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# 3.

## The following data applies to Question 3:

Heavy Company sold metal scrap to a Brazilian company for 200,000 Brazilian reals on
December 1, 20X8, with payment due on January 20, 20X9. The exchange rates were:

## December 1, 20X8 1 real = \$0.5435

December 31, 20X8 1 real = 0.5192
January 20, 20X9 1 real = 0.5305

Based on the preceding information, which of the following is true of dollar's movement
vis--vis Brazilian real during the period?

## 4. On September 3, 20X8, Jackson Corporation purchases goods for a U.S. dollar

equivalent of \$17,000 from a Swiss company. The transaction is denominated in Swiss
francs (SFr). The payment is made on October 10. The exchange rates were:

## The exchange rates were:

What entry is required to revalue foreign currency payable to U.S. dollar equivalent
value on October 10?

## A. Foreign Currency Transaction Loss 1,000

Accounts Payable (SFr) 1,000

## B. Accounts Payable (SFr) 850

Foreign Currency Transaction Gain 850
C. Accounts Payable (SFr) 1,000
Foreign Currency Transaction Gain 1,000

5. On March 1, 20X8, Wilson Corporation sold goods for a U.S. dollar equivalent of
\$31,000 to a Thai company. The transaction is denominated in Thai baht. The payment
is received on May 10. The exchange rates were:

What entry is required to revalue foreign currency payable to U.S. dollar equivalent
value on May 10?

0

0

## Accounts Receivable (baht) 3,000

D. Sales 93
Foreign Currency Transaction Gain 93

6. Hunt Co. purchased merchandise for 300,000 British pounds from a vendor in
London on November 30, 20X1. Payment in British pounds was due on January 30,
20X2. The exchange rates to purchase one pound were as follows:

## November 30, 20X1 December 31, 20X1

Spot-rate \$1.65 \$1.62
30-day rate 1.64 1.59
60-day rate 1.63 1.56

In its December 31, Year One, income statement, what amount should Hunt report as
foreign exchange gain?
A. \$9,000
B. \$12,000
C. \$6,000
D. \$0

7. A U.S. firm has a Belgian subsidiary that uses the British pound as its functional
currency. According to GAAP, the U.S. dollar from Belgian unit's point of view will be

## A. its only foreign currency.

B. its local currency.
C. its current rate method currency.
D. its reporting currency.

## 8. Selvey Inc. is a wholly-owned subsidiary of Parsfield Incorporated, a U.S. firm. The

country where Selvey operates is determined to have a highly inflationary economy
according to GAAP definitions. Therefore, for purposes of preparing consolidated
financial statements, the functional currency is

## A. its reporting currency.

B. its current rate method currency.
C. the US dollar.
D. its local currency.

9. All of the following factors would be used to define a foreign entity's functional
currency, except
A. high volume of intercompany transactions.
B. expenses for foreign entity primarily driven by local factors.
C. financing for foreign entity denominated in local currency.
D. foreign entity's status as a local tax haven for transfer pricing purposes.

13. The management approach to the definition of segments for financial reporting
expects a company to:

## I. Report disaggregated information on the same organizational basis as used by the

company's internal decision makers.

## II. Report disaggregated information for at least ten segments.

A. I
B. II
C. Both I and II
D. Neither I nor II

14. Zeus Corporation has determined that it has 15 reportable operating segments. In
order to comply with the standard for segment disclosures, Zeus Corporation should do
which of the following?

## A. Report 10 reportable segments and disclose the remaining 5 segments as other

operating segments.
B. Report 10 reportable segments by combining the most closely related segments.
C. Report 15 reportable segments as long as the 75 percent revenue test has been
satisfied.
D. Report 12 reportable segments and show all other operating segments in a column
labeled Other Operating Segments.

15. Biometric Corporations revenue for the year ended December 31, 20X6, was as
follows:

## Consolidated revenue per income statement \$400,000

Intersegment sales 30,000
Intersegment transfers 20,000
Combined revenue of all industry segments \$450,000

## Biometric has a reportable operating segment if that segments revenue exceeds

A. \$40,000
B. \$42,000
C. \$43,000
D. \$45,000

16. Five of eight internally reported operating segments of Rollins Company qualify
under the standards set by ASC 280 for segment reporting. However, the five identified
segments do not meet the 75 percent revenue test. ASC 280 prescribes that
management:

## A. subdivide segments until there are at least 10 reportable segments.

B. consolidate the remaining operating segments and include them under an all other
category.

## C. select additional operating segments until the 75% threshold is met.

17. The following information pertains to revenue earned by Timm Co.'s industry
segments for the year ended December 31st:

Sales to
Unaffiliat
ed
Custome Intersegm Total
Segment rs ent Sales Revenue
Alo \$ \$ 3,000 \$
5,000 8,000
Bix 4,000
8,000 12,000
Cee
4,000 4,000
Dill 16,000
43,000 59,000
Combined 23,000
60,000 83,000
Eliminatio ______ (23,000)
n (23,000)
Consolidat \$ 0 \$ 60,000
ed 60,000
In conformity with the revenue test, Timm's reportable segments were
A. Only Dil
B. Only Bix and Dil
C. Only Alo, Bix, and Dil
D. Alo, Bix, Cee, and Dil

21. How would a company report a change in an accounting principle made on the last day of the
third quarter?
A. Retrospective application to all pre-change interim periods reported.
B. No change is required.
C. Apply to current and prospective interim periods only.
D. Apply to prospective interim periods only.

22. On June 30, 20X8, String Corporation incurred a \$220,000 net loss from disposal of a
business component. Also, on June 30, 20X8, String paid \$60,000 for property taxes assessed for
the calendar year 20X8. What amount of the preceding items should be included in the
determination of String's net income or loss for the six-month interim period ended June 30,
20X8?

A. \$250,000
B. \$220,000
C. \$140,000
D. \$280,000

Bard Co., a calendar-year corporation, reported income before income tax expense of \$10,000 and
income tax expense of \$1,500 in its interim income statement for the first quarter of the year. Bard had
income before income tax expense of \$20,000 for the second quarter and an estimated effective annual
rate of 25%. What amount should Bard report as income tax expense in its interim income statement
for the second quarter?
\$3,500

\$5,000

\$6,000

\$7,500
Due to a decline in market price in the second quarter, Petal Co. incurred an inventory loss. The market
price is expected to return to previous levels by the end of the year. At the end of the year, the decline
had not reversed. When should the loss be reported in Petal's interim income statements?
Ratably over the second, third, and fourth quarters.

## In the fourth quarter only.

Farr Corp. had the following transactions during the quarter ended March 31, 20x5:
Loss on early extinguishment of debt \$ 70,000
Payment of fire insurance premium for calendar year 20x5 100,000

What amount should be included in Farr's income statement for the quarter ended March 31, 20x5?

## Extinguishment loss Insurance expense

\$70,000 \$100,000

\$70,000 \$25,000

\$17,500 \$25,000

\$0 \$100,000

corporation issues quarterly interim financial statements and uses the lower cost or net realizable
value to value its inventory in its annual financial statements. Which of the following statements is
correct regarding how the corporation should value its inventory in its interim financial statements?

## Gains from valuations in previous interim periods should be fully recognized.

For interim financial reporting, a company's income tax provision for the second quarter of 20x4 should
be determined using the:
Effective tax rate expected to be applicable for the full year of 20x4 as estimated at the end of the first
quarter of 20x4.

Effective tax rate expected to be applicable for the full year of 20x4 as estimated at the end of the second
quarter of 20x4.

Effective tax rate expected to be applicable for the second quarter of 20x4.