary has a net asset position and the yuan has depreciated from $.16 to $.12,
a negative translation adjustment will result.
translated (using the current rate method) into U.S. dollars?
Equipment / AD-Equipment
a. Current / Current
b. Current / Average
c. Historical / Current
d. Historical / Historical
A (Translation process (current rate method) - asset and related contra-account)

AR
C= 200,000 / H= 220,000
AR Long term
C= 100,000 / H= 110,000
Land
C= 50,000 / H= 55,000
Patents
C= 80,000 / H= 85,000
This subsidiary's functional currency is a foreign currency. What total should Orchid's
a. $430,000. b. $435,000. c. $440,000. d. $450,000.
A (Translation process (current rate method) - assets)
Because the foreign currency is the functional currency, translation (rather than
remeasurement) is required. All assets accounts are translated at current rates.
AR
C= 200,000 / H= 220,000
AR Long term
C= 100,000 / H= 110,000
Land
C= 50,000 / H= 55,000
Patents
C= 80,000 / H= 85,000
This subsidiary's functional currency is the U.S. dollar. What total should Orchid's
a. $430,000. b. $435,000. c. $440,000. d. $450,000.
C (Remeasurement process (temporal method) - assets)
Because the U.S. dollar is the functional currency, remeasurement is required. All
receivables are remeasured at current rates. Assets carried at historical cost, such as
land and patents, are remeasured at historical rates
Argentina, whose functional currency also is the $. The subsidiary acquires inventory on
credit on November 1, 2017, for 100,000 pesos that is sold on January 17, 2018, for
130,000 pesos. The subsidiary pays for the inventory on January 31, 2018. Currency
exchange rates are as follows:
11/1/2017 = .16
12/31/17 = .17
01/17/18 = .18
01/31/18 = .19
What amount does Newberry's consolidated balance sheet report for this inventory at
December 31, 2017?
a. $16,000. b. $17,000. c. $18,000. d. $19,000.
A (Remeasurement process (temporal method) - inventory)
The U.S. dollar is the foreign subsidiary's functional currency, so remeasurement (rather
than translation) is appropriate. Inventory is translated at the historical exchange rate
[100,000 x $.16 = $16,000].
Argentina, whose functional currency also is the $. The subsidiary acquires inventory on
credit on November 1, 2017, for 100,000 pesos that is sold on January 17, 2018, for
130,000 pesos. The subsidiary pays for the inventory on January 31, 2018. Currency
exchange rates are as follows:
11/1/2017 = .16
12/31/17 = .17
01/17/18 = .18
01/31/18 = .19
What amount does Newberry's consolidated income statement report for cost of goods
sold for the year ending December 31, 2018?
a. $16,000. b. $17,000. c. $18,000. d. $19,000.
A (Remeasurement process (temporal method) - cost of goods sold)
The U.S. dollar is the foreign subsidiary's functional currency, so remeasurement is

appropriate. Cost of goods sold is translated at the historical rate in effect when the
inventory was acquired [100,000 x $.16 = $16,000].
A Clarke Corporation subsidiary buys marketable equity securities and inventory on
April 1, 2017, for 100,000 won each. It pays for both items on June 1, 2017, and they
are still on hand at year-end. Inventory is carried at cost under the lower-of-cost-or-net
realizable rule. Currency exchange rates for 1 won follow:
1/1/17 = .15
4/1/17 = .16
6/1/17 = .17
12/31/17 = .19
Assume that the won is the subsidiary's functional currency. What balances does a
consolidated balance sheet report as of December 31, 2017?
a. Marketable equity securities = $16,000 and Inventory = $16,000.
b. Marketable equity securities = $17,000 and Inventory = $17,000.
c. Marketable equity securities = $19,000 and Inventory = $16,000.
d. Marketable equity securities = $19,000 and Inventory = $19,000.
D (Translation process (current rate method) - marketable securities and inventory)
The foreign currency is the functional currency, so translation is appropriate. All assets
are translated at the current exchange rate of $.19.
A Clarke Corporation subsidiary buys marketable equity securities and inventory on
April 1, 2017, for 100,000 won each. It pays for both items on June 1, 2017, and they
are still on hand at year-end. Inventory is carried at cost under the lower-of-cost-or-net
realizable rule. Currency exchange rates for 1 won follow:
1/1/17 = .15
4/1/17 = .16
6/1/17 = .17
12/31/17 = .19
Assume that the U.S. dollar is the subsidiary's functional currency. What balances does
a consolidated balance sheet report as of December 31, 2017?
a. Marketable equity securities = $16,000 and Inventory = $16,000.
b. Marketable equity securities = $17,000 and Inventory = $17,000.
c. Marketable equity securities = $19,000 and Inventory = $16,000.
d. Marketable equity securities = $19,000 and Inventory = $19,000.
C (Remeasurement process (temporal method) - marketable securities and inventory)
The U.S. dollar is the functional currency, so remeasurement is appropriate. Inventory

(carried at cost) is remeasured at the historical exchange rate of $.16. Marketable equity
securities (carried at market value) are remeasured at the current exchange rate of
$.19.
A U.S. company's foreign subsidiary had these amounts in local currency units (LCU) in
2017:
COGS = LCU 5,000,000

BOY Inv = 500,000
EOY Inv = 600,000
The average exchange rate during 2017 was $1.00 = LCU 1. The beginning inventory
was acquired when the exchange rate was $0.80 = LCU 1. Ending inventory was
acquired when the exchange rate was $1.10 = LCU 1. The exchange rate at December
31, 2017, was $1.15 = LCU 1. Assuming that the foreign country is highly inflationary, at
what amount should the foreign subsidiary's cost of goods sold be reflected in the U.S.
dollar income statement?
a. $4,440,000.
b. $4,840,000.
c. $5,000,000.
d. $5,750,000.
B (Highly inflationary economy (temporal method) - cost of goods sold)
BOY = .80
Purch = 1.00
EOY = 1.10
COGS = 4,840,000
Yang Corporation starts a foreign subsidiary on January 1 by investing 20,000 rand.
Yang owns all
of the shares of the subsidiary's common stock. The foreign subsidiary generates
40,000 rand of net income throughout the year and pays no dividends. The rand is the
foreign subsidiary's functional currency. Currency exchange rates for 1 rand are as
follows:
1/1 = .25
avg = .28
12/31 = .31
In preparing consolidated financial statements, what translation adjustment will Yang

report at the end of the current year?
a. $400 positive (credit).
b. $1,000 positive (credit).
c. $1,400 positive (credit).
d. $2,400 positive (credit).
D (Calculation of translation adjustment)
underlying valuation methods used in preparing the foreign currency financial
statements?
a. Current rate method; income statement translated at average exchange rate for the
year.
b. Current rate method; income statement translated at exchange rate at the balance
sheet date.
c. Temporal method.
d. Monetary/nonmonetary method.
C (Concepts underlying current rate and temporal methods)
subsidiary in preparing its financial statements.
Charleston Corporation operates a branch operation in a foreign country. Although this
branch operates in euros, the U.S. dollar is its functional currency. Thus, a
remeasurement is necessary to produce financial information for external reporting
purposes. The branch began the year with 500,000 euros in cash and no other assets
or liabilities. However, the branch immediately used 300,000 euros to acquire a
warehouse. On May 1, it purchased inventory costing 100,000 euros for cash that it sold
on July 1 for 160,000 euros cash. The branch transferred 10,000 euros to the parent on
October 1 and recorded depreciation on the warehouse of 10,000 euros for the year.
Currency exchange rates for 1 euro follow:
jan 1 = 1.14
may 1 = 1.18
july 1 = 1.20
oct 1 = 1.18
dec 31 = 1.08
avg = 1.16
What is the remeasurement gain or loss to be recognized in the consolidated income

statement?
a. $100 gain.
b. $200 gain.
c. $100 loss.
d. $200 loss.
D (Calculation of remeasurement gain/loss)
Which of the following items is remeasured using the current exchange rate under the
temporal
method?
a. Bonds payable.
b. Dividends declared.
c. Additional paid-in capital.
d. Amortization of intangibles.
A (Remeasurement process (temporal method))
Long-term debt is translated at the current exchange rate under the temporal method.
combination is appropriate for a foreign operation whose functional currency is the U.S.
dollar?
Method / Treatment
a. Current rate / OCI
b. Current rate / G/L in NI
c. Temporal / OCI
d. Temporal / G/L in NI
D (Determine appropriate translation method and treatment of translation adjustment)
using the temporal method with remeasurement gains and losses reported in income.
experienced significant inflation. The current exchange rate at the balance sheet date is
the appropriate exchange rate for translating:
Insurance Expense / Prepaid Insurance
a. Yes, Yes
b. Yes, No
c. No, Yes
d. No, No
C (Translation process (current rate method) - insurance expense and prepaid
insurance)
Insurance expense is translated at the average exchange rate; prepaid insurance is

McCarthy, Inc.'s Brazilian subsidiary borrowed 100,000 euros on January 1, 2017.
Exchange rates between the Brazilian real (BRL) and euro (€) and between the U.S.
dollar ($) and BRL are as follows:
BRL per E; US$ per BRL
1/1/17: 4.2 ; 0.28

avg: 4.3 ; 0.25
12/31/17: 4.6 ; 0.20
At what amount should the Brazilian subsidiary's euro note payable be reported on
McCarthy's December 31, 2017, consolidated balance sheet?
a. $84,000. b. $86,000. c. $92,000. d. $128,800.
C (Nonlocal currency balances in the financial statements of a foreign operation)
McCarthy, Inc.'s Brazilian subsidiary borrowed 100,000 euros on January 1, 2017.
Exchange rates between the Brazilian real (BRL) and euro (€) and between the U.S.
dollar ($) and BRL are as follows:
BRL per E; US$ per BRL
1/1/17: 4.2 ; 0.28

avg: 4.3 ; 0.25
12/31/17: 4.6 ; 0.20
What amount of foreign exchange gain or loss should be reflected in McCarthy's 2017
consolidated net income?
a. $8,000 loss.
b. $10,000 loss.
c. $2,000 gain.
d. $5,000 gain.
B (Nonlocal currency balances in the financial statements of a foreign operation)
State three reasons why the FASB and IASB undertook the revenue recognition project
• There have been many accounting scandals involving revenue recognition, so the
FASB and IASB wanted to fix this problem
• US GAAP has complex, detailed standards for specific industries and transactions.
The standards were also overly prescriptive and conflicting. FASB wanted to have one
revenue recognition standard that can be applied in all situations.
• IASB revenue recognition standards have limited implementation guidance and are
difficult to understand and apply. So the IASB wanted a new standard to solve this
problem.
• The requirements of IFRS and US GAAP for revenue recognition were different. Since
the FASB and IASB were interested in convergence of IFRS and US GAAP they
undertook this project.
Describe how the new revenue recognition standard changes revenue recognition for
wireless phone companies. Your answer should include a description of how the phone
companies recognize revenue under the old rules and then how they would recognize
revenue under the new rules. Using numerical examples would also help.
• Under the old rules, if a phone company is giving the phone to the customer free with
a two-year contract, the phone company would have to take the COGS of the phone as
expense (say, $500) and book as revenue every month the amount paid by the
customer for the monthly bill (say, $60).
• Under the new rules, since the phone company has delivered the phone to the
customer, the performance obligation has been satisfied. They can take the entire
normal selling price of the phone (what the phone would be sold for without the two-year
contract), say $600 as revenue. They would also take the COGS of $500 as expense
and every month they would take as revenue the monthly bill minus the amount
attributed to the price of the phone (600/24 = 25). So if the monthly bill is $60, 60 - 25 =
35 would be taken as revenue every month for the first two years. After two years, if the
customer is still with the company and has not changed the phone, the full amount of
the monthly bill ($60) will be taken as revenue.
Core principle of revenue model
an entity recognizes revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services
5 steps to recognizing revenue
1. Identify the contract(s) with a customer
2. Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations in the contract
5. Recognize revenue when (or as) the entity satisfies a performance obligation
COPAR
Identifying contract with customer (STEP 1)
-verbal, written, or implied
ALL criteria must be met

-approved contract
-identify party's rights
-identify payment terms
-commercial substance
-probable that entity will collect the consideration
ACon; RaP; ComSub, Collect

Identifying the Performance Obligation (STEP 2)
Performance obligation is each promise to deliver
-good or service that is distinct
-series of distinct goods or services that are substantially the same and have the
same pattern of transfer to the customer
Distinct if BOTH criteria are met:

1. capable of being distinct
2. distinct within the context of the contract; separately identifiable
Determining the Transaction Price (STEP 3)
consideration that it expects to be entitled; can be fixed or varied
Variable = expected value (probability weighted)

Allocating the Transaction Price (STEP 4)
best evidence of a standalone selling price is the observable price of a good or
service when the entity sells that good or service separately in similar
circumstances and to similar customers
Maximize use of observable inputs

Recognizing Revenue when (or as) Performance Obligations are Satisfied (STEP 5)
performance obligation is satisfied when control of the underlying goods or services is
transferred to the customer
At least ONE of the criteria must be met:

-customer simultaneously receives and consumes benefits
-performance creates or enhances an asset that the customer controls as the asset is
created or enhanced
-performance does not create an asset with an alternative use to the entity
Changes to revenue recognition for software companies
Under previous standard, software companies were required to delay revenue
recognition because software upgrades included in the original purchase could not be
recognized until the upgrades actually rolled out.
Under the new standard, software companies will have greater ability to recognize
revenue up front, as they can value the upgrades separately.
Changes to revenue recognition for auto companies
Under the previous standard, automobile companies were able to recognize revenue
sooner as they included future maintenance expenses in the purchase price to increase
immediate revenues.
Under the new standards, auto companies are not able to recognize the future
maintenance expense because the performance obligation is identified and will not be
satisfied until a later date, therefore delaying the recognition of revenue from the
maintenance expenses.
How revenue recognition change affects Rolls Royce
-RR sells large aircraft engines at a loss (HUGE loss) that later turns into a profit by
servicing them
-previously able to compensate for losses by booking service revenue early
-new rev standard does not allow revenue recognition of future maintenance
-RR no longer able to "hide" losses on engines upon initial purchase
Advanced Accounting Final Exam

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Gravity
In the preparation of a consolidated statement of cash flows using the indirect method of presenting
cash flows from operating activities, the amount of the noncontrolling interest in consolidated income
is:
Select one:
a. combined with the controlling interest in consolidated net income.
b. deducted from the controlling interest in consolidated net income.
c. reported as a significant noncash investing and financing activity in the notes.
d. reported as a component of cash flows from financing activities.


Eliminating entries are made to cancel the effects of intercompany transactions and are made on
the:
Select one:
a. books of the parent company.
b. books of the subsidiary company.
c. workpaper only.
d. books of both the parent company and the subsidiary.

c. workpaper only.
1/35
Created by
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In the preparation of a consolidated statement of cash flows using the indirect method of
presenting cash flows from operating activities, the amount of the noncontrolling interest
in consolidated income is:
Select one:
b. deducted from the controlling interest in consolidated net income.
c. reported as a significant noncash investing and financing activity in the notes.
d. reported as a component of cash flows from financing activities.
Eliminating entries are made to cancel the effects of intercompany transactions and are
made on the:
Select one:
a. books of the parent company.
b. books of the subsidiary company.
c. workpaper only.
d. books of both the parent company and the subsidiary.
c. workpaper only.
When following the parent company concept in the preparation of consolidated financial
statements, noncontrolling interest in combined income is considered a(n):
Select one:
a. prorated share of the combined income.
b. addition to combined income to arrive at consolidated net income.
c. expense deducted from combined income to arrive at consolidated net income.
d. deduction from current assets in the balance sheet.
c. expense deducted from combined income to arrive at consolidated net income.
In the preparation of a consolidated statements workpaper, dividend income recognized
by a parent company for dividends distributed by its subsidiary is:
Select one:
a. included with parent company income from other sources to constitute consolidated
net income.
b. assigned as a component of the noncontrolling interest.
c. allocated proportionately to consolidated net income and the noncontrolling interest.
d. eliminated.
d. eliminated.
Nicole Company acquired 75 percent of the common stock of Viscardo Corporation on
December 31, 2016. On the date of acquisition, Nicole held land with a book value of
$150,000 and a fair value of $300,000; Viscardo held land with a book value of
$100,000 and fair value of $500,000. What amount would land be reported in the
consolidated balance sheet prepared immediately after the combination?
Select one:
a. $650,000
b. $500,000
c. $550,000
d. $375,000
a. $650,000
In the preparation of consolidated financial statements, the basis for valuing the
noncontrolling interest in net assets is the:
Select one:
a. book values of subsidiary assets and liabilities.
b. fair values of subsidiary assets and liabilities.
c. general price level adjusted values of subsidiary assets and liabilities.
d. fair values of parent company assets and liabilities.
b. fair values of subsidiary assets and liabilities.
Only $1/month
On January 1, 2016, Raux Company purchased 70% of Stork Corporation's $5 par
common stock for $600,000. The book value of Stork net assets was $640,000 at that
time. The fair value of Stork's identifiable net assets were the same as their book value
except for equipment that was $40,000 in excess of the book value. In the January 1,
2016, consolidated balance sheet, goodwill would be reported at:
Select one:
a. $152,000.
b. $177,143.
c. $80,000.
d. $0.
b. $177,143.
Consolidated net income for a parent company and its partially owned subsidiary is best
defined as the parent company's:
Select one:
a. recorded net income.
b. recorded net income plus the subsidiary's recorded net income.
c. recorded net income plus the its share of the subsidiary's recorded net income.
d. income from independent operations (excluding any intercompany transaction) plus
subsidiary's income resulting from transactions with outside parties.
d. income from independent operations (excluding any intercompany transaction) plus
subsidiary's income resulting from transactions with outside parties.
On the consolidated balance sheet, consolidated stockholders' equity is:
Select one:
a. equal to the sum of the parent and subsidiary stockholders' equity.
b. greater than the parent's stockholders' equity.
c. less than the parent's stockholders' equity.
d. equal to the parent's stockholders' equity.
d. equal to the parent's stockholders' equity.
The entry to amortize the amount of difference between implied and book value
allocated to an unspecified intangible is recorded:
Select one:
a. on the subsidiary's books.
b. on the parent's books.
c. on the consolidated statements workpaper.
d. on the parent's books and on the consolidated statements workpaper.
c. on the consolidated statements workpaper.
The parent company concept adjusts subsidiary net asset values for the:
Select one:
a. differences between cost and fair value.
b. differences between cost and book value.
c. general price level adjusted values of subsidiary assets and liabilities.
d. fair values of parent company assets and liabilities.
b. differences between cost and book value.
Goodwill represents the excess of the implied value of an acquired company over the:
Select one:
a. aggregate fair values of identifiable assets less liabilities assumed.
b. aggregate fair values of tangible assets less liabilities assumed.
c. aggregate fair values of intangible assets less liabilities assumed
d. book value of an acquired company.
a. aggregate fair values of identifiable assets less liabilities assumed.
Under the parent company concept (equity), consolidated net income __________ the
consolidated net income under the economic unit concept.
Select one:
a. is the same as
b. is higher than
c. is lower than
d. can be higher or lower than
a. is the same as
Under the economic unit concept, noncontrolling interest in net assets is treated as:
Select one:
a. a liability.
b. an asset.
c. stockholders' equity.
d. an expense.
c. stockholders' equity.
On January 1, 2016, Pamela Company purchased 75% of the common stock of Snicker
Company. Separate balance sheet data for the companies at the combination date are
given below:
Snicker Co.
Snicker Co.
Pamela Co.
Book Values
Fair Value
Cash
$18,000
$155,000
$155,000
Accounts receivable
108,000
20,000
20,000
Inventory
99,000
26,000
45,000
Land
60,000
24,000
45,000
Plant assets
525,000
225,000
300,000
Acc. depreciation
(180,000)
(45,000)
Investment in Snicker Co
330,000
Total assets
$960,000
$405,000
$565,000
Accounts payable
$156,000
$105,000
$105,000
Capital stock
600,000
225,000
Retained earnings
204,000
75,000
Total liabilities & equities
$960,000
$405,000
Determine below what the consolidated balance would be for each of the requested
accounts on January 2, 2016.
What amount of inventory will be reported?
Select one:
a. $ 71,000
b. $125,000
c. $144,000
d. None of these answers is correct.
c. $144,000
Use the following information to answer questions 17 & 18
On January 1, 2016, Pamela Company purchased 75% of the common stock of Snicker
Company. Separate balance sheet data for the companies at the combination date are
given below:
Snicker Co.
Snicker Co.
Pamela Co.
Book Values
Fair Value
Cash
$18,000
$155,000
$155,000
Accounts receivable
108,000
20,000
20,000
Inventory
99,000
26,000
45,000
Land
60,000
24,000
45,000
Plant assets
525,000
225,000
300,000
Acc. depreciation
(180,000)
(45,000)
Investment in Snicker Co
330,000
Total assets
$960,000
$405,000
$565,000
Accounts payable
$156,000
$105,000
$105,000
Capital stock
600,000
225,000
Retained earnings
204,000
75,000
Total liabilities & equities
$960,000
$405,000
Determine below what the consolidated balance would be for each of the requested
accounts on January 2, 2016.
What is the amount of consolidated retained earnings?

Select one:
a. $204,000
b. $209,250
c. $260,250
d. $279,000
a. $204,000
In preparing consolidated working papers, beginning retained earnings of the parent
company will be adjusted in years subsequent to acquisition with an elimination entry
whenever:
Select one:
a. a noncontrolling interest exists.
b. it does not reflect the equity method.
c. the cost method has been used only.
d. the complete equity method is in use the complete equity method is in use.
b. it does not reflect the equity method.
Which one of the following will increase consolidated retained earnings?
Select one:
a. An increase in the value of goodwill associated with a subsidiary subsequent to the
parent's date of acquisition.
b. The amortization of a $10,000 excess in the fair value of a note payable over its
recorded book value.
c. The depreciation of a $10,000 excess in the fair value of equipment over its recorded
book value.
d. The sale of inventory by a subsidiary that had a $10,000 excess in fair value over
recorded book value on the parent's date of acquisition
b. The amortization of a $10,000 excess in the fair value of a note payable over its
recorded book value.
The parent company concept of consolidation represents the view that the primary
purpose of consolidated financial statements is:
Select one:
a. to provide information relevant to the controlling stockholders.
b. to represent the view that the affiliated companies are a separate, identifiable
economic entity.
c. to emphasis control of the whole by a single management.
d. to include only a portion of the subsidiary's assets, liabilities, revenues, expenses,
gains, and losses.
a. to provide information relevant to the controlling stockholders.
Beach Company, a 70%-owned subsidiary of Alexis Corporation, reported net income of
$600,000 and paid dividends totaling $225,000 during Year 3. Year 3 amortization of
differences between current fair values and carrying amounts of Beach's identifiable net
assets at the date of the business combination was $112,500. The noncontrolling
interest in consolidated net income of Beach for Year 3 was:
Select one:
a. $146,250.
b. $ 33,750.
c. $ 67,500
d. $180,000.
a. $146,250.
The material sale of inventory items by a parent company to an affiliated company
Select one:
a. enters the consolidated revenue computation only if the transfer was the result of
arm's length bargaining.
b. affects consolidated net income under a periodic inventory system but not under a
perpetual inventory system.
c. does not result in consolidated income until the merchandise is sold to outside
parties.
d. does not require a working paper adjustment if the merchandise was transferred at
cost.
c. does not result in consolidated income until the merchandise is sold to outside
parties.
Honeyeater Corporation owns a 40% interest in Nectar Company, acquired several
years ago at a cost equal to book value and fair value. Nectar sells merchandise to
Honeyeater for the first time in 2005. In computing income from the investee for 2005
under the equity method, Honeyeater uses which equation?
Select one:
a. 40% of Nectar's income less 100% of the unrealized profit in Honeyeater's ending
inventory.
b. 40% of Nectar's income plus 100% of the unrealized profit in Honeyeater's ending
inventory.
c. 40% of Nectar's income less 40% of the unrealized profit in Honeyeater's ending
inventory.
d. 40% of Nectar's income plus 40% of the unrealized profit in Honeyeater's ending
inventory.
c. 40% of Nectar's income less 40% of the unrealized profit in Honeyeater's ending
inventory.
In situations where there are routine inventory sales between parent companies and
subsidiaries, when preparing the consolidation statements, which of the following line
items is indifferent to the sales being either upstream or downstream?
Select one:
a. Consolidated retained earnings.
b. Consolidated gross profit.
c. Noncontrolling interest expense.
d. Consolidated net income.
b. Consolidated gross profit.
The consolidation procedures for intercompany sales are similar for upstream and
downstream sales
Select one:
a. if the merchandise is transferred at cost.
b. under a periodic inventory system but not under a perpetual inventory system.
c. if the merchandise is immediately sold to outside parties.
d. when the subsidiary is 100% owned.
d. when the subsidiary is 100% owned.
Use the following information to answer quesions 5 - 8
Eagle Corporation owns 80% of Flyway Inc.'s common stock that was purchased at its
underlying book value. The two companies report the following information for 2004 and
2005.
During 2004, one company sold inventory to the other company for $50,000 which cost
the transferor $40,000. As of the end of 2004, 30% of the inventory was unsold. In
2005, the remaining inventory was resold outside the consolidated entity.
2004 Selected Data:
Eagle
Flyway
Sales Revenue
$
600,000
320,000
Cost of Goods Sold
320,000
155,000
Other Expenses
100,000
89,000
Net Income
180,000
76,000
Dividends Paid
19,000
0
2005 Selected Data:
Eagle
Flyway
Sales Revenue
580,000
445,000
Cost of Goods Sold
300,000
180,000
Other Expenses
130,000
171,000
Net Income
150,000
94,000
Dividends Paid
16,000
5,000
If the sale referred to above was a downstream sale, the total sales revenue reported in
the consolidated income statement for 2004 would be?
Select one:
a. $870,000.
b. $880,000.
c. $920,000.
d. $970,000.
a. $870,000.
If the sale referred to above was a downstream sale, by what amount must Inventory be
reduced to reflect the correct balance as of the end of 2004?
Select one:
a. $ 3,000.
b. $10,000.
c. $14,000.
d. $20,000.
a. $ 3,000.
If the intercompany sale mentioned above was an upstream sale, what will be the
reported amount of total sales revenue for 2005?
Select one:
a. $1,025,000.
b. $1,900,000.
c. $1,950,000.
d. $2,000,000.
a. $1,025,000.
If the intercompany sale was an upstream sale, the total amount of consolidated cost of
goods sold for 2005 will be?
Select one:
a. $300,000.
b. $430,000.
c. $470,000.
d. $477,000.
d. $477,000.
Sales from one subsidiary to another are called
Select one:
a. downstream sales.
b. upstream sales.
c. intersubsidiary sales.
d. horizontal sales.
d. horizontal sales.
Noncontrolling interest in consolidated income is never affected by
Select one:
a. upstream sales.
b. downstream sales.
c. horizontal sales.
d. Noncontrolling interest is affected by all sales.
b. downstream sales.
Pratt Company owns 80% of Storey Company's common stock. During 2011, Storey
sold $400,000 of merchandise to Pratt. At December 31, 2011, one-fourth of the
merchandise remained in Pratt's inventory. In 2011, gross profit percentages were 25%
for Pratt and 30% for Storey. The amount of unrealized intercompany profit that should
be eliminated in the consolidated statements is
Select one:
a. $80,000.
b. $24,000.
c. $30,000.
d. $25,000.
c. $30,000.
The workpaper entry in the year of sale to eliminate unrealized intercompany profit in
ending inventory includes a
Select one:
a. credit to Ending Inventory (Cost of Sales).
b. credit to Sales.
c. debit to Ending Inventory (Cost of Sales).
d. debit to Inventory - Balance Sheet.
c. debit to Ending Inventory (Cost of Sales).
The noncontrolling interest in consolidated income when the selling affiliate is an 80%
owned subsidiary is calculated by multiplying the noncontrolling minority ownership
percentage by the subsidiary's reported net income
Select one:
a. plus unrealized profit in ending inventory less unrealized profit in beginning inventory.
b. plus realized profit in ending inventory less realized profit in beginning inventory.
c. less unrealized profit in ending inventory plus realized profit in beginning inventory.
d. less realized profit in ending inventory plus realized profit in beginning inventory.
c. less unrealized profit in ending inventory plus realized profit in beginning inventory.
In determining controlling interest in consolidated income in the consolidated financial
statements, unrealized intercompany profit on inventory acquired by a parent from its
subsidiary should:
Select one:
a. not be eliminated.
b. be eliminated in full.
c. be eliminated to the extent of the parent company's controlling interest in the
subsidiary.
d. be eliminated to the extent of the noncontrolling interest in the subsidiary.
b. be eliminated in full.
A parent company regularly sells merchandise to its 80%-owned subsidiary. Which of
the following statements describes the computation of noncontrolling interest income?
Select one:
a. the subsidiary's net income times 20%.
b. (the subsidiary's net income x 20%) + unrealized profits in the beginning inventory -
unrealized profits in the ending inventory.
c. (the subsidiary's net income + unrealized profits in the beginning inventory -
unrealized profits in the ending inventory) × 20%.
d. (the subsidiary's net income + unrealized profits in the ending inventory - unrealized
profits in the beginning inventory) × 20%.
a. the subsidiary's net income times 20%.

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What is a subsidiary's functional currency?

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Terms in this set (50)

What is a subsidiary's functional currency?

A translation adjustment is created by the change in the relative value of a

A translation adjustment is created by the change in the relative value of a

A translation adjustment can affect consolidated net income.

A remeasurement gain must be reported.

Current Rates Historical Rates

November 1, 2014 $ 0.16 = 1 peso

Method Treatment of Translation Adjustment

Wages Expense Wages Payable

Unrestricted Permanently Restricted

One gift of $70,000 is unrestricted.

Which of the following statements is not true?

Use of the money is limited to the donor's specified purpose.

The charity should make no entry.

Recognize contributed support of $2,100 and community expenditures of $2,100.

Research to cure disease $ 60,000

How should the charity report these items?

marketable equity securities are are current rate at .19

release from restrictions-TRNA 200,000

sept 15- .40

foreign exchange loss 5000