66.l Air Lines has recently acquired Australian Puddle Jumpers, Inc., a small airline located in Sydney. The Australian dollar has been chosen by Dell as the functional currency for APJ. The Balance Sheet of APJ is given below as of Dec. 31, 2004 in Australian dollars.

APJ's income statement for the year ending Dec. 31, 2005 is expressed in Australian dollars as:

The Australian dollar has steadily depreciated against the U.S. dollar. At Dec. 31, 2004, the exchange rate was 2 Australian dollars = $1 but at Dec. 31, 2005, the exchange rate had deteriorated to 3 Australian dollars = $1.

The Dec. 31, 2005 Balance Sheet for APJ is given in Australian dollars as follows:

On APJ's 2005 income statement, the level of sales in U.S. dollars would be:

A)   $1,167.

B)   $1,750.

C)   $1,400.

D)   $1,985.

67.APJ's 2005 balance sheet, the level of accounts receivable is U.S. dollars would be:

A)   $132.

B)   $110.

C)   $165.

D)   $330.

68.APJ's 2005 balance sheet, the level of fixed assets in U.S. dollars would be:

A)   $187.

B)   $156.

C)   $234.

D)   $270.

69. Herlitzka Company, a U.S. multinational firm, has a 100% stake in a Swiss subsidiary. The U.S. dollar (USD) has been determined to be the functional currency. All the common stock of the subsidiary was issued at the beginning of the year and the subsidiary uses the weighted-average inventory cost-flow assumption. In addition, the value of the SF is as follows:

The SF-based balance sheet and income statement data for the Swiss subsidiary are as follows:

The total value of net monetary assets is equal to:

A)   3,000 SF.

B)   -4,000 SF.

C)   12,000 SF.

D)   -7,000 SF.

66.l Air Lines has recently acquired Australian Puddle Jumpers, Inc., a small airline located in Sydney. The Australian dollar has been chosen by Dell as the functional currency for APJ. The Balance Sheet of APJ is given below as of Dec. 31, 2004 in Australian dollars.

APJ's income statement for the year ending Dec. 31, 2005 is expressed in Australian dollars as:

The Australian dollar has steadily depreciated against the U.S. dollar. At Dec. 31, 2004, the exchange rate was 2 Australian dollars = $1 but at Dec. 31, 2005, the exchange rate had deteriorated to 3 Australian dollars = $1.

The Dec. 31, 2005 Balance Sheet for APJ is given in Australian dollars as follows:

On APJ's 2005 income statement, the level of sales in U.S. dollars would be:

A)   $1,167.

B)   $1,750.

C)   $1,400.

D)   $1,985.

The correct answer was C)

Since the Australian $ is both the local and the functional currency, use the current rate method. The items in the income statement are translated at the average exchange rate under FASB 52. The average rate is (2 + 3)/2 = 2.5 Australian dollars = $1.

Income Statement (in $)

67.APJ's 2005 balance sheet, the level of accounts receivable is U.S. dollars would be:

A)   $132.

B)   $110.

C)   $165.

D)   $330.

The correct answer was B)

Since the Australian $ is both the local and the functional currency, use the current rate method.

In the balance sheet, all accounts are translated at the current exchange rate, except for the common stock account, which is translated at the historical rate.

A/R (330/3) =110

68.APJ's 2005 balance sheet, the level of fixed assets in U.S. dollars would be:

A)   $187.

B)   $156.

C)   $234.

D)   $270.

The correct answer was B)

Since the Australian $ is both the local and the functional currency, use the current rate method. In the balance sheet, all accounts are translated at the current exchange rate, except for the common stock account, which is translated at the historical rate.

Fixed Assets (468/3) = 156

69. Herlitzka Company, a U.S. multinational firm, has a 100% stake in a Swiss subsidiary. The U.S. dollar (USD) has been determined to be the functional currency. All the common stock of the subsidiary was issued at the beginning of the year and the subsidiary uses the weighted-average inventory cost-flow assumption. In addition, the value of the SF is as follows:

The SF-based balance sheet and income statement data for the Swiss subsidiary are as follows:

The total value of net monetary assets is equal to:

A)   3,000 SF.

B)   -4,000 SF.

C)   12,000 SF.

D)   -7,000 SF.

The correct answer was B)

Monetary assets and liabilities include cash, A/R, A/P and Long-term debt. Hence, net monetary assets is equal to 3,000 - (2,000 + 5,000) = -4,000 SF.