Solution Manual

Chapter 8 Consolidation of Foreign Subsidiaries

1. The Glossary to FASB ASC 830-30 defines foreign currency translation as
The process of expressing in the reporting currency of the reporting
entity those amounts that are denominated or measured in a different
currency.

2. The Glossary to FASB ASC 830 defines functional currency as: An entity's
functional currency is the currency of the primary economic environment
in which the entity operates; normally, that is the currency of the
environment in which an entity primarily generates and expends cash. If
a company has operations that are relatively self-contained and
integrated within a particular country, the functional currency generally
would be the currency of that country (FASB ASC 830-10-45-4a). A
company might have more than one operating unit, however, such as
multiple divisions or branches that conduct business in different countries.
Each operating unit, then, may be considered a separate entity, each with
their own functional currency (FASB ASC 830-10-45-5).
The foreign subsidiary must prepare its financial statements in its
functional currency prior to translation during the consolidation process. If
its books are not maintained in its functional currency, it must, first
remeasure its financial statements into its functional currency prior to
translation.

3. The Glossary to FASB ASC 830 defines functional currency as: An entity's
functional currency is the currency of the primary economic environment
in which the entity operates; normally, that is the currency of the
environment in which an entity primarily generates and expends cash.
The factors that we should consider in determining the functional currency
include the following (our Practice Insight box on page 422 provides a
more complete description):
a. In which currencies does the subsidiary transact sales and, ultimately,
generate its cash?
b. In which currencies does the subsidiary purchase labor, materials, and
other goods and services and ultimately expend cash?

c. In which currencies does the subsidiary obtain its financing?

4. FASB ASC 830-10-55-10 provides the following explanation: Literal

application of the standards in this Subtopic might require a degree of
detail in record keeping and computations that could be burdensome as
well as unnecessary to produce reasonable approximations of the results.
Accordingly, it is acceptable to use averages or other methods of
approximation.

5. No restatement is permitted. FASB ASC 830-10-45-7 provides the

following guidance: Once the functional currency for a foreign entity is
determined, that determination shall be used consistently unless
significant changes in economic facts and circumstances indicate clearly
that the functional currency has changed. Previously issued financial
statements shall not be restated for any change in the functional
currency.

6. FASB ASC 830-10-45-17 and -18 provide that nonmonetary assets and
liabilities should be remeasured at historical rates in effect when those
assets and liabilities were recognized (Common Stock and Additional Paidin Capital accounts are remeasured at historical exchange rates whether
or not remeasurement is required). Remeasurement gains and losses only
result from fluctuations in foreign exchange rates for monetary accounts
that are remeasured at current exchange rates.

7.

No. FASB ASC 830-10-45-19 provides that gains or losses from

exchange or translation of foreign currencies, including those relating to
major devaluations and revaluations, shall not be reported as
extraordinary items because they are usual in nature or may be expected
to recur as a consequence of customary and continuing business
activities.

8. FASB ASC 830-30-40-1 provides the following guidance: Upon sale or

upon complete or substantially complete liquidation of an investment in a
foreign entity, the amount attributable to that entity and accumulated in
the translation adjustment component of equity shall be both:
a.

[Removed

from the separate component of equity, and[FAS 052,

paragraph 14]] b. [Reported as part of the gain or loss on sale or

liquidation of the investment for the period during which the sale or
liquidation occurs. If the parent reports a positive balance for the
cumulative translation adjustment relating to the subsidiary sold, then,
that positive balance is recognized as an increase in the gain on the sale
or a reduction of the loss on the sale.

9. No. FASB ASC 830-30-45-12 provides the following guidance: If an

entity's functional currency is a foreign currency, translation adjustments
result from the process of translating that entity's financial statements
into the reporting currency. Translation adjustments shall not be included
in determining net income but shall be reported in other comprehensive
income.

10. Yes, translation adjustments are allocated to the noncontrolling

shareholder equity account. FASB ASC 830-30-45-17 provides the
following guidance: Accumulated translation adjustments attributable to
noncontrolling interests shall be allocated to and reported as part of the
noncontrolling interest in the consolidated reporting entity.

11. FASB ASC 830-30-45-18 provides that An analysis of the changes

during the period in the accumulated amount of translation adjustments
reported in equity shall be provided in any of the following ways: a. In a
separate financial statement, b. In notes to financial statements, and
c. As part of a statement of changes in equity.

12.

Answer: A

13.

Answer: B

14.

Answer: D

15.

Answer: A

16.

Answer: D

17.

Answer: C

18.

Answer: C

19.

Answer: D

20.

Answer: C

21.

Answer: B