1. Fay had a realized foreign exchange loss of $15,000 for the year en

QUESTION

1. Fay had a realized foreign exchange loss of $15,000 for the year ended December 31, 2011, and must also determine whether the following items will require year-end adjustment:Fay had an $8,000 equity adjustment resulting from the translation of the accounts of its wholly owned foreign subsidiary for the year ended December 31, 2011.Fay had an account payable to an unrelated foreign supplier payable in the suppliers local currency. The U.S. dollar equivalent of the payable was $64,000 on the October 31, 2011, invoice date, and it was $60,000 on December 31, 2011. The invoice is payable on January 30, 2012.In Fays 2011 consolidated income statement, what amount should be included as foreign exchange loss?(a) $11,000(b) $15,000(c) $19,000(d) $23,0002. On January 1, 2011, the Ben Company formed a foreign subsidiary. On February 15, 2011, Bens subsidiary purchased 100,000 local currency units (LCU) of inventory; 25,000 LCU of the original inventory made up the entire inventory on December 31, 2011. The subsidiarys functional currency is the U.S. dollar. The exchange rates were 2.2 LCU to $1 from January 1, 2011, to June 30, 2011, and 2 LCU to $1 from July 1, 2011, to December 31, 2011.The December 31, 2011, inventory balance for Bens foreign subsidiary should be remeasured into U.S. dollars in the amount of:(a) $10,500(b) $11,364(c) $11,905(d) $12,5003. 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, 2013. Of this amount, 2,400,000 LCU were acquired in 2011, when the rate of exchange was 1.6 LCU to $1, and 1,200,000 LCU were acquired in 2012, when the rate of exchange was 1.8 LCU to $1.The rate of exchange in effect at December 31, 2013, was 2 LCU to $1. The weighted average of exchange rates in effect during 2013 was 1.92 LCU to $1. The subsidiarys functional currency is the U.S. dollar.Assuming that the property, plant, and equipment are depreciated using the straight-line method over a 10-year period with no salvage value, how much depreciation expense relating to the foreign subsidiarys property, plant, and equipment should be charged in Dees income statement for 2013?(a) $180,000(b) $187,500(c) $200,000(d) $216,6674. The Clark Company owns a foreign subsidiary that had net income for the year ended December 31, 2011, of 4,800,000 local currency units, which was appropriately translated into $800,000.On October 15, 2011, when the rate of exchange was 5.7 LCU to $1, the foreign subsidiary paid a dividend to Clark of 2,400,000 LCU. The dividend represented the net income of the foreign subsidiary for the six months ended June 30, 2011, during which time the weighted average exchange rate was 5.8 LCU to $1.The rate of exchange in effect at December 31, 2011, was 5.9 LCU to $1. What rate of exchange should be used to translate the dividend for the December 31, 2011, financial statements?(a) 5.7 LCU to $1(b) 5.8 LCU to $1(c) 5.9 LCU to $1(d) 6.0 LCU to $15. The Jem Company used the current rate method when translating foreign currency amounts at December 31, 2011. At that time, Jem had foreign subsidiaries with 1,500,000 local currency units in long-term receivables and 2,400,000 LCU in long-term debt. The rate of exchange in effect when the specific transactions occurred involving those foreign currency amounts was 2 LCU to $1. The rate of exchange in effect at December 31, 2011, was 1.5 LCU to $1. The translation of these foreign currency amounts into U.S. dollars would result in long-term receivables and long-term debt, respectively, of:(a) $750,000 and $1,200,000(b) $750,000 and $1,600,000(c) $1,000,000 and $1,200,000(d) $1,000,000 and $1,600,0006. Certain balance sheet accounts of a foreign subsidiary of Row at December 31, 2011, have been translated into U.S. dollars as follows:The subsidiarys functional currency is the currency of the country in which it is located. What total amount should be included in Rows December 31, 2011, consolidated balance sheet for the three accounts?(a) $450,000(b) $455,000(c) $475,000(d) $495,0007. Inflation data of a foreign country for three years are as follows:The cumulative three-year inflation rate is:(a) 45%(b) 90%(c) 120%(d)180%
Solution 1: Fays net exchange loss
will be: $15,000 $8,000 + ($64,000 $60,000) = $11,000 As, $8,000 is the profit
from equity adjustment and firm had made a loss of $4,000 on the payables from
the date of invoice. So, Option A Solution 2: Inventory
Balance on December 31, 2011 = 25,000 LCU Exchange
rate on December 31, 2011 = 2 LCU to $1 So Inventory
balance in USD on December 31,2011 = 25,000 / 2 = $12,500 Answer: Option D Solution 3: Total
Depreciation for the year = 3,600,000 / 10 = 360,000 Rate of
exchange on December 31, 2013 = 2 LCU to $1 SO,
Depreciation amount on December 31, 2013 = 360,000 / 2 = $180,000 Answer: Option A Solution 4: Rate of
exchange of 5.9 LCU to $1 should be used as this is the exchange rate on
December 31, 2011 when we

nt to see the value of the dividend. Answer: Option C Solution 5 Exchange
rate used will be 1.5 LCU to $1 as this is the effective rate on December 31,
2011. So, long
term debt = 1,500,000 / 1.5 = $1,000,000 And,
long term receivables = 2,400,000 / 1.5 = $1,600,000 Answer: Option D Solution 6: $475,000
should be included as on 31 December, 2011 as these are the current rates and
we use current exchange rates. Answer: Option C Solution 7: Cumulative
inflation will be: (330-150)/150 = 120% Answer: Option C

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