REFERENCE: Ref.10_05 a Subsidiary of Porter Inc. ,A U.S.company,was Located in a in a Foreign

question 8

Multiple Choice

REFERENCE: Ref.10_05
A subsidiary of Porter Inc. ,a U.S.company,was located in a foreign country.The functional currency of this subsidiary was the stickle (§) .The subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

-When consolidating a foreign subsidiary,which of the following statements is true?

• A)Parent reports a cumulative translation adjustment using the equity method.
• B)Parent's reports a gain or loss in net income using the equity method.
• C)Subsidiary's cumulative translation adjustment is carried forward to the consolidated balance sheet.
• D)Subsidiary's income/loss is carried forward to the consolidated balance sheet.
• E)All foreign currency gains/losses are eliminated on the consolidated income statement and balance sheet.

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Definitions:

Incremental Net Cash

The difference in net cash flows between two alternatives, emphasizing the additional cash brought in by a certain decision.

Tax Rate

The percentage at which an individual or corporation is taxed.

Incremental Net Income

The increase in net income resulting from a particular business decision or activity, compared to what it would have been without that decision or activity.

Immediate Cash Outflows

Expenses or payments that must be made in cash immediately or within a very short time frame.