Acc401 Advanced Accounting: E13-3 Select the best answer choice for each of the following items

Acc401 Advanced Accounting
Exercise 13-3
Select the best answer choice for each of the following items.
1. Perez Company's operations are unrelated to the operations of its subsidiary. Certain balance sheet accounts of the foreign subsidiary at December 31, 2008, have been translated into U.S. dollars as follows:
Translated at:
Current rates Historical rates
Accounts receivable, current 200,000 220,000
Accounts receivable, long-term 130,000 140,000
Prepaid insurance 50,000 55,000
Goodwill 100,000 110,000

If the accounting is in accordance with SFAS No. 52, what total should be included in Perez's balance sheet at December 31, 2008, for the foregoing items?
a. $480,000
b. $490,000
c. $495,000
d. $580,000

2. When the functional currency of a foreign operation is the U.S. dollar, translation gains and losses resulting from translating (remeasuring) foreign currency financial statements into U.S. dollars should be included as
a. An extraordinary items in the income statement for the period in which the rate changes.
b. An ordinary item in the income statement for losses but deferred for gains in accordance with the conservatism convention.
c. An ordinary item in the income statement for the period in which the rate changes.
d. A deferred item in the balance sheet.

3. Pal Company is translating account balances of its foreign subsidiary into dollars for its December 31, 2008, balance sheet and its 2008 income statement. The functional currency was identified as the local currency of the foreign subsidiary. The average exchange rate for 2008 should be used to translate
a. Retained earnings at January 1, 2008
b. Equipment purchased in 2008
c. Sales for 2008
d. Cash at December 31, 2008

4. One of the first steps in translating the financial statements of a foreign subsidiary is the identification of the functional currency of that entity. Which of the following indicates that the functional currency is the local currency of the foreign entity?
a. There is a high volume of intercompany transactions
b. Financing is primarily denominated in the local currency
c. Sales are mostly in the United States, or sales contracts are denominated in dollars
d. Sales prices are primarily responsive in the short term to exchange rate changes

5. When the foreign operations are conducted in a highly inflationary economy, at what translation rates should the goodwill and accounts receivable accounts in foreign statements be translated into U.S. dollars?
Goodwill Accounts Receivable
a. Current Average for year
b. Historical Current
c. Historical Historical
d. Current Current
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