For each of the seven cases presented below, work the case twice and select the best answer. First assume that the foreign currency is the functional currency; then assume that the U.S. dollar is the functional currency.

1. Certain balance sheet accounts in a foreign subsidiary of Shaw Company on December 31, 20X1, have been restated in United States dollars as follows:

What total should be included in Shaw's balance sheet for December 31, 20X1, for the above items?

a. \(\$ 215,000\).

b. \(\$ 225,000\).

c. \(\$ 230,000\).

d. \(\$ 240,000\).
2. A wholly owned foreign subsidiary of Nick Inc. has certain expense accounts for the year ended December 31, 20X4, stated in local currency units (LCU) as follows:

The exchange rates at various dates were as follows:

What total dollar amount should be included in Nick's statement of income to reflect the above expenses for the year ended December \(31,20 \times 4\) ?

a. \(\$ 160,000\).

b. \(\$ 168,000\).

c. \(\$ 176,000\).

d. \(\$ 183,200\).
3. Linser Corporation owns a foreign subsidiary with \(2,600,000\) local currency units (LCU) of \(\downarrow\) property, plant, and equipment before accumulated depreciation on December 31, 20X4. Of this amount, \(1,700,000 \mathrm{LCU}\) were acquired in \(20 \mathrm{X} 2\) when the rate of exchange was \(1.5 \mathrm{LCU}=\$ 1\), and \(900,000 \mathrm{LCU}\) were acquired in \(20 \mathrm{X} 3\) when the rate of exchange was \(1.6 \mathrm{LCU}=\$ 1\). The rate of exchange in effect on December \(31,20 \mathrm{X} 4\), was \(1.9 \mathrm{LCU}=\$ 1\). The weighted average of exchange rates that were in effect during \(20 \mathrm{X} 4\) was \(1.8 \mathrm{LCU}=\$ 1\). Assuming that the property, plant, and equipment are depreciated using the straight-line method over a 10 -year period with no salvage value, how much depreciation expense relating to the foreign subsidiary's property, plant, and equipment should be charged in Linser's statement of income for 20X4?

a. \(\$ 144,444\).

b. \(\$ 162,000\).

c. \(\$ 169,583\).

d. \(\$ 173,333\).
4. On January 1, 20X1, Pat Company formed a foreign subsidiary. On February 15, 20X1, Pat's subsidiary purchased 100,000 local currency units (LCU) of inventory. \(25,000 \mathrm{LCU}\) of the original inventory purchased on February 15, 20X1, made up the entire inventory on December \(31,20 \times 1\). The exchange rates were \(2.2 \mathrm{LCU}=\$ 1\) from January \(1,20 \mathrm{X} 1\), to June \(30,20 \mathrm{X} 1\), and \(2 \mathrm{LCU}=\$ 1\) from July \(1,20 \mathrm{X} 1\), to December \(31,20 \mathrm{X} 1\). The December 31, 20X1, inventory balance for Pat's foreign subsidiary should be restated in United States dollars in the amount of:

a. \(\$ 10,500\).

b. \(\$ 11,364\).

c. \(\$ 11,905\).

d. \(\$ 12,500\).
5. At what rates should the following balance sheet accounts in the foreign currency financial statements be restated into United States dollars?

6. A credit balancing item resulting from the process of restating a foreign entity's financial statement from the local currency unit to U.S. dollars should be included as a (an):

a. Separate component of stockholders' equity.

b. Deferred credit.

c. Component of income from continuing operations.

d. Extraordinary item.
7. A foreign subsidiary of the Bart Corporation has certain balance sheet accounts on December 31, 20X2. Information relating to these accounts in U.S. dollars is as follows:

What total should be included in Bart's balance sheet on December 31, 20X2, as a result of the above information?

a. \(\$ 755,000\).

b. \(\$ 780,000\).

c. \(\$ 870,000\).

d. \(\$ 880,000\).

Transcribed Image Text:

Accounts Receivable. Current Accounts Receivable. Long-Term Prepaid Insurance Patents Total Restated at Current Historical Rates Rates $100,000 $110,000 50.000 55,000 25.000 30,000 40.000 45.000 $215,000 $240,000