Answer all circled questions. Also Show works for multiple choices that requires computation

1. What are the two major issues related to the translation of foreign currency financial statements ? What causes balance sheet (or translation) exposure to foreign exchange risk? How does balance sheet exposure compare with transaction exposure? (3. Why might a company want to hedge its balance sheet exposure? What is the paradox associated with hedging balance sheet exposure? How are gains and losses on financial instruments used to hedge the net investment in a foreign operation reported in the consolidated financial statements? 5. What concept underlies the temporal method of translation? What concept underlies the current rate method of translation? How does balance sheet exposure differ under these two methods? In translating the financial statements of a foreign subsidiary, why is the value assigned to retained earnings especially difficult to determine? How is this problem normally resolved? 7. What are the major procedural differences in applying the current rate and temporal methods of translation? 8. Clarke Company has a subsidiary operating in a foreign country. In relation to this subsidiary, what does the term functional currency mean? How is the functional currency determined? (9. A translation adjustment must be calculated and disclosed when financial statements of a foreign subsidiary are translated into the parent's reporting currency. How is this figure computed, and where is the amount reported in the financial statements? 10. In preparing the consolidation worksheet for a parent company and its foreign subsidiary, what consolidation entries are made related to the cumulative translation adjustment? When is remeasurement rather than translation appropriate? How does remeasurement differ from translation? 12. Which translation method does U.S. GAAP require for operations in highly inflationary countries? What is the rationale for mandating use of this method? 13. In what ways does IFRS differ from U.S. GAAP with respect to the translation of foreign currency financial statements? What is a subsidiary's functional currency? a. The parent's reporting currency. b. The currency used by the parent to acquire the subsidiary. c. The currency in which the entity primarily generates and expends cash. d. Always the currency of the country in which the company has its headquarters. In comparing the current rate and temporal methods of translation, which of the following is true? a. The reported balance of accounts receivable is normally the same under both methods. b. The reported balance of inventory is normally the same under both methods. C. The reported balance of equipment is normally the same under both methods. d. The reported balance of depreciation expense is normally the same under both methods. Which of the following statements is true for the translation process using the current rate method? a. A translation adjustment can affect consolidated net income. b. Equipment is translated at the historical exchange rate in effect at the date of its purchase. C. A translation adjustment is created by the change in the relative value of a subsidiary's mon- etary assets and monetary liabilities caused by exchange rate fluctuations. d. A translation adjustment is created by the change in the relative value of a subsidiary's net assets caused by exchange rate fluctuations. A foreign subsidiary of Thun Corporation has one asset (inventory) and no liabilities. The func- tional currency for this subsidiary is the yuan. The inventory was acquired for 100,000 yuan when the exchange rate was $0.16 = 1 yuan. Consolidated statements are to be produced, and the current exchange rate is $0.12 = 1 yuan. Which of the following statements is true for the consolidated financial statements ? a. A remeasurement gain must be reported. b. A positive translation adjustment must be reported. c. A negative translation adjustment must be reported. d. A remeasurement loss must be reported. 5. At what rates should the following balance sheet accounts in foreign statements be translated (using the current rate method) into U.S. dollars? Equipment ovo Current Current Historical Historical Accumulated Depreciation Equipment Current Average for year Current Historical Problems 6 and 7 are based on the following information. Certain balance sheet accounts of a foreign subsidiary of Orchid Company have been stated in U.S. dollars as follows: Stated at Current Rates Historical Rates Accounts receivable, current ................. Accounts receivable, long term ....... Land ....... Patents ...... $200,000 100,000 50,000 80,000 $430,000 $220,000 110,000 55,000 85,000 $470,000 6. This subsidiary's functional currency is a foreign currency. What total should Orchid's balance sheet include for the preceding items? a. $430,000. b. $435,000. c. $440,000. d. $450,000. 7. This subsidiary's functional currency is the U.S. dollar. What total should Orchid's balance sheet include for the preceding items? a. $430,000 b. $435,000. c. $440,000. d. $450,000 Problems 8 and 9 are based on the following information. Newberry, Inc., whose reporting currency is the U.S. dollar ($), has a subsidiary in Argentina, whose functional currency also is the $. The subsidiary acquires inventory on credit on November 1, 2017, for 100,000 pesos that is sold on January 17, 2018, for 130,000 pesos. The subsidiary pays for the inventory on January 31, 2018. Currency exchange rates are as follows: November 1, 2017 December 31, 2017. January 17, 2018 .......... January 31, 2018 ........ $0.16 = 1 peso 0.17 = 1 0.18 = 1 0.19 = 1 8. What amount does Newberry's consolidated balance sheet report for this inventory at December 31, 2017? a. $16,000 b. $17,000. c. $18,000. 7. $19,000. 9. What amount does Newberry's consolidated income statement report for cost of goods sold for the year ending December 31, 2018? a. $16,000. b. $17,000 c. $18,000. d. $19,000 Problems 10 and 11 are based on the following information. A Clarke Corporation subsidiary buys marketable equity securities and inventory on April 1, 2017, for 100,000 won each. It pays for both items on June 1, 2017, and they are still on hand at year-end. Inventory is carried at cost under the lower-of-cost-or-net realizable rule. Currency exchange rates for 1 won follow: January 1, 2017 April 1, 2017 June 1, 2017 December 31, 2017 $0.15 = 1 won 0.16 = 1 0.17 = 1 0.19 = 1 10. Assume that the won is the subsidiary's functional currency. What balances does a consolidated balance sheet report as of December 31, 2017? a. Marketable equity securities = $16,000 and Inventory = $16,000. b. Marketable equity securities = $17,000 and Inventory = $17,000. C. Marketable equity securities = $19,000 and Inventory = $16,000. d. Marketable equity securities = $19,000 and Inventory = $19,000. Assume that the U.S. dollar is the subsidiary's functional currency. What balances does a consoli- dated balance sheet report as of December 31, 2017? a. Marketable equity securities = $16,000 and Inventory = $16,000. b. Marketable equity securities = $17,000 and Inventory = $17,000. C. Marketable equity securities = $19,000 and Inventory = $16,000. d. Marketable equity securities = $19,000 and Inventory = $19.000