Several years ago Brant, Inc., sold $900,000 in bonds to the public. Annual cash interest of 9 percent ($81,000) was to be paid on this debt. The bonds were issued at a discount to yield 12 percent. At the beginning of 2016, Zack Corporation (a wholly owned subsidiary of Brant) purchased $180,000 of these bonds on the open market for $201,000, a price based on an effective interest rate of 7 percent. The bond liability had a carrying amount on that date of $760,000. Assume Brant uses the equity method to account internally for its investment in Zack. a. What consolidation entry would be required for these bonds on December 31, 2016? b. What consolidation entry would be required for these bonds on December 31, 2018?
> A not-for-profit medical center performs services in the current year at a charge of $1 million. Officials expect bad debts to be $94,000. Another $200,000 is viewed as charity care services because no collection was expected at the time of the work. Wha
> Which of the following is a registration statement used by large companies that already have a significant following in the stock market? a. Form 8–K b. Form 10–K c. Form S–1 d. Form S–3
> Charity A and Charity B are affiliated entities. An accountant for Charity B is paid $10,000 per month, which is equal to the fair value of the services rendered. Charity A loses its accountant and the accountant from Charity B is sent to work with Chari
> On December 25, 2017, Mr. Jones gives Charity A 1,000 shares of stock that he bought originally for $9,000. No restrictions were placed on this donation. The governing board does not want to speculate on investments. Thus, it has a policy to sell all don
> On December 30, 2017, 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 pu
> The financial reporting for private not-for-profit entities primarily focuses on a. Basic information for the organization as a whole. b. Standardization of fund information reported. c. Inherent differences of various not-for-profit entities that impact
> To send a mailing, a private not-for-profit charity spends $100,000. The mailing solicits donations and provides educational and other information about the charity. Which of the following is true? a. No part of the $100,000 can be reported as a program
> Which of the following is not an expected function of a bankruptcy trustee? a. Filing a plan of reorganization. b. Recovering all property belonging to a company. c. Liquidating noncash assets. d. Distributing assets to the proper claimants.
> 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. A carpenter builds a porch on the back of one building so that patients can sit outside. b. A
> 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, $30,000 is spent appropriatel
> Mattoon, Inc., owns 80 percent of Effingham Company. For the current year, this combined entity reported consolidated net income of $500,000. Of this amount $465,000 was attributable to Mattoon’s controlling interest while the remaining $35,000 was attri
> A donor gives Charity 1 $50,000 in cash that it must convey to Charity 2. However, the donor can reconsider and revoke the gift at any time prior to its conveyance to Charity 2. Which of the following statements is true? a. Charity 1 should report a cont
> What are three difference between IFRS and U.S. GAAP with respect to the measurement of financial statement items?
> What is a registration statement? a. A statement that must be filed with the SEC before a company can begin an initial offering of securities to the public. b. A required filing with the SEC before a large amount of stock can be obtained by an inside par
> Under what circumstances is a company exempt from filing a registration statement with the SEC prior to the issuance of securities?
> 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
> Which of the following statements is true? I. Private not-for-profit universities must report depreciation expense. II. Public universities must report depreciation expense. a. Neither I nor II is true. b. Both I and II are true. c. Only I is true. d. On
> A large private not-for-profit entity’s statement of activities should report the net change for net assets that are __Unrestricted _________Permanently Restricted a. Yes ……………………………………………………………………. Yes b. Yes …………………………………………………………………….. No c. No ………………
> Prior to filing a voluntary Chapter 7 bankruptcy petition, Haynes Company pays a supplier $13,000 to satisfy an unsecured claim. Haynes was insolvent at the time. Subsequently, the trustee appointed to oversee this liquidation forces the return of the $1
> A private not-for-profit health care entity has the following account balances: Revenue from newsstand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,000 Amounts charged to patients . . . . . . . . . . . . . . . . . . . . . . . . . .
> 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? a. Make
> 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 serv
> 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? a. 501(c)(3) b. 501(c)(4) c. 501(c)(5) d. 501(c)(6)
> Which of these forms must most tax-exempt organizations file annually with the Internal Revenue Service? a. 990 b. 1203 c. 501 d. 501(c)(3)
> 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? a. The charity should recogn
> Dane, Inc., owns Carlton Corporation. For the current year, Dane reports net income (without consideration of its investment in Carlton) of $185,000 and the subsidiary reports $105,000. The parent had a bond payable outstanding on January 1, with a carry
> Which of the following is not a way by which the Sarbanes–Oxley Act attempts to ensure auditor independence from an audit client? a. The auditing firm must be appointed by the client’s audit committee. b. Audit fees must be approved by the Public Company
> What are three differences between IFRS and U.S. GAAP with respect to the recognition of financial statement items?
> What is a contractual adjustment? How does a health care organization account for a contractual adjustment?
> How are anticipated administrative expenses reported on a statement of financial affairs? a. As a footnote until actually incurred. b. As a liability with priority. c. As a partially secured liability. d. As an unsecured liability.
> Millager Company is a U.S.-based multinational corporation with the U.S. dollar (USD) as its reporting currency. To prepare consolidated financial statements for 2017, the company must translate the accounts of its subsidiary in Mexico, Cadengo S.A. On D
> The following account balances are for the Agee Company as of January 1, 2017, and December 31, 2017. All amounts are denominated in kroner (Kr). Additional Information ∙ Agee issued additional shares of common stock during the year o
> Board Company has a foreign subsidiary that began operations at the start of 2017 with assets of 132,000 kites (the local currency unit) and liabilities of 54,000 kites. During this initial year of operation, the subsidiary reported a profit of 26,000 ki
> Lancer, Inc. (a U.S.-based company), establishes a subsidiary in a foreign country on January 1, 2016. The following account balances for the year ending December 31, 2017, are stated in kanquo (KQ), the local currency: Sales . . . . . . . . . . . . . .
> Zugar Company is domiciled in a country whose currency is the dinar. Zugar begins 2017 with three assets: cash of 20,000 dinars, accounts receivable of 80,000 dinars, and land that cost 200,000 dinars when acquired on April 1, 2016. On January 1, 2017, Z
> Rolfe Company (a U.S.-based company) has a subsidiary in Nigeria where the local currency unit is the naira (NGN). On December 31, 2016, the subsidiary had the following balance sheet (amounts are in thousands (000’s)): The subsidiary
> Refer to the information in problem 26. Prepare a statement of cash flows in pounds for Sullivan’s Island Company’s foreign subsidiary and then translate these amounts into U.S. dollars. In problem 26 Sullivan’s Island Company began operating a subsidia
> Sullivan’s Island Company began operating a subsidiary in a foreign country on January 1, 2017, by investing capital in the amount of 60,000 pounds. The subsidiary immediately borrowed 140,000 pounds on a five-year note with 10 percent interest payable a
> Opus, Incorporated, owns 90 percent of Bloom Company. On December 31, 2017, Opus acquires half of Bloom’s $500,000 outstanding bonds. These bonds had been sold on the open market on January 1, 2015, at a 12 percent effective rate. The bonds pay a cash in
> 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, 2016, the Israeli subsidiary borrowed 500,000 Swiss francs
> On December 18, 2017, Stephanie 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 exchange rate was $1.00 = CHF 1. On December 18, 2017, the bo
> The following accounts are denominated in rubles as of December 31, 2017. For reporting purposes, these accounts need to be stated in U.S. dollars. For each account, indicate the exchange rate that would be used to translate the ruble balance into U.S. d
> On January 1, Narnevik Corporation formed a subsidiary in a foreign country. On April 1, the subsidiary purchased inventory on account at a cost of 250,000 local currency units (LCU). One-fifth of this inventory remained unsold on December 31, while 30 p
> 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. McCarthy, Inc.’s Brazilian subsidiary borro
> 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. McCarthy, Inc.â€&
> The functional currency of Bertrand, Inc.’s Irish subsidiary is the euro. Bertrand borrowed euros as a partial hedge of its investment in the subsidiary. Since then, the euro has decreased in value. Bertrand’s negative translation adjustment on its inves
> A foreign subsidiary’s functional currency is its local currency, which has not experienced significant inflation. The current exchange rate at the balance sheet date is the appropriate exchange rate for translating: Insurance __________Expense Prepaid I
> 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 a. Current rate
> 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.
> 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 purpos
> In the translated financial statements, which method of translation maintains the underlying valuation methods used in preparing the foreign currency financial statements? a. Current rate method; income statement translated at average exchange rate for t
> 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 ra
> A U.S. company’s foreign subsidiary had these amounts in local currency units (LCU) in 2017: Cost of goods sold . . . . . . . . . . . . . . . . . . . . LCU 5,000,000 Beginning inventory . . . . . . . . . . . . . . . . . . . . . . . . 500,000 Ending inven
> 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,
> 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
> 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. $19,000. Newberry, Inc., whose reporting currency is the U.S. dollar ($), has a subsidi
> 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. $19,000. Newberry, Inc., whose reporting currency is the U.S. dollar ($), has a subsidiary in Argentina, whose
> This subsidiary’s functional currency is the U.S. dollar. What total should Orchid’s balance sheet include for the preceding items? a. $430,000. b. $435,000. c. $440,000. d. $450,000. Certain balance sheet accounts of
> This subsidiary’s functional currency is a foreign currency. What total should Orchid’s balance sheet include for the preceding items? a. $430,000. b. $435,000. c. $440,000. d. $450,000. Certain balance sheet accounts
> Highlight, Inc., owns all outstanding stock of Kiort Corporation. The two companies report the following balances for the year ending December 31, 2017: On January 1, 2017, Highlight acquired on the open market bonds for $108,000 originally issued by K
> At what rates should the following balance sheet accounts in foreign statements be translated (using the current rate method) into U.S. dollars? Equipment ______________Accumulated Depreciation—Equipment a. Current ……………………………………………………………………………………………. Cu
> 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
> 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 p
> 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 bot
> What is a subsidiary’s functional currency? 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 what ways does IFRS differ from U.S. GAAP with respect to the translation of foreign currency financial statements?
> Which translation method does U.S. GAAP require for operations in highly inflationary countries? What is the rationale for mandating use of this method?
> When is remeasurement rather than translation appropriate? How does remeasurement differ from translation?
> In preparing the consolidation worksheet for a parent company and its foreign subsidiary, what consolidation entries are made related to the cumulative translation adjustment?
> A translation adjustment must be calculated and disclosed when financial statements of a foreign subsidiary are translated into the parent’s reporting currency. How is this figure computed, and where is the amount reported in the financial statements?
> 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 allocation was recorded in connection with the acquisition. C
> Perkins Company acquires 90 percent of the outstanding common stock of the Butterfly Corporation as well as 55 percent of its preferred stock. How should these preferred shares be accounted for within the consolidation process?
> Clarke Company has a subsidiary operating in a foreign country. In relation to this subsidiary, what does the term functional currency mean? How is the functional currency determined?
> What are the major procedural differences in applying the current rate and temporal methods of translation?
> In translating the financial statements of a foreign subsidiary, why is the value assigned to retained earnings especially difficult to determine? How is this problem normally resolved?
> What concept underlies the temporal method of translation? What concept underlies the current rate method of translation? How does balance sheet exposure differ under these two methods?
> How are gains and losses on financial instruments used to hedge the net investment in a foreign operation reported in the consolidated financial statements?
> Why might a company want to hedge its balance sheet exposure? What is the paradox associated with hedging balance sheet exposure?
> What causes balance sheet (or translation) exposure to foreign exchange risk? How does balance sheet exposure compare with transaction exposure?
> What are the two major issues related to the translation of foreign currency financial statements?
> Palmetto Bug Extermination Corporation (PBEC), a U.S. company, regularly purchases chemicals from a supplier in Switzerland with the invoice price denominated in Swiss francs. PBEC has experienced several foreign exchange losses in the past year due to i
> The Pier Ten Company, a U.S. company, made credit sales to four customers in Asia on September 15, 2015, and received payment on October 15, 2015. Information related to these sales is as follows: The Pier Ten Company’s fiscal year en
> On January 1, 2018, Primair Corporation loaned Vista Company $300,000 and agreed to guarantee all of Vista’s long-term debt in exchange for (1) decision-making authority over all of Vista’s activities and (2) an annual
> On February 1, 2017, Linber Company forecasted the purchase of component parts on May 1, 2017, at a price of 100,000 euros. On that date, Linber entered into a forward contract to purchase 100,000 euros on May 1, 2017. It designated the forward contract
> Import/Export Company, a U.S. company, made a number of import purchases and export sales denominated in foreign currency in 2015. Information related to these transactions is summarized in the following table. The company made each purchase or sale on t
> Fergusson Corporation, a U.S. company, manufactures components for the automobile industry. In the past, Fergusson purchased actuators used in its products from a supplier in the United States. The company plans to shift its purchases to a supplier in Po
> Many companies make annual reports available on their corporate web page, often under an Investors tab. Annual reports also can be accessed through the SEC’s EDGAR system at www.sec.gov (under Filings, click Company Filings Search, type in Company Name,
> Vino Veritas Company, a U.S.-based importer of wines and spirits, placed an order with a French supplier for 1,000 cases of wine at a price of 200 euros per case. The total purchase price is 200,000 euros. Relevant exchange rates for the euro are as foll
> Based on past experience, Leickner Company expects to purchase raw materials from a foreign supplier at a cost of 1,000,000 marks on March 15, 2018. To hedge this forecasted transaction, the company acquires a three-month call option to purchase 1,000,00
> Spitz Company ordered merchandise from a foreign supplier on November 20 at a price of 100,000 forints when the spot rate was $0.50 per forint. Delivery and payment were scheduled for December 20. On November 20, Spitz acquired a call option on 100,000 f
> On June 1, Vandervelde Corporation (a U.S.-based manufacturing firm) received an order to sell goods to a foreign customer at a price of 100,000 leks. Vandervelde will ship the goods and receive payment in three months on September 1. On June 1, Vanderve
> On August 1, Ling-Harvey Corporation (a U.S.-based importer) placed an order to purchase merchandise from a foreign supplier at a price of 400,000 ringgits. Ling-Harvey will receive and make payment for the merchandise in three months on October 31. On A
> On October 1, 2017, Sharp Company (based in Denver, Colorado) entered into a forward contract to sell 100,000 rubles in four months (on January 31, 2018) and receive $39,000 in U.S. dollars. Exchange rates for the ruble follow: Sharp’
> An enterprise that holds a variable interest in a variable interest entity (VIE) is required to consolidate the assets, liabilities, revenues, expenses, and noncontrolling interest of that entity if: a. The VIE has issued no voting stock. b. The variable
> Eximco Corporation (based in Champaign, Illinois) has a number of transactions with companies in the country of Mongagua, where the currency is the mong. On November 30, 2017, Eximco sold equipment at a price of 500,000 mongs to a Mongaguan customer that
> On November 1, 2017, Bernard Company (a U.S.-based company) sold merchandise to a foreign customer for 100,000 FCUs with payment to be received on April 30, 2018. At the date of sale, Bernard entered into a six-month forward contract to sell 100,000 FCUs
> On June 1, Cairns Corporation purchased goods from a foreign supplier at a price of 1,000,000 francs and will make payment in three months on September 1. On June 1, Cairns acquired an option to purchase 1,000,000 francs in three months at a strike price
> On June 1, Alexander Corporation sold goods to a foreign customer at a price of 1,000,000 pesos and will receive payment in three months on September 1. On June 1, Alexander acquired an option to sell 1,000,000 pesos in three months at a strike price of
> Use the same facts as in Problem 31 except that Brandlin Company purchases materials from a foreign supplier on December 1, 2017, with payment of 16,000 korunas to be made on March 1, 2018. The materials are consumed immediately and recognized as cost of
> Brandlin Company of Anaheim, California, sells parts to a foreign customer on December 1, 2017, with payment of 16,000 korunas to be received on March 1, 2018. Brandlin enters into a forward contract on December 1, 2017, to sell 16,000 korunas on March 1
