<p>Use the following information for Problems 11 and 12.</p><p>MNC Corp. (a U.S.–based company) sold parts to a South Korean customer on December 1, 2013, with payment of 10 million South Korean won to be received on March 31, 2014. The following exchange rates apply:</p><p>December 1, 2013 $0.0035 $0.0034 December 31, 2013 0.0033 0.0032 March 31, 2014 0.0038 N/A</p><p>MNC’s incremental borrowing rate is 12 percent. The present value factor for three months at an annual interest rate of 12 percent (1 percent per month) is 0.9706.</p><p>LO2 11.</p><p>Assuming that MNC did not enter into a forward contract, how much foreign exchange gain or loss should it report on its 2013 income statement with regard to this transaction?</p><p> a. $5,000 gain.</p><p> b. $3,000 gain.</p><p> c. $2,000 loss.</p><p> d. $1,000 loss.</p><p>12.</p><p>Assuming that MNC entered into a forward contract to sell 10 million South Korean won on December 1, 2013, as a fair value hedge of a foreign currency receivable, what is the net impact on its net income in 2013 resulting from a fluctuation in the value of the won? a. No impact on net income.</p><p> b. $58.80 decrease in net income.</p><p> c. $2,000 decrease in net income.</p><p> d. $1,941.20 increase in net income.</p><p>1.</p><p>What is a subsidiary’s functional currency?</p><p> a. The parent’s reporting currency.</p><p> b. The currency in which transactions are denominated.</p><p> c. The currency in which the entity primarily generates and expends cash.</p><p> d. Always the currency of the country in which the company has its headquarters.</p><p>LO3, LO4 2.</p><p>In comparing the translation and the remeasurement process, which of the following is true?</p><p> a. The reported balance of inventory is normally the same under both methods.</p><p> b. The reported balance of equipment is normally the same under both methods.</p><p> c. The reported balance of sales is normally the same under both methods.</p><p> d. The reported balance of depreciation expense is normally the same under both methods.</p><p>LO3 3. Which of the following statements is true for the translation process (as opposed to remeasurement)?</p><p> a. A translation adjustment can affect consolidated net income.</p><p> b. Equipment is translated at the historical exchange rate in effect at the date of its purchase.</p><p> c. A translation adjustment is created by the change in the relative value of a subsidiary’s net assets caused by exchange rate fluctuations.</p><p> d. A translation adjustment is created by the change in the relative value of a subsidiary’s monetary assets and monetary liabilities caused by exchange rate fluctuations.</p><p>6.</p><p>This subsidiary’s functional currency is a foreign currency. What total should Rose’s balance sheet include for the preceding items?</p><p> a. $430,000.</p><p> b. $435,000.</p><p> c. $440,000.</p><p> d. $450,000.</p><p>7.</p><p>This subsidiary’s functional currency is the U.S. dollar. What total should Rose’s balance sheet include for the preceding items?</p><p> a. $430,000.</p><p> b. $435,000. c. $440,000. d. $450,000.</p>