25. On December 31, 2006, Giant-Petrel Corporations Investment in Penguin Corporation account had a balance of $525,000. The balance consisted of 80% of Penguins $600,000 stockholders' equity on that date and $45,000 of goodwill. On January 2, 2007, Penguin increased its outstanding common stock from 15,000 to 18,000 shares. Assume instead that Penguin sold the additional 3,000 shares to outside interests for $150,000 on January 2, 2007. Giant-Petrels percentage ownership immediately after the sale of stock would be: 66-2/3%. 75%. 80%. 83-1/3%. 26. Which of the following is correct about the treatment of preacquisition earnings on consolidated financial statements? I.Exclude the subsidiary sales and expenses prior to acquisition from consolidated sales and expenses II.Include the subsidiary sales and expenses prior to acquisition and deduct preacquisition income as a separate item I only II only I or II Neither I nor II 27. Bowerbird Corporation purchased a 70% interest in Stage Corporation on June 1, 2006 at a purchase price of $390,400. On this date, Stages book values were equal to its fair values except for an unrecorded copyright, and its stockholders equity consisted of $290,000 of Common Stock and $210,000 of Retained Earnings. All cost-book differentials were attributed to the copyright, which had an estimated economic life of ten years. During 2006, Stage earned $120,000 of net income earned uniformly throughout the year and paid $6,000 of dividends on March 1 and another $6,000 on September 1. Minority interest income for 2006 is: $36,000 $32,400 $61,200 $50,000 28. Bowerbird Corporation purchased a 70% interest in Stage Corporation on June 1, 2006 at a purchase price of $390,400. On this date, Stages book values were equal to its fair values except for an unrecorded copyright, and its stockholders equity consisted of $290,000 of Common Stock and $210,000 of Retained Earnings. All cost-book differentials were attributed to the copyright, which had an estimated economic life of ten years. During 2006, Stage earned $120,000 of net income earned uniformly throughout the year and paid $6,000 of dividends on March 1 and another $6,000 on September 1. The value of the copyright that is included in Bowerbird Investment in Stage account on June 1, 2006 is: $ 2,600 $ 5,400 $ 9,600 $10,400 29. If a financial instrument is classified as a cash flow hedge then its gains or losses are represented in the income statement if a year-end occurs before the settlement date. it is classified as a held-to-maturity asset. it does not require a notational amount. its gains or losses are represented in the balance sheet if a year-end occurs before the settlement date. 30. Derivatives are measured on the financial statements at? Historical cost Effective hedge price Strike price Fair value 31. On December 5, 20X3, Goose Corporation, a US firm, bought inventory items from Grebes Corporation of Norway for 1,000,000 Norwegian krone when the spot rate for krone was $0.168. At Goose's December 31, year-end, the spot rate was $0.167. On January 4, 20X4, Goose purchased 1,000,000 krone for $167,500 and paid the invoice. How much gain or (loss) should Goose report in its 20X3 and 20X4, respectively, income statements? $(1,000) and $500 $0 and ($500) $0 and $500 $1,000 and ($500) 32. Which of the following factors will affect the spread between spot and forward rates? the current cross rate between two currencies the length of time for the forward contract the currency denominated as the domestic currency all of the above will affect the spread 34. A US company decides to hedge a prospective loss in a foreign entity from a foreign currency fluctuation. The US Company should purchase a forward to swap currency of the foreign entitys local country for US currency. The US Company should purchase a call option to buy currency of the foreign entitys local country. The US Company should make a loan in the foreign entitys local country. The US Company should borrow on a loan in the foreign entitys local country. 35. When translating foreign subsidiary income statements using the current rate method, why are some accounts translated at an average rate? This approach improves matching. This approach accentuates the conservatism principle. This approach smoothes out highly volatile exchange rate fluctuations This approach approximates the effect of transactions which occur continuously during the period. 36. Which of the following assets and/or liabilities are considered monetary? Intangible Assets and Plant, Property, and Equipment. Bonds Payable and Common Stock. Cash and Accounts Payable. Notes Receivable and Inventories carried at cost. 37. The objective of remeasurement is to: produce the same results as if the books were maintained in the currency of the foreign entity's largest customer. produce the same results as if the books were maintained solely in the local currency. produce the same results as if the books were maintained solely in the functional currency. produce the results reflective of the entity's economics in the local currency. 38. Peachey has a foreign subsidiary, Schrivener Corporation of Germany , whose functional currency is the euro. At December 31, 19X2, Schrivener has an account receivable denominated in British pounds. Which one of the following statements is true? Because all accounts of the subsidiary are translated into US dollars at the current rate, the Account Receivable is not adjusted on the subsidiary's books before translation. The Account Receivable is remeasured into the functional currency and remeasurement obviates translation. The Account Receivable is first adjusted to reflect the current exchange rates in euros and then translated at the current rate into dollars. The Account Receivable is adjusted to euros at the current exchange rate and any resulting gain or loss is included as a translation adjustment in the stockholders' equity section of the subsidiary's separate balance sheet. 39. A US firm has a Belgian subsidiary that uses the British pound as its functional currency. Under FASB statement No. 52, the US dollar from Belgian unit's point of view will be: a foreign currency. its local currency its current rate method currency its reporting currency