Multiple Choice Questions
1. A subsidiary's accounts are measured in euros. Assume the leverage ratio is ending total liabilities divided by ending total assets. The current ratio is ending current assets divided by ending current liabilities. The subsidiary's accounts must be converted to U.S. dollars for consolidation. If the U.S. dollar has been steadily strengthening against the euro, which statement is true concerning the subsidiary's financial ratios?
a. Leverage in euros equals leverage remeasured from euros to dollars.
b. Current ratio in euros equals current ratio translated from euros to dollars.
c. Current ratio translated from euros to dollars is higher than current ratio remeasured from euros to dollars.
d. Leverage remeasured from euros to dollars is higher than leverage translated from euros to dollars.
2. Assume the U.S. dollar has been steadily weakening with respect to the euro. Your client, a U.S. company with a subsidiary in Germany, wants to know the effect of the weakening dollar on its consolidated financial statements. The subsidiary's functional currency is the euro. Which statement below is false!
a. Sales revenue will increase.
b. Translated net income will increase.
c. Translated assets will be lower.
d. Translated liabilities will be higher.
3. A U.S. parent acquired its Singapore subsidiary for. a price that is S$ 10,000,000 in excess of the subsidiary's book value. The excess paid was attributable to goodwill, which has not been impaired in the past, but is impaired by S$1,000,000 in 2014. The subsidiary's functional currency is the Singapore dollar. In 2014, the
U.S. dollar has strengthened against the Singapore dollar. When doing eliminating entries R and O to consolidate the subsidiary with the parent at the end of 2014,
a. there will be a credit to OCI in elimination R and a debit to OCI in elimination O.
b. there will be a debit to OCI in elimination R and a credit to OCI in elimination O.
c. there will be debits to OCI in both eliminations R and O.
d. there will be credits to OCI in both eliminations R and O.