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Final Exam 4
Final Exam 4
Final Exam 4
Code: 1
Instructions to students:
- Closed book examination.
- Others instructions:
1.Student name:
2.Date of birth:
3.Student ID No:
4.Class:
5.Invigilator’s signature:
CODE 1-1
Office use code
………….
Marker’s signature:
2. What exchange rate should be used to translate the common stock of Essco Ltd, a foreign
subsidiary of Peako Corp., when consolidating the financial statements using the current rate
method?
A. Current rate
B. Historical rate
C. Average rate
D. Cannot be determined with the information given
3. Which of the following methods uses the current exchange rate to consolidate all accounts
of a foreign subsidiary into the financial statements of its parent?
A. Current rate method
B. Temporal method
C. Current/noncurrent method
D. None of the above
4. Poole Corporation is a U.S. company with a branch in China. Income earned by the
Chinese branch is taxed at the Chinese corporate income tax rate of 25 percent and at the rate
of 35 percent in the United States. What is this an example of?
A. Capital-export neutrality.
B. Double taxation.
C. A tax treaty.
D. Taxation on the basis of consumption.
5. There are two primary taxes imposed on profits earned by corporations in international
trade. One is the corporate income tax. What is the other type of tax on earnings of
multinational corporations?
A. Excise tax
B. Payroll tax
C. Withholding tax
D. Value-added tax
CODE 1-2
6. Which of the following is not a method commonly used for establishing transfer prices?
A. Cost-based transfer price.
B. Negotiated price.
C. Market-based transfer price.
D. Industrywide transfer price.
7. What is the term used for intercompany transactions from a parent to a subsidiary?
A. Upstream transfer
B. Downstream transfer
C. International transfer
D. None of the above
9. When a transfer price is set by the management of a parent company rather than by the
subsidiary managers, what kind of transfer price is being used?
A. Market-based transfer price
B. Negotiated transfer price
C. Discretionary transfer price
D. Cost-based transfer price
12.Which of these European countries does use the Euro as its domestic currency?
A. France
B. United Kingdom
C. United Stated
D. Canada
13. What is the term used to describe the possibility that a foreign currency will decrease in
US $ value over the life of an asset such as Accounts Receivable?
A. Foreign exchange translation
B. Foreign exchange risk
C. Hedging
D. Foreign currency options
CODE 1-3
14. Which of the following is not a criterion that must be met to recognize revenue from the
sale of goods?
A. The amount of revenue can be measured reliably.
B. The significant risks and rewards of ownership of the goods have been transferred
to the buyer.
C. The costs incurred or to be incurred with respect to the sale of the goods can be
measured reliably.
D. It is certain that the economic benefits associated with the sale will flow to the
seller.
15. Assume that Rex Company Inc. has the following inventory item on hand at December
31, Year 1: History cost: $1,100; Replacement Cost: $1,000; Estimated selling price: $1,200;
Estimated costs to complete and sell: $150. How much Inventory loss year 1 under IFRS:
A. $ 50
B. $ 150
C. $ 100
D. $ 0
16. On January 1, Year 1, an entity acquires a new machine with an estimated useful life of
20 years for $100,000. The machine has an electrical motor that must be replaced every four
years at an estimated cost of $20,000. Continued operation of the machine requires an
inspection every five years after purchase; the inspection cost is $10,000. The company uses
the straight-line method of depreciation. What is the depreciation expense for Year 1 under
IFRS?
A. $5,000.
B. $5,500.
C. $10,000.
D. $10,500.
17. Purchasing an option to buy foreign currency at a predetermined exchange rate in order to
reduce exchange risk is called:
A. Transfer pricing.
B. Hedging.
C. Translating.
D. Cross-listing.
18. Which of the following items is normally translated the same way under both
the current rate and temporal methods of translation?
A. Inventory
B. Equipment
C. Sales revenue
D. Depreciation expense
CODE 1-4
19. Assets value under temporal method in Dec 31, year 2 in PC ($)
A. $.7,470
B. $ 5,000
C. $ 7,500
D. $ 7,550
ANSWER:
1. 6. 11. 16.
2. 7. 12. 17.
3. 8. 13. 18.
4. 9. 14. 19.
2. How Eximco Inc. records the foreign exchange gain/loss on December 31, 2016 and on
March 1, 2017?
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CODE 1-5
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Balance Sheet
January 1, 2010
€ €
Cash 200,000
Inventory 600,000 Capital Stock 800,000
Total Assets 800,000 Total Liabilities and Equity 800,000
CODE 1-6
Relevant exchange rates for 2010 are as follows:
Jan 1. 2010 …………………………………………………………………………1.000
Average 2010 ………………………………………………………………………0.950
Rate when property and equipment were acquired and long-term debt was incurred. Jan
15. 2010…………………………………….............................................................0.980
Rate when capital was increased Feb 1. 2010 ……………………………………..0.970
Rate when dividends were declared. Dec 1. 2010 ………………………………....0.920
Average for the month of December………………………………………..……...0.910
December 31. 2010 …………………………………………………………...……0.900
The subsidiary’s financial statements for the year ended December 31. 2010 are as follows.
Required: Translate the Spain subsidiary’s financial statements into U.S. dollars using
Temporal Method.
Cash 550,000
Inventory* 800,000
* Inventory is carried at FIFO cost, ending inventory was acquired evenly throughout the
month of December
CODE 1-7
Income Statement, 2010
2010 € Translation Rate $
Sales 8,000,000
CODE 1-8