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modern advanced accounting

Questions and Answers of Modern Advanced Accounting

2. Prepare the necessary journal entries for Par to account for its investment in San for 2016 under the equity method.
P 14-9 Translation worksheet, parent accounting, consolidation San is a 90 percent–owned foreign subsidiary of Par, acquired by Par on January 1, 2016, at book value equal to fair value, when the
PWA Corporation paid $1,710,000 for 100 percent of the stock of SAA Corporation on January 1, 2016, when the stockholders’ equity of SAA consisted of 5,000,000 LCU capital stock and 3,000,000
2. Prepare the necessary journal entries for Pel to account for its investment in Sar for 2016.P 14-8 Parent accounting and consolidation under translation
P 14-7 Translation worksheet, parent accounting Pel, a U.S. firm, paid $308,000 for all the common stock of Sar of Israel on January 1, 2016, when the exchange rate for sheqels was $0.35. Sar’s
4. Exchange rates for 2016 are summarized as follows:Current exchange rate, January 1, 2016 $0.70 Exchange rate when new equipment was acquired 0.68 Average exchange rate for 2016 0.67 Exchange rate
3. The NZ$60,000 of equipment consists of NZ$50,000 included in the business combination and NZ$10,000 purchased during 2016, when the exchange rate was $0.68. A depreciation rate of 20 percent is
2. The NZ$120,000 cost of sales consists of NZ$50,000 inventory on hand at January 1, 2016, and NZ$100,000 in purchases during the year, less NZ$30,000 ending inventory that was acquired when the
P 14-6 Remeasurement worksheet Phi, a U.S. firm, acquired 100 percent of Stu’s outstanding stock at book value on January 1, 2016, for$112,000. Stu is a New Zealand–based company, and its
P 14-5 Remeasurement worksheet Par of Chicago acquired all the outstanding capital stock of Sar of London on January 1, 2016, for $1,120,000.The exchange rate for British pounds was $1.40 and Sar’s
P 14-4 Translation worksheet Oppa Corporation’s adjusted trial balance in Korean won at December 31, 2016, is summarized as follows(in thousands):498 CHAPTER 14 Debits Cash W20,000 Accounts
P 14-3 Translation worksheet, parent accounting Pyl acquired all the outstanding capital stock of Soo of London on January 1, 2016, for $800,000, when the exchange rate for British pounds was $1.50
P 14-2 Parent accounting under the equity method Pla purchased a 40 percent interest in Sor, a foreign company, on January 1, 2016, for $342,000, when Sor’s stockholders’ equity consisted of
3. Develop a proof of your calculation of the Investment in Sco account balance at December 31, 2016.
2. Determine the balance of Pak’s Investment in Sco account at December 31, 2016.
P 14-1 Parent accounting under the equity method Pak purchased a 40 percent interest in Sco of Germany for $1,080,000 on January 1, 2016. The excess cost over book value is due to a patent with a
7. Inflation data of a foreign country for three years are as follows:Index Change in Index Annual Rate of Inflation January 1, 2015 150 —January 1, 2016 200 50 50 , 150 = 33%January 1, 2017 250 50
6. Certain balance sheet accounts of a foreign subsidiary of Row at December 31, 2016, have been translated into U.S. dollars as follows:Translated at Current Rates Historical Rates Note receivable,
5. The Jem Company used the current rate method when translating foreign currency amounts at December 31, 2016. At that time, Jem had foreign subsidiaries with 1,500,000 local currency units in
4. The Clark Company owns a foreign subsidiary that had net income for the year ended December 31, 2016, of 4,800,000 local currency units, which was appropriately translated into $800,000.On October
3. The Dee Company owns a foreign subsidiary with 3,600,000 local currency units of property, plant, and equipment before accumulated depreciation at December 31, 2018. Of this amount, 2,400,000 LCU
2. On January 1, 2016, the Ben Company formed a foreign subsidiary. On February 15, 2016, Ben’s subsidiary purchased 100,000 local currency units (LCU) of inventory; 25,000 LCU of the original
E 14-8 Acquisition excess allocation effects, specific account translation, and remeasurement 1. Fay had a realized foreign exchange loss of $15,000 for the year ended December 31, 2016, and must
E 14-7 Acquisition—excess allocation On January 1, 2016, Minang Sdn. Bhd. of Malaysia acquired a 90 percent interest in Urden AG of Germany for 180 million Malaysian ringgits (MYR). The book value
E 14-6 Acquisition—Excess allocation and amortization effect Pal acquired all the stock of Sta of Britain on January 1, 2016, for $163,800, when Sta had capital stock of £60,000 and retained
E 14-5 Acquisition—Excess allocation and amortization effect On January 1, 2016, Krab Co. Ltd. of Thailand acquires an 80 percent interest in Shin Co. Inc., a Japanese firm, for 150bn Thai baht on
E 14-4 Buildings remeasurement effect Singa Company of Singapore is a 100 percent-owned subsidiary of PT Keraton, an Indonesian firm, and its functional currency is the Singaporean dollar. The
E 14-3 Acquisition date effects On January 1, 2016, Pai, a U.S. firm, purchases all the outstanding capital stock of Sta, a British firm, for $880,000, when the exchange rate for British pounds is
4. The year-end balance of accounts receivable on the books of a foreign subsidiary should be translated by the parent company for consolidation purposes at the:a Historical rate b Current rate c
3. A subsidiary’s functional currency is the local currency, which has not experienced significant inflation. The appropriate exchange rate for translating the depreciation expense on plant assets
2. A company is translating account balances from another currency into dollars for its December 31, 2016, statement of financial position and its calendar year 2016 earnings statement and statement
E 14-2 Translation/remeasurement differences 1. When consolidated financial statements for a U.S. parent and its foreign subsidiary are prepared, the account balances expressed in foreign currency
9. Which one of the following would not give rise to changes in a parent company’s equity adjustment from translation account?a Remeasurement of a foreign subsidiary’s statements b Hedge of a net
8. A U.S. firm has a $10,000,000 investment in a foreign subsidiary, and the U.S. dollar is weakening against the currency of the country in which the foreign entity is located, which is also the
7. An exchange gain on a long-term loan of a U.S. parent company to its British subsidiary whose functional currency is the British pound is:a Recognized in consolidated income currently b Deferred
6. Sum is a 100 percent–owned subsidiary of a U.S. corporation. The country in which Sum is located has been determined to have a highly inflationary economy. Given this information, the functional
5. Pal, a U.S. Corporation, made a long-term, dollar-denominated loan of $600,000 to its British subsidiary on January 1, 2016, when the exchange rate for British pounds was $1.53. If the
4. Average exchange rates are used to translate certain items from foreign income statements into U.S. dollars. Such averages are used to:a Approximate the effects of using the current exchange rates
3. Which one of the following items from the financial statements of a foreign subsidiary would be translated into dollars using the historical exchange rate?a Accounts payable b Amortization of bond
2. Which of the following foreign subsidiary accounts will be converted into the same number of U.S. dollars, regardless of whether translation or remeasurement is used?a Accounts receivable b
E 14-1 Translation/remeasurement differences 1. A German subsidiary of a U.S. firm has the British pound as its functional currency. Under the provisions of ASC Topic 830, the U.S. dollar from the
12. How does the choice of functional currency affect how the gain or loss on a hedge of a net investment in a foreign subsidiary is reported in the financial statements?E x E R c I S E S
11. Under the current rate method, all the expenses are translated using some form of current-period exchange rate. Under the temporal method, some expenses such as salaries and utilities are
10. In the current-rate-method example in the chapter, the parent’s other comprehensive income adjustment related to its investment in the subsidiary was larger than the other comprehensive income
9. If a company’s sales were very seasonal—for example, a holiday-tree grower—would it be appropriate to use the annual average exchange rate to translate and remeasure sales and other
8. Under what circumstances would a foreign entity’s financial statements need to be both remeasured and translated? Would this process have an effect on both the income statement and other
7. The gain or loss on remeasurement is included in net income each year if the temporal method is used.Explain why this makes sense economically.Foreign Currency Financial Statements 491
6. If the current rate method is used, the gain or loss on translation is included under other comprehensive income. Explain why this makes sense economically.
5. Describe what the temporal method is and under what circumstances it should be used.
4. Describe what the current rate method is and under what circumstances it should be used.
3. What procedure is used to allocate the investment purchase price at the date of acquisition of a foreign subsidiary?
2. How does ASC Topic 830 define a highly inflationary economy? If the economy is deemed to be highly inflationary, which method for converting the financial statements to the reporting currency is
1. Define the functional currency concept and briefly describe how a foreign entity’s functional currency is determined. Why is this definition critical from a financial reporting perspective?
PR 12-1 What are the primary characteristics that define a derivative? How many paragraphs does it take the ASC to define a derivative completely?
P 12-5 Denominated sales and purchase transaction entries Pete Inc., a U.S. company, sold inventory to Ping Pte. Ltd. for 20,000 Singapore dollars and to Satria Tbk.for 300mn Indonesian rupiahs on
P 12-4 Accounting for foreign currency–denominated receivables and payables—multiple years The accounts of Lin, a U.S. corporation, show $81,300 accounts receivable and $38,900 accounts payable
P 12-3 The economics of derivatives Consider the same basic facts as in P12-2, but instead of a forward contract Sue purchases put options to sell 300,000 bushels at $5.20 per bushel. The options
P 12-2 The economics of derivatives Dodo Corporation enters into a forward agreement with Waldo Corporation on September 1, 2016, to sell 500,000 tons of coal on July 1, 2017, at $55.30. Dodo’s
P 12-1 The economics of derivatives Wang Corporation enters into a forward agreement with Sung Corporation on April 1, 2016, to buy 250,000 gallons of fuel oil at $3.52 on December 31, 2016. At the
E 12-10 Various foreign currency–denominated transactions settled in subsequent year ATV had two foreign currency transactions during December 2016, as follows:December 12 Purchased electronic
E 12-9 Various foreign currency–denominated transactions settled in subsequent year Meo imports merchandise from some Canadian companies and exports its own products to other Canadian companies.The
E 12-8[Based on AICPA] Various foreign currency–denominated transactions 1. On September 1, 2016, Ban received an order for equipment from a foreign customer for 300,000 euros, when the U.S. dollar
E 12-7 Accounting for foreign currency–denominated sales Wall Corporation, a U.S. company, sold inventory items to PT Keraton of Indonesia for 300,000,000 Indonesian rupiah on July 1, 2016, when
E 12-6 Accounting for foreign currency–denominated sales settled in subsequent year On October 15, 2016, Rise Corporation of the United States sold inventory items to Chai Company of Thailand for
E 12-5 Call option Star Ltd. is a furniture manufacturer. Star purchases a call option with a price of $20,000 to prevent the fluctuation of lumber prices. The call option gives Star Ltd. the right
E 12-4 Accounting for foreign currency–denominated purchases Zip purchased merchandise from Tas of Japan on November 1, 2016, for 10,000,000 yen, payable on December 1, 2016.The spot rate for yen
E 12-3 Denominated purchase transaction entries Sally Inc., a U.S. company, purchased merchandise from Hein AG for $10,000 and from Lemo NV for 15,000 euros on December 20, 2013, when the spot rate
E 12-2 Denominated sales transaction entries Abe Inc., a U.S. company, sold its inventory to Poui SA for $20,000 and to Brit Ltd. for 20,000 euros on December 10, 2013, when the spot rate for the
4. What is a characteristic of an option?a Gives the holder the right but not the obligation to buy or sell b Negotiated with a counterparty c Covers a stream of future payments d Must be settled
3. What is a characteristic of a futures contract?a Gives the holder the right but not the obligation to buy or sell b Negotiated with a counterparty c Covers a stream of future payments d Must be
2. What is a characteristic of a swap?a Traded on an exchange b Only interest rates can be the underlying c Covers a stream of future payments d Must be settled daily
E 12-1 1. What is a characteristic of a forward contract?a Traded on an exchange b Negotiated with a counterparty c Covers a stream of future payments d Must be settled daily
13. A U.S. corporation imported merchandise from a British company for £1,000 when the spot rate was $1.45.It issued financial statements when the current rate was $1.47, and it paid for the
12. When are exchange gains and losses reflected in a business’s financial statements?
11. Criticize the following statement: “Exchange losses arise from foreign import activities, and exchange gains arise from foreign export activities.”
10. How are assets and liabilities denominated in foreign currency measured and recorded at the transaction date? At the balance sheet date?
9. Assume that a U.S. corporation imports electronic equipment from Japan in a transaction denominated in U.S. dollars. Is this transaction a foreign currency transaction? A foreign transaction?
8. What is a spot rate with respect to foreign currency transactions? Could a spot rate ever be a historical rate?Could a spot rate ever be a fixed exchange rate? Discuss.
7. What is the difference between official and floating foreign exchange rates? Does the United States have floating exchange rates?
6. Assume that one euro can be exchanged for 1.20 U.S. dollars. What is the exchange rate if the exchange rate is quoted directly? Indirectly?
5. Distinguish between measurement and denomination in a particular currency.434 CHAPTER 12
4. What does “Net Settlement” mean?
3. In a local transaction at an international courier agency in Singapore, an invoice shows two exchange rates:a transaction exchange rate of $0.78 and a tax exchange rate of $0.80. What are these,
2. What are the basic types of hedge transactions? How do they differ from each other?
1. What are the common characteristics of derivatives? How is a derivative useful?
P 11-11 Workpaper for proportionate consolidation (joint venture)Pop Corporation owns a 40 percent interest in Son Company, a joint venture that is organized as an undivided interest. In its separate
P 11-10 Consolidation workpaper one year after acquisition under push-down accounting (both 90%- and 100%-ownership assumptions)Use the information and assumptions from Problem P 11-9 for this
P 11-9 Journal entries and comparative balance sheets at acquisition for push-down Pam Corporation paid $180,000 cash for a 90 percent interest in Sun Corporation on January 1, 2017, when Sun’s
P 11-8 Journal entries and calculations for push-down accounting Pop Corporation paid $3,000,000 for an 80 percent interest in Son Corporation on January 1, 2016, when the book values and fair values
P 11-7 Journal entry to record push-down, subsidiary balance sheet, and investment income Pam Corporation paid $960,000 cash for a 100 percent interest in Sun Corporation on January 1, 2017, when
10. Beginning with the $200,000 balance in P Company’s retained earnings at the end of the current year, prepare a schedule in which you derive the $217,000 balance of consolidated retained
9. Show how the total noncontrolling interest on the balance sheet ($117,000) was determined.
8. Show how the $8,700 noncontrolling interest share in total consolidated net income was determined.
7. What is the explanation for the difference between the consolidated cost of goods sold and the combined cost of goods sold of the two affiliated companies? Prepare a schedule reconciling combined
6. Are there any intercompany debts other than the intercompany bondholdings? Identify any such debts, and state which company is the debtor and which is the creditor in each case. Explain your
4. What is the nature of the nonrecurring loss appearing on the consolidated income statement? Reproduce the consolidating entry from which this figure originated and explain.5. What is the amount of
3. When P acquired its interest in S Company, the assets and liabilities of S Company were recorded at their fair values. The $30,000 patents represent unamortized patents at the end of the current
2. If S Company’s common stock has a stated value of $100 per share, how many shares does P Company own? How did you determine this?
P 11-6[Based on AICPA] Separate and consolidated financial statements—entity theory The individual and consolidated balance sheets and income statements of P and S Companies for the current year
1. Pop Corporation paid $256,000 for its 80 percent interest in Son on January 1, 2016, when Son had capital stock of $200,000 and retained earnings of $20,000.2. At December 31, 2017, Pop’s

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