Newsprint Corp.’s foreign exchange loss account

Multiple Choice Questions

The balance in Newsprint Corp.’s foreign exchange loss account was $10,000 on December 31, 2008, before any necessary year-end adjustment relating to the following:

(1) Newsprint had a $15,000 debit resulting from the restatement in dollars of the accounts of its wholly owned foreign subsidiary for the year ended December 31, 2008.

(2) Newsprint had an account payable to an unrelated foreign supplier, payable in the supplier’s local currency unit (LCU) on January 15, 2009. The U.S. dollar–equivalent of the payable was $50,000 on the December 1, 2008, invoice date and $53,000 on December 31, 2008.

1. Based on the information provided, in Newsprint’s 2008 consolidated income statement, what amount should be included as foreign exchange loss in computing net income, if the LCU is the functional currency and the translation method is appropriate?
A. $28,000
B. $13,000
C. $25,000
D. $8,000

2. Based on the information provided, in Newsprint’s 2008 consolidated income statement, what amount should be included as foreign exchange loss in computing net income, if the U.S. dollar is the functional currency and the remeasurement method is appropriate?
A. $15,000
B. $10,000
C. $25,000
D. $28,000

 

3. Infinity Corporation acquired 80 percent of the common stock of an Egyptian company on January 1, 2008. The goodwill associated with this acquisition was $18,350. Exchange rates at various dates during 2008 follow:

Goodwill suffered an impairment of 20 percent during the year. If the functional currency is the Egyptian Pound, how much goodwill impairment loss should be reported on Infinity’s consolidated statement of income for 2008?
A. $3,670
B. $3,700
C. $3,680
D. $3,690

4. Infinity Corporation acquired 80 percent of the common stock of an Egyptian company on January 1, 2008. The goodwill associated with this acquisition was $18,350. Exchange rates at various dates during 2008 follow:

Goodwill suffered an impairment of 20 percent during the year. If the functional currency is the U.S. dollar, how much goodwill impairment loss should be reported on Infinity’s consolidated statement of income for 2008?
A. $3,680
B. $3,670
C. $3,690
D. $3,700

 

5. Simon Company has two foreign subsidiaries. One is located in France, the other in England. Simon has determined the U.S. dollar is the functional currency for the French subsidiary, while the British pound is the functional currency for the English subsidiary. Both subsidiaries maintain their books and records in their respective local currencies. What methods will Simon use to convert each of the subsidiary’s financial statements into U.S. dollars?

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

 

6. Based on the preceding information, what amount should Leo record as “income from subsidiary” based on the British subsidiary’s reported net income?
A. $72,930
B. $52,500
C. $72,600
D. $69,300

7. Based on the preceding information, the receipt of the dividend will result in a credit to the investment account for:
A. $16,800
B. $17,680
C. $18,000
D. $17,600

8. Based on the preceding information, on Leo’s consolidated balance sheet at December 31, 2008, what amount should be reported for the goodwill acquired on January 1, 2008?
A. $36,845
B. $39,286
C. $36,905
D. $36,607

9. Based on the preceding information, in the stockholders’ equity section of Leo’s consolidated balance sheet at December 31, 2008, Leo should report the translation adjustment as a component of other comprehensive income of:
A. $19,440
B. $17,000
C. $18,786
D. $19,380