Multiple-Choice Questions on Translation and Remeasurement
Use the following information for questions 1, 2, and 3.
Bartell Inc., a U.S. company, acquired 90 percent of the common stock of a Malaysian company on January 1, 20X5, for $160,000. The net assets of the Malaysian subsidiary amounted to 680,000 ringitts (RM) on the date of acquisition. On January 1, 20X5, the book values of the Malaysian subsidiary’s identifiable assets and liabilities approximated their fair values. Exchange rates at various dates during 20X5 follow:
January 1 | RM 1 = $ | 0.21 |
December 31 | RM 1 = $ | 0.24 |
Average for 20X5 | RM 1 = $ | 0.22 |
1. Refer to the preceding information. On January 1, 20X5, how much goodwill was acquired by Bartell?
a.$17,200.
b.$31,480.
c.$11,400.
d.$25,360.
2. Refer to the preceding information. Assume that Bartell acquired $10,500 of goodwill on January 1, 20X5, and the goodwill suffered a 10 percent impairment loss in 20X5. If the functional currency is the Malaysian ringgit, how much goodwill impairment loss should be reported on Bartell’s consolidated statement of income for 20X5?
a.$1,050.
b.$1,200.
c.$1,100.
d.$1,175.
3. Refer to the preceding information but now assume that the U.S. dollar is the functional currency. How much goodwill impairment loss should be reported on Bartell’s consolidated statement of income in this situation?
a.$1,050.
b.$1,200.
c.$1,100.
d.$1,175.
Use the following information for questions 4, 5, 6, and 7.
Mondell Inc., a U.S. company, acquired 100 percent of the common stock of a German company on January 1, 20X5, for $402,000. The German subsidiary’s net assets amounted to 300,000 euros on the date of acquisition. On January 1, 20X5, the book values of its identifiable assets and liabilities approximated their fair values. As a result of an analysis of functional currency indicators, Mondell determined that the euro was the functional currency. On December 31, 20X5, the German subsidiary’s adjusted trial balance, translated into U.S. dollars, contained $12,000 more debits than credits. The German subsidiary reported income of 25,000 euros for 20X5 and paid a cash dividend of 5,000 euros on November 30, 20X5. Included on the German subsidiary’s income statement was depreciation expense of 2,500 euros. Mondell uses the basic equity method of accounting for its investment in the German subsidiary and determined that goodwill in the first year had an impairment loss of 10 percent of its initial amount. Exchange rates at various dates during 20X5 follow:
January 1 | €1 | = $1.20 |
November 30 | €1 | = 1.30 |
December 31 | €1 | = 1.32 |
Average for 20×5 | €1 | = 1.24 |
4. Refer to the preceding information. What amount should Mondell record as “income from subsidiary” based on the German subsidiary’s reported net income?
a.$31,000.
b.$31,100.
c.$33,000.
d.$30,000.
5. Refer to the preceding information. The receipt of the dividend will result in
a.A credit to the investment account for $6,200.
b.A debit to the income from subsidiary account for $6,600.
c.A credit to the investment account for $6,600.
d.A credit to the investment account for $6,500.
6. Refer to the preceding information. On Mondell’s consolidated balance sheet at December 31, 20X5, what amount should be reported for the goodwill acquired on January 1, 20X5?
a.$37,660.
b.$37,800.
c.$41,580.
d.$39,880.
7. Refer to the preceding information. In the stockholders’ equity section of Mondell’s consolidated balance sheet at December 31, 20X5, Mondell should report the translation adjustment as a component of other comprehensive income of
a.$12,000.
b.$15,920.
c.$13,400.
d.$8,080.
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