Question: What are the major procedural differences in

> 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.

> 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 ow

> 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?

> 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

> On September 30, 2017, Ericson Company negotiated a two-year, 1,000,000 dudek loan from a foreign bank at an interest rate of 2 percent per year. It makes interest payments annually on September 30 and will repay the principal on September 30, 2019. Eric

> Benjamin, Inc., operates an export/import business. The company has considerable dealings with companies in the country of Camerrand. The denomination of all transactions with these companies is alaries (AL), the Camerrand currency. During 2017, Benjamin

> On April 1, 2017, Mendoza Company borrowed 500,000 euros for one year at an interest rate of 5 percent per annum. Mendoza must make its first interest payment on the loan on October 1, 2017, and will make a second interest payment on March 31, 2018, when

> Voltac Corporation (a U.S. company located in Charlotte, North Carolina) has the following import/export transactions denominated in Mexican pesos in 2017: March 1 ……………………… Bought inventory costing 100,000 pesos on credit. May 1 ……………. Sold 60 percent o

> On December 31, 2017, PanTech Company invests $20,000 in SoftPlus, a variable interest entity. In contractual agreements completed on that date, PanTech established itself as the primary beneficiary of SoftPlus. Previously, PanTech had no equity interest

> On December 15, 2017, Lisbeth Inc. (a U.S. company) purchases merchandise inventory from a foreign supplier for 50,000 schillings. Lisbeth agrees to pay in 45 days after it sells the merchandise. Lisbeth makes sales rather quickly and pays the entire obl

> Peerless Corporation (a U.S. company) made a sale to a foreign customer on September 15, for 100,000 crowns. It received payment on October 15. The following exchange rates for 1 crown apply: September 15 ……………………………. $0.60 September 30 ……………………………… 0.66

> On December 20, 2017, Butanta Company (a U.S. company headquartered in Miami, Florida) sold parts to a foreign customer at a price of 50,000 ostras. Payment is received on January 10, 2018. Currency exchange rates for 1 ostra are as follows: December 20,

> Turbo Corporation (a U.S.-based company) acquired merchandise on account from a foreign supplier on November 1, 2017, for 100,000 markkas. It paid the foreign currency account payable on January 17, 2018. The following exchange rates for 1 markka are kno

> What is the net impact on Dos Santos Company’s 2018 net income as a result of this hedge of a forecasted foreign currency transaction? Assume that the raw materials are consumed and become a part of the cost of goods sold in 2018. a. $80,000 decrease in

> What is the net impact on Dos Santos Company’s 2017 net income as a result of this hedge of a forecasted foreign currency transaction? a. $–0–. b. $400 decrease in net income. c. $1,000 decrease in net income. d. $1,400 decrease in net income. On Novemb

> What is Micro’s net increase or decrease in cash flow from having entered into this forward contract hedge? a. $–0–. b. $1,000 increase in cash flow. c. $1,500 decrease in cash flow. d. $2,000 increase in cash flow. On June 1, 2017, Micro Corp. received

> What is the net impact on Micro’s net income for the quarter ended September 30, 2017, as a result of this forward contract hedge of a firm commitment? a. $–0–. b. $115,000 increase in net income. c. $118,000 increase in net income. d. $120,000 increase

> What is the net impact on Micro’s net income for the quarter ended June 30, 2017, as a result of this forward contract hedge of a firm commitment? a. $–0–. b. $2,400 increase in net income. c. $4,000 decrease in net income. d. $8,000 increase in net inco

> What was the net increase or decrease in cash flow from having purchased the foreign currency option to hedge this exposure to foreign exchange risk? a. $–0–. b. $1,000 increase in cash flow. c. $1,500 decrease in cash flow. d. $3,000 increase in cash fl

> The following describes a set of arrangements between TecPC Company and a variable interest entity (VIE) as of December 31, 2017. TecPC agrees to design and construct a new research and development (R&D) facility. The VIE’s sole purpose is to finance and

> What was the net impact on Jensen Company’s 2018 income as a result of this fair value hedge of a firm commitment? a. $–0–. b. $1,319.70 decrease in income. c. $77,980.30 increase in income. d. $78,680.30 increase in income. On September 1, 2017, Jensen

> What was the net impact on Jensen Company’s 2017 income as a result of this fair value hedge of a firm commitment? a. $–0–. b. $680.30 decrease in income. c. $300 increase in income. d. $980.30 increase in income. On September 1, 2017, Jensen Company re

> Torres Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of 100,000 pounds, with delivery and payment to be made on September 20. On July 20, Torres purchased a two-month call option on 100,000 pounds and design

> On March 1, Pimlico Corporation (a U.S.-based company) expects to order merchandise from a supplier in Sweden in three months. On March 1, when the spot rate is $0.10 per Swedish krona, Pimlico enters into a forward contract to purchase 500,000 Swedish k

> Assuming that MNC entered into a forward contract to sell 10 million South Korean won on December 1, 2017, as a fair value hedge of a foreign currency receivable, what is the net impact on its net income in 2017 resulting from a fluctuation in the value

> Assuming that MNC did not enter into a forward contract, how much foreign exchange gain or loss should it report on its 2017 income statement with regard to this transaction? a. $5,000 gain b. $3,000 gain c. $2,000 loss d. $1,000 loss MNC Corp. (a U.S.-

> On December 1, 2017, Ringling Company (a U.S.-based company) entered into a three-month forward contract to purchase 1,000,000 pesos on March 1, 2018. The following U.S. dollar per peso exchange rates apply: Ringling’s incremental bor

> St. Philip Company ordered parts costing €100,000 from a foreign supplier on January 15 when the spot rate was $0.20 per €. A one-month forward contract was signed on that date to purchase €100,000 at a forward rate of $0.23. The forward contract is prop

> A U.S. exporter has a Thai baht account receivable resulting from an export sale on June 1 to a customer in Thailand. The exporter signed a forward contract on June 1 to sell Thai baht and designated it as a cash flow hedge of a recognized Thai baht rece