Acct 610 Exam 2

Front 1

What is a basic premise of the acquisition method regarding accounting for a noncontrolling interest?

Back 1

A subsidiary is an indivisible part of a business combination and should be included in its entirety regardless of the degree of ownership.

Front 2

Mittelstaedt Inc. buys 60% of the outstanding stock of Sherry Inc. Sherry owns a piece of land that cost $212,000 but had a fair value of $549,000 at the acquisition date. What value should be attributed to this land in a consolidated balance sheet at the date of takeover?

Back 2

$549,000

Front 3

Jordan Inc., holds 75% of the outstanding stock of Paxson Corporation. Paxson currently owes Jordan $400,000 for inventroy acquired over the past few months. In preparing consolidated financial statements, what amount of this debt should be eliminated?

Back 3

$400,000

Front 4

On 1/1/14, Brendan, Inc., reports net assets of $760,000 although equipment (with a 4 yr remaining life) having a book value of $440,000 is worth $500,000 and an unrecorded patent is valued at $45,000. Hope Corporation pays $692,000 on that date for an 80% ownership in Brendan, If the patent is to be written off over a 10 yr period, at what amount should it be reported on consolidated statements at 12/31/15?

Back 4

45,000/10=4,500

45,000-9,000(4,500x2)=36,000

Front 5

The noncontrolling interest represents an outside ownership in a subsidiary that is not attributable to the parent company. Where in the consolidated balance sheet is this outside ownership interest recognized?

Back 5

In the owner's equity section

Front 6

James Company acquired 85% of Mark-Right Company on 4/1. On its 12/31 consolidated income statement, how should James account for Mark-Right's revenue and expenses that occurred before 4/1?

Back 6

Exclude 100% of the preacquisition revenues and 100% of the preacquisition expenses that occurred before 4/1

Front 7

How is goodwill handeled in outside ownership?

Back 7

Allocate goodwill acquired in a business combination across the controlling and noncontrolling interest.

Front 8

Which of the following combinations correctly describes the relationship between foreign currency transactions, exchange rate changes, and foreign exchange gains and losses?

Back 8

Type of Transaction-Import Purchase

Foreign Currency-Depreciates

Foreign Exchange Gain/Loss-Gain

Front 9

In accounting for foreign currency transaction, which of the following approaches is used in the US?

Back 9

Two-transaction perspective; accrue foreign exchange gain and losses

Front 10

On 10/1/15, Mud Co., a US company, purchased parts from Terra, a Portuguese company, with payment due on 12/1/15. If Mud's 2015 operating income included no foreign exchange gain or loss, the transaction could have

Back 10

Been denominated in US dollars

Front 11

Post, Inc., had a receivable from a foreign customer that s payable in the customer's local currency. On 12/31/15, Post correctly included this receivable for 200,000 local currency units(LCU) in its balance sheet at $110,000. When Post collected the receivable on 2/1/16, the US dollar equivalent was $95,000. In Post's 2016 consolidated income statement, how much should it report as a foreign exchange loss?

Back 11

110,000-95,000=15,000 loss

Front 12

Slick Co. had a Swiss franc receivable resulting from exports to Switzerland and a Mexican peso payable resulting from imports from Mexico. Slick recorded foreign exchange gains related to both its franc receivable and peso payable. Did the foreign currencies increase or decrease in dollar value from the date of the transaction to the settlement date?

Back 12

Franc-Increase

Peso-Decrease

Front 13

A US exporter has a Thai baht account receivable resulting from an export sale on 4/1 t a customer in Thailand. The exporter signed a forward contract on 4/1 to sell Thai baht and designated it as a cash flow hedge of a recognized Thai baht receivable. The spot rate was $0.022 on that date, and the forward rate was $0.032. Which of the following did the US exporter report in net income?

Back 13

Premium Revenu

Front 14

What is an Independent float?

Back 14

The currency is allowed to fluctuate according to market forces.

Front 15

What is pegged to another currency?

Back 15

The currency's value is fixed in terms of a particular foreign currency, and the central bank will intervene to maintain the fixed value

Front 16

European Monetary System

Back 16

A common currency (the euro) is used in multiple countries. Its value floats against other world currencies

Front 17

What is an exchange rate?

Back 17

The cost of one currency in terms of another. Rates are published daily in the Wall Street Journal as o 4 pm eastern time.

Front 18

What is a "spread"?

Back 18

The difference between the rates at which a bank is willing to buy and sell currency.

Front 19

What is a Spot Rate?

Back 19

The exchange rate that is available today.

Front 20

What is a Forward Rate?

Back 20

The exchange rate that can be locked in today for an expected future exchange transaction.

The actual spot rate at the future date may differ from today's forward rate.

A forward contract requires the purchase (or sale) of currency units at a future date at the contracted exchange rate.

Front 21

What are the different options for a Foreign exchange?

Back 21

An options contract gives the holder the option of Buying/Selling currency units at a future date at the contracted "strike" price.

A "put" option allows for the sale of foreign currency by the option holder.

A "call" option allows for the purchase of foreign currency by the option holder.

An option gives the holder "the right but not the obligation" to trade the foreign currency in the future.

Front 22

Option Values

Back 22

Value is derived from:

A function of the difference between current spot rate and strike price.

The difference between foreign and domestic interest rates.

The length of time to option expiration.

The potential volatility of changes in the spot rate.

An option premium is a function of Intrinsic Value and Time Value

Front 23

What does the one-transaction perspective assume?

Back 23

1. the export sale is not complete until the foreign currency receivable has been collected.

2. Changes in the US dollar value of the foreign currency is accounted for as an adjustment to Accounts Receivable and Sales.

Front 24

Two-transaction approach

Back 24

GAAP requires and treats as two seperate transactions.

1. Account for the original sale in US dollars at the date of sale. No subsequent adjustments are required.

2. Changes in the US dollar value of the foreign currency are accounted for as gains/losses from exchange rate fluctuations reported separately from sales in the income statement.

Front 25

What is subsidiary's functional currency?

Back 25

The currency in which the entity primarily generates and expands cash.

Front 26

In comparing translation and the remeasurement process, which of the following is true?

Back 26

Te reported balance of sales is normally the same under both methods.

Front 27

Which of the following statement is true for the translation process (as opposed to remeasurement)?

Back 27

A translation adjustment is created by the change in the relative value of a subsidiary's net assets caused by exchange rate fluctuations.

Front 28

A subsidiary of Byner Corporation has one asset (inventory) and no liabilities. The functional currency for this subsidiary is the peso. The inventory was acquired for 100,000 pesos when the exchange rate was .16=1 peso. Consolidated statements are to be produced, and the current exchange rate is .19=1 peso. Which of the following statements is true for the consolidated financial statements?

Back 28

A positive translation adjustment must be reported.

Front 29

When do you use the temperal method?

Back 29

When the subs are so closely tied to US parents. They use US $ perspective to translation, most of their transactions are recorded in US dollars.

Gain/Loss in Net Income

Front 30

When do you use current rate method for translation?

Back 30

When the subs use the local currency perspective; they operate relatively independent of their US parents.

Seperate component of other comprehensive income (Stockholders Equity)

Front 31

What is reporting currency?

Back 31

The currency in which the entity prepares its financial statements. US based corporations use the US dollar.

Front 32

What is Remeasurement?

Back 32

If a foreign operation's functional currency is the US dollar, the currency balances must be remeasured into US dollars using the temporal method resulting in remeasurement gains and losses.

Front 33

What is Translation Adjustment?

Back 33

If a foreign currency is the foreign operation's functional currency, the currency balances must be translated using the current rate method and a translation adjustment is reported on the balance sheet.

Front 34

Highly Inflationary Economies

Back 34

Temporal method for translation is required.

A country has highly inflationary economy when its cumulative 3 year inflation exceeds 100%. With compounding, it equates to an average of approximately 26% per year for 3 years in a row.

Front 35

Current Rate Method

Back 35

1st step in translating foreign currency financial statements is to determine the functional currency.

All revenues & expenses are translated at the exchange rate in effect at the date of accounting recognition.

Weighted average exchange rate is used when revenues & expenses have been recognized evenly throughout the year.

Front 36

Temporal Method

Back 36

If the sub's functional currency is $, then any balances denominated in the local currency, must be remeasured.

Remeasurement requires the application of the temporal method.

The remeasurement gain or loss appears on income statement.

Front 37

How does the temporal method remeasure cash, receivables, and liabilities?

Back 37

Remeasures into US $ using the current exchange rate.

Front 38

How does temporal method remeasure Inventory, property and equipment, patents and contributed capital accounts?

Back 38

Remeasure at historical rates resulting in difference in total assets and liabilities plus equity which must be reconciled resulting in a remeasurement gain or loss.

Front 39

What is a subsidiary's functional currency?

Back 39

The currency in which the entity primarily generates and expands cash.

Front 40

In comparing the translation and the remeasurement process, which of the following is true?

Back 40

The reported balance of sales is normally the same under both methods.

Front 41

Which of the following statements is true for the translation process (as opposed to remeasurement)

Back 41

A translation adjustment is created by the change in the relative value of a subsidiary's net assets caused by exchange rate fluctuations

Front 42

A subsidiary of Byner Corporation has one asset (inventory) and no liabilities. The inventory was acquired 100,000 pesos when the exchange rate was .16=1 peso. Consolidated statements are to be produced, and the current exchange rate is .19=1 peso. Which of the following statements is true for the consolidated financial statements?

Back 42

A positive translation adjustment must be reported.

Front 43

At what rates should the following balance sheet accounts in foreign statements be translated (rather than remeasured) into US dollars?

Back 43

Accumulated Depreciation-Current

Equipment- Current

If the Equipment is current the depreciation on equipment will be as well under the current rate method.