Dover Company

23. Dover Company owns 90% of the capital stock of a foreign subsidiary located in Italy. Dover’s accountant has just translated the accounts of the foreign subsidiary and determined that a debit translation adjustment of $80,000 exists. If Dover uses the equity method for its investment, what entry should Dover record in order to recognize the translation adjustment?

A. Option A
B. Option B
C. Option C
D. Option D

24. For each of the items listed below, state whether they increase or decrease the balance in cumulative translation adjustments (assuming a credit balance at the beginning of the year) when the foreign currency strengthened relative to the U.S. dollar during the year.

A. Option A
B. Option B
C. Option C
D. Option D

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25. Nichols Company owns 90% of the capital stock of a foreign subsidiary located in Ireland. As a result of translating the subsidiary’s accounts, a debit of $160,000 was needed in the translation adjustments account so that the foreign subsidiary’s debits and credits were equal in U.S. dollars. How should Nichols report its translation adjustments on its consolidated financial statements?
A. As a $144,000 increase in the stockholders’ equity section of the balance sheet.
B. As a $144,000 reduction in consolidated comprehensive net income.
C. As a $160,000 debit in stockholders’ equity section of the balance sheet.
D. As a $160,000 reduction in consolidated comprehensive net income.

26. Under the temporal method, which of the following is usually used to translate monetary amounts to the functional currency?

I. The current exchange rate
II The historical exchange rate
III. Average exchange rate
A. I
B. III
C. II
D. Either I or II

27. Refer the information provided above. Assuming the U.S. dollar is the functional currency, what is the amount of Mercury’s cost of goods sold remeasured in U.S. dollars?
A. $1,680
B. $1,712
C. $1,700
D. $1,692

28. Based on the preceding information, the translation of cost of goods sold for 2008, assuming that the Spanish peseta is the functional currency is:
A. $1,700.
B. $1,760.
C. $1,680.
D. $1,692.