Question #25 - Reading 10 Multinational Operations

Reading: Reading 10 Multinational Operations

PDF File: Reading 10 Multinational Operations.pdf

Page: 13

Status: Incorrect

Correct Answer: A

Your Answer: B

Shared Context

- On APJ's 2005 balance sheet, the level of common stock (not including retained earnings) in U.S. dollars would be: A) $360. B) $288. C) $240.

Question

On APJ's 2005 balance sheet, the foreign currency translation adjustment in U.S. dollars would be:

Answer Choices:

A. −$220

B. −$160

C. −$280

Explanation

Since the Australian dollar is both the local and the functional currency, use the current rate method. When using the current rate method, all assets and liabilities are translated at the current rate. Total assets = 1530/3 = 510 and accounts payable = 210/3 = 70. The common stock is translated at the historical rate on the date of purchase = 720/2 = 360. Beginning retained earnings = 0, so ending retained earnings = translated net income = 240. The cumulative translation adjustment is the plug figure that makes the balance sheet balance = 510 − 70 − 360 − 240 = −160.

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