12) 12) On October 1 of the current year, a U.S. company sold merchandise on account to a British company for 2,000 pounds (exchange rate, 1 pound = $1.43). At the company's December 31 fiscal year end, the exchange rate was 1 pound = $1.45. The exchange rate was 1 pound = $1.50 on collection in January of the subsequent year. What amount would the company recognize as a gain or loss from foreign currency transactions when the receivable is collected? A. $140 gain B. $0 C. $100 gain D. $140 loss 13) Under U.S. GAAP, in preparing consolidated financial statements of a U.S. parent 13) company with a foreign subsidiary, the foreign subsidiary's functional currency is the currency: A. Of the country in which the subsidiary is located. B. Of the country in which the parent is located. C. In which the subsidiary maintains its accounting records. D. Of the environment in which the subsidiary primarily generates and expends cash. 14) 14) When translating foreign currency financial statements into the reporting currency, which of the following items would not be translated using the current (year-end) rates? A. Common stock B. Fixed assets C. Notes payable D. Accounts receivable 15) 15) When remeasuring foreign currency financial statements into the functional, which of the following items would be remeasured using historical exchange rates. A. Bonds payable. B. Accrued liabilities. C. Inventories carried at cost. D. Marketable equity securities reported at market values. 16) _ 16) A balance arising from the translation or remeasurement of a subsidiary's foreign currency financial statements is reported in the consolidated income statement when the subsidiary's functional currency is the: Foreign Currency Reporting currency Yes NO NO Yes NO 17) 17) A foreign subsidiary's functional currency is its local currency, which has not experienced significant inflation. The weighted average exchange rate for the current year would be the appropriate exchange rate for translating: Salaries Expense Sales to External Customers Yes No No No Yes Yes No 18) A company from the United Kingdom uses British pounds in its normal operations, 18) reports in the European Union in euros, and reports in the United States in U.S. dollars. The company is owned by a private equity firm in Japan. What is the company's functional currency? A. The U.S. dollar. B. The Japanese yen. C. The British pound. D. The euro. 19) Certain balance sheet accounts of a foreign subsidiary of Rowan, Inc., at December 19) 31 have been translated into U.S. dollars as follows: Notes receivable, long-term Prepaid rent Patent Totals Translated At Current Rates 1 Historical Rates $240,000 $200,000 85.000 80.000 150,000 170,000 $475,000 $450,000 The subsidiary's functional currency is the currency of the country in which it is located. What total amount should be included in Rowan's December 31 consolidated balance sheet for the above accounts? A. $495,000 B. $455,000 C. $450,000 D. $475,000 20) in which of the following cases should the functional currency of the foreign 20) subsidiary be the reporting currency of the U.S. parent (U.S. dollars)? A. The subsidiary makes the majority of the transactions in its home country's currency. B. The U.S. dollar is experiencing high inflation. C. The subsidiary's home currency is experiencing high inflation. D. The subsidiary is in bankruptcy proceedings