Problem 1. Westmore, Ltd. is a British subsidiary of a Philippine Company. Westmore's functional currency is the pound sterling.

The
following exchange rates were in effect during 2016:
Jan. 1 P 1 = £ 0.625
June 30 P 1 = £ 0.610
Dec. 31 P 1 = £ 0.630
 Westmore reported sales of £1,500,000 during 2016. What amount (rounded) would have been included for this subsidiary in
calculating consolidated sales?
A) $2,380,952.
B) $2,400,000.
C) $2,429,150.
D) $2,419,355.
E) $2,425,876.
 On December 31, Westmore had accounts receivable of £280,000. What amount (rounded) would have been included for this
subsidiary in calculating consolidated accounts receivable?
A) $444,444.
B) $451,613.
C) $142,600.
D) $176,400.
E) $452,830.

Problem 2. Gunther Co. established a subsidiary in Mexico on January 1, 2016. The subsidiary engaged in the following transactions during
2016:
Jan. 1 Sold common stock to Gunther for P 5,000,000. Purchased inventory throughout the year, P 8,000,000 (25% remained)
Sales throughout the year totaled P 12,000,000.
Dec. 31 Purchased equipment for P 1,000,000

Gunther concluded that the subsidiary’s functional currency was the dollar. Exchange rates for 2016 were:
Jan 1 P 1 = $.20
Jan 31 P 1 = $.19
Dec 31 P 1 = $.16
Weighted 2016 P 1 = $.18
What amount of foreign exchange gain or loss would have been recognized on Gunther's consolidated income statement for 2016?
(250,000)/(280000)

Problem 3. The following account balances are available for Esposito, an Italian U.S. subsidiary for 2016:
Beginning Inventory € 20,000
Purchases 400,000
Ending Inventory 15,000
Relevant exchange rates follow:
4th quarter average, 2015 P .93 = € 1
December 31, 2015 P .94 = € 1
Average 2016 P .96 = € 1
4th quarter average, 2016 P .99 = € 1
December 31, 2016 P 1.01 = € 1

1. Compute the cost of goods sold for 2016 in U.S. dollars using the temporal method.
A) $376,650.
B) $387,750.
C) $388,800.
D) $400,950.
E) $409,050.

2. Compute the cost of goods sold for 2016 in U.S. dollars using the current rate method.
A) $376,550.
B) $387,750.
C) $388,800.
D) $400,950.
E) $409,050.

3. Compute ending inventory for 2016 under the temporal method.

A) $13,950.
B) $14,100.
C) $14,400.
D) $14,850.
E) $15,150.

4. Compute ending inventory for 2016 under the current rate method.
A) $13,950.
B) $14,100.
C) $14,400.
D) $14,850.
E) $15,150.
Problem 4. A foreign subsidiary was purchased on January 1, 2016. Determine the exchange rate used to restate the following accounts at
December 31, 2016. Land was purchased on October 1, 2016. Relevant exchange dates follow:
(A) January 1, 2016
(B) October 1, 2016
(C) December 31, 2016
(D) Average, 2016
(E) Composite, using multiple dates.
Identify the exchange rate used to translate items 1-5:
____ 1. Land.
____ 2. Equipment.
____ 3. Bonds payable.
____ 4. Common stock.
____ 5. Retained earnings.
Identify the exchange rate used to remeasure the items 6-10:
____ 6. Land.
____ 7. Equipment.
____ 8. Bonds payable.
____ 9. Common stock.
____ 10. Retained earnings.
Answer:
(1.) C; (2) C; (3.) C; (4.) A; (5.) E; (6.) B; (7.) A; (8.) C; (9.) A; (10.) E

Problem 5. X Trading purchased goods from Y, a company based in France for 1,200,000 Euros. The exchange rate at this time is P1 = €12.50.
X paid 30 days later when the prevailing exchange rate is P1 = €16. How much is the foreign currency gain/loss on the books of X and Y
respectively?
21,000 gain and 0 loss

1. Which of the following terms describes the change in currency values relative to one another as a result of decisions made by politicians?
a. Exchange rate c. Floating exchange rate
b. Fixed exchange rate d. Intrinsic rate

2. Which of the following terms describes currency values relative to one another?
a. Exchange rate c. Floating exchange rate
b. Fixed exchange rate d. Intrinsic rate

3. Which of the following statement is not accurate with regard to a purchase or sale denominated in a foreign currency?
a. The account titles would be the same as a similar transaction undertaken with a Philippine company
b. Future fluctuations of the foreign currency’s value are not anticipated
c. The amount recorded in the financial records will be the estimated value of the foreign currency paid or received
d. The amount recorded in the financial records is the number of foreign currency units exchanged

4. What is the date called when a foreign currency transaction is originally recorded?
a. Original date c. Transaction date
b. Balance sheet date d. Settlement date

5. What is the date called when a foreign currency transaction is paid through the exchange of currency?
a. Original date c. Transaction date
b. Balance sheet date d. Settlement date

6. Which of the following accounts is a monetary item?

a. Sales d. Deferred income tax expense
b. Intercompany bonds payable e. None of the above.
c. Investment in Common Stock of IBM Corp.

7. Which of the following accounts is a monetary item?

a. Depreciation expense d. Intercompany payable – Long-term portion
b. Inventory e. None of the above.
c. Investment in Common Stock (of a subsidiary)

8. Which of the following accounts is not a monetary item?

a. Accounts receivable d. Accrued liabilities
b. Inventory e. None of the above
c. Accounts payable

9. Which of the following accounts is not a monetary item?

a. Deferred Income Taxes Expenses d. Deferred Charges
b. Additional Paid-In Capital e. None of the above
c. Sales

10. The term current rate is defined

a. As the exchange rate at the balance sheet reporting date
b. As the average exchange rate during the current year
c. As the exchange rate in effect when a current year transaction occurred
d. Differently for the balance sheet than for the income statement
e. None of the above
11. For reporting purposes, currencies are defined as
a. International and functional
b. Foreign, functional and presentation
c. Domestic and international
d. Operating, international and presentation

12. The functional currency is

a. The currency in which the entity reports earnings
b. The currency in which the entity primarily conducts banking activities
c. The currency in which the entity primarily operates
d. The currency in which the entity presents the financial statements.

13. Foreign currency monetary items are subsequently translated at

a. Closing rate
b. Historical rate
c. Forward rate
d. Spot exchange rate

14. Income and expense items of a foreign operation shall be translated at

a. Exchange rate on the date of transaction or at average rate for practical purposes.
b. Spot exchange rate
c. Closing rate
d. Forward rate

15. In translating the financial statements of a foreign operation for inclusion in the reporting entity’s financial statements, assets and
liabilities are translated at
a. Closing rate
b. Historical rate
c. Weighted average rate
d. Forward rate

16. Which of the following is not a derivative?

a. Interest rate swap agreement
b. Future and forward contract
c. Regular way purchase or sale
d. Option

17. It is an asset, liability, firm commitment, highly probable forecast transaction or net investment in a foreign operation that exposes the
entity to risk changes in fair value or future cash flows and is designated as being hedged.
a. Hedged item c. Hedge accounting
b. Hedging instrument d. Hedge effectiveness

18. Whether recognized or unrecognized in an entity’s financial statements, disclosure of the fair values of the entity’s financial instruments is
required when
a. It is practicable to estimate those values c. Aggregated fair values are material to the entity
b. The entity maintains accurate cost records d. Individual fair values are material to the entity

19. Examples of financial instruments with off-balance-sheet risk include all of the following exept
a. Outstanding loan commitments written c. Warranty obligations
b. Recourse obligations on receivables d. Future contracts

20. Disclosure of information about significant concentration of credit risk is required for
a. All financial instruments
b. Financial instruments with off-balance-sheet credit risk only
c. Financial instruments with off-balance-sheet market risk only
d. Financial instruments with off-balance-sheet risk of accounting loss only