Exam 11: Translation Exposure

________ gains and losses are "realized" whereas ________ gains and losses are only "paper."

Under the U.S. method of translation procedures, if the financial statements of the foreign subsidiary of a U.S. company are maintained in the local currency, and the local currency is the functional currency, then

If the British subsidiary of a European firm has net exposed assets of £250,000, and the pound drops in value from euro 1.40/£ to euro 1.30/£, the European firm has a translation ________.

Exchange rate imbalances that are passed through the balance sheet affect a firm's reported income, but imbalances transferred to the income statement do not.

Historical exchange rates may be used for ________, while current exchange rates may be used for ________.

If the European subsidiary of a U.S. firm has net exposed assets of euro 500,000, and the euro increases in value from $1.30/euro to $1.35/euro the U.S. firm has a translation ________.

The current rate method is the most prevalent method today for the translation of financial statements.

Gains from forward contracts to hedge translation exposure are not taxable whereas losses from hedging translation exposure are.

If a firm's balance sheet has an equal amount of exposed foreign currency assets and liabilities and the firm translates by the temporal method, then

A major problem for international foreign currency transaction is that FASB and the International Accounting Standards Committee (IASC) do NOT use the same basic translation procedure.

Under the temporal rate method, specific assets and liabilities are translated at exchange rates consistent with the timing of the item's creation.

A balance sheet hedge requires that the amount of exposed foreign currency assets and liabilities

The dominant currency used by a subsidiary in its day-to-day operations is known as its ________ currency.

A Canadian subsidiary of a U.S. parent firm is instructed to bill an export to the parent in U.S. dollars. The Canadian subsidiary records the accounts receivable in Canadian dollars and notes a profit on the sale of goods. Later, when the U.S. parent pays the subsidiary the contracted U.S. dollar amount, the Canadian dollar has appreciated 10% against the U.S. dollar. In this example, the Canadian subsidiary will record a

Under the current rate method, translation gains of losses are reported in an equity reserve account called ________.

Translation exposure measures

As required by FASB-52, which exchange rate is required to be used to translate assets and liabilities of a foreign entity from its functional currency to the reporting currency?

Translation gains and losses can be quite different from operating gains and losses

Consider two different foreign subsidiaries of Georgia-Pacific Wood Products Inc. The first subsidiary mills trees in Canada and ships its entire product to the Georgia-Pacific U.S. The second subsidiary is also owned by the parent firm but is located in Japan and retails tropical hardwood furniture that it buys from many different sources. The first subsidiary is likely a/an ________ foreign entity with most of its cash flows in U.S. dollars, and the second subsidiary is more of a/an ________ foreign entity.