Question 1

What is the objective in hedging balance sheet exposure?

Accepted Answer

A) Controlling the movement of foreign currency exchange rates 
B) Creating an equilibrium between foreign currency asset and foreign currency liability balances affected by exchange rates 
C) To control the cash flow resulting from changes in the foreign currency exchange rates 
D) All of the above 
A) Controlling the movement of foreign currency exchange rates 
B) Creating an equilibrium between foreign currency asset and foreign currency liability balances affected by exchange rates 
C) To control the cash flow resulting from changes in the foreign currency exchange rates 
D) All of the above B

Question 2

Which of the following methods for translating foreign currency financial statements is required under IAS 21?

Accepted Answer

A) Current rate method. 
B) Temporal method. 
C) Current rate method or temporal method, depending on the functional currency of the subsidiary. 
D) Current rate method or temporal method must be chosen by management of the parent. 
A) Current rate method. 
B) Temporal method. 
C) Current rate method or temporal method, depending on the functional currency of the subsidiary. 
D) Current rate method or temporal method must be chosen by management of the parent. C

Question 3

What is another term for "balance sheet exposure?"

Accepted Answer

A) Transaction exposure 
B) Exchange exposure 
C) Translation exposure 
D) Negative exposure 
A) Transaction exposure 
B) Exchange exposure 
C) Translation exposure 
D) Negative exposure C

Question 4

What is the "disappearing plant" problem that is addressed by FASB ASC 830, Foreign Currency Matters?

Accepted Answer

A) This refers to the accelerated depreciation methods that are popular for fixed asset valuation. 
B) High inflation can result in extreme decreases in the reported amounts for foreign fixed assets. 
C) Cheap foreign currency results in U.S.companies moving factory operations offshore. 
D) Investment in fixed assets was not being reported on foreign subsidiary financial statements. 
A) This refers to the accelerated depreciation methods that are popular for fixed asset valuation. 
B) High inflation can result in extreme decreases in the reported amounts for foreign fixed assets. 
C) Cheap foreign currency results in U.S.companies moving factory operations offshore. 
D) Investment in fixed assets was not being reported on foreign subsidiary financial statements.

Question 5

What is the primary difference between transaction exposure and accounting exposure?

Accepted Answer

A) Transaction exposure results from changes in currency exchange rates, whereas accounting exposure is the result of changes in accounting method. 
B) Transaction exposure results in changes in cash flow, whereas accounting exposure does not necessarily result in changes in cash flow. 
C) Transaction exposure must be hedged, but accounting exposure does not need to be hedged. 
D) Transaction exposure affects only monetary assets and liabilities, whereas accounting exposure affects all assets and liabilities. 
A) Transaction exposure results from changes in currency exchange rates, whereas accounting exposure is the result of changes in accounting method. 
B) Transaction exposure results in changes in cash flow, whereas accounting exposure does not necessarily result in changes in cash flow. 
C) Transaction exposure must be hedged, but accounting exposure does not need to be hedged. 
D) Transaction exposure affects only monetary assets and liabilities, whereas accounting exposure affects all assets and liabilities.

Question 6

When would the balance sheet exposure arising from the current rate method become realized?

Accepted Answer

A) It is realized once the financial statements of the foreign operation and the parent are consolidated. 
B) It is realized any time the historical exchange rate is different from the spot rate at the balance sheet date. 
C) It is realized when the foreign operation is sold at book value and the proceeds are converted into parent company currency. 
D) It can never be realized because it is only the result of the choice of accounting methods and does not reflect real exposure. 
A) It is realized once the financial statements of the foreign operation and the parent are consolidated. 
B) It is realized any time the historical exchange rate is different from the spot rate at the balance sheet date. 
C) It is realized when the foreign operation is sold at book value and the proceeds are converted into parent company currency. 
D) It can never be realized because it is only the result of the choice of accounting methods and does not reflect real exposure.

Question 7

Which of the following is a limitation of using the temporal method for translating foreign currency financial statements?

Accepted Answer

A) The translated asset and liability amounts have no meaningful interpretation. 
B) The translation adjustment will usually have a negative impact on income. 
C) Financial ratios after translation will be distorted. 
D) All of the above are limitations of the temporal method. 
A) The translated asset and liability amounts have no meaningful interpretation. 
B) The translation adjustment will usually have a negative impact on income. 
C) Financial ratios after translation will be distorted. 
D) All of the above are limitations of the temporal method.

Question 8

Which of the following items in the balance sheet is subject to accounting exposure?

Accepted Answer

A) Only assets 
B) Only liabilities and owners' equity 
C) All accounts translated at historical exchange rates 
D) All accounts translated at current exchange rates 
A) Only assets 
B) Only liabilities and owners' equity 
C) All accounts translated at historical exchange rates 
D) All accounts translated at current exchange rates

Question 9

Under both the temporal method and the current rate method, what exchange rate should be used to translate a foreign subsidiary's dividends into parent company currency?

Accepted Answer

A) Current rate 
B) Historical rate 
C) Average rate 
D) Any of the above methods can be used under both the temporal and current method. 
A) Current rate 
B) Historical rate 
C) Average rate 
D) Any of the above methods can be used under both the temporal and current method.

Question 10

Placo Ltd., a Scottish subsidiary of Limko, Inc., a U.S. company, showed cost of goods sold on its income statement for the year ended December 31, 2010.
$\begin{array}{c}
\begin{array}{lll}
\text {Inventory, $ 1 / 1 / 10 $}\
\text {Purchases}\
\text {Cost of Goods Available for Sale}\
\text {Inventory, 12/31/10}\
\text {Cost of Goods Sold}
\end{array}
\begin{array}{r}
£ 100,000 \
\underline{900,000} \
 1,000,000 \
\underline{ 200,000} \
£ 800,000
\end{array}
\end{array}$

$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$ \text { Exchange rates/£ }$
$\begin{array}{llcc}
  \text { December 31, 2010 } &\$ 0.522  \
 \text {December 31, 2009  } &\$ 0.560\
 \text { 2010 average } &\$ 0.547\

\end{array}$

-What amount should be used to consolidate Placo's cost of goods sold into Limko's income statement under the current rate method?

Accepted Answer

A) $417,600 
B) $437,600 
C) $448,000 
D) $443,900 
A) $417,600 
B) $437,600 
C) $448,000 
D) $443,900

Question 11

A Danish subsidiary of a U.S.corporation recorded a building it purchased in 2010 for 100,000,000 krone, when the exchange rate was $0.132/krone.The current exchange rate is $0.163/krone.Under the current rate method, how should the translated amount of the restated asset be interpreted?

Accepted Answer

A) The U.S.parent would have to pay $16,300,000 to acquire the building today. 
B) The U.S.parent would have had to pay $13,200,000 to acquire the building in 2010. 
C) The building is worth $13,200,000 to the U.S.parent today. 
D) None of the above 
A) The U.S.parent would have to pay $16,300,000 to acquire the building today. 
B) The U.S.parent would have had to pay $13,200,000 to acquire the building in 2010. 
C) The building is worth $13,200,000 to the U.S.parent today. 
D) None of the above

Question 12

Companies must choose between which exchange rates for consolidating foreign subsidiaries?

Accepted Answer

A) Spot rate and forward rate 
B) Spot rate and closing rate 
C) Current rate and historical rate 
D) Domestic rate and international rate 
A) Spot rate and forward rate 
B) Spot rate and closing rate 
C) Current rate and historical rate 
D) Domestic rate and international rate

Question 13

Under FASB ASC 830, Foreign Currency Matters, when the temporal method is used, how are translation adjustments treated in the consolidated financial statements?

Accepted Answer

A) As gains or losses on the current period consolidated income statement 
B) As prior period adjustments to retained earnings of the parent 
C) As part of other comprehensive income on the consolidated balance sheet 
D) None of the above because the temporal method is not allowed under FASB ASC 830. 
A) As gains or losses on the current period consolidated income statement 
B) As prior period adjustments to retained earnings of the parent 
C) As part of other comprehensive income on the consolidated balance sheet 
D) None of the above because the temporal method is not allowed under FASB ASC 830.

Question 14

Which of the following methods uses the current exchange rate to consolidate all accounts of a foreign subsidiary into the financial statements of its parent?

Accepted Answer

A) Current rate method 
B) Temporal method 
C) Current/noncurrent method 
D) None of the above 
A) Current rate method 
B) Temporal method 
C) Current/noncurrent method 
D) None of the above

Question 15

Under both the temporal method and the current rate method, what exchange rate should be used to translate a foreign subsidiary's additional paid-in capital into parent company currency?

Accepted Answer

A) Closing rate 
B) Current rate 
C) Average rate 
D) Historical rate 
A) Closing rate 
B) Current rate 
C) Average rate 
D) Historical rate

Question 16

Under U.S.GAAP, what method of translating foreign currency financial statements must be used for subsidiaries in highly inflationary economies?

Accepted Answer

A) Current rate method 
B) Current/noncurrent method 
C) Temporal method 
D) Monetary/nonmonetary method 
A) Current rate method 
B) Current/noncurrent method 
C) Temporal method 
D) Monetary/nonmonetary method

Question 17

Under the temporal method of consolidating foreign currency financial statements, what exchange rate should be used for translating the depreciation expense recorded by a subsidiary?

Accepted Answer

A) Average rate 
B) Current rate 
C) Historical rate 
D) Forward rate 
A) Average rate 
B) Current rate 
C) Historical rate 
D) Forward rate

Question 18

Why would the management of a multinational corporation incur real costs to hedge accounting exposure, which is only on paper?

Accepted Answer

A) Fluctuations in reported income may affect stock price. 
B) Management compensation may be tied to accounting income. 
C) Hedging can smooth income. 
D) All of the above 
A) Fluctuations in reported income may affect stock price. 
B) Management compensation may be tied to accounting income. 
C) Hedging can smooth income. 
D) All of the above

Question 19

Which of the following actions could a company use to hedge balance sheet exposure?

Accepted Answer

A) Forward contract on foreign currency 
B) Foreign currency option 
C) Foreign currency borrowing 
D) All of the above may be used to hedge balance sheet exposure. 
A) Forward contract on foreign currency 
B) Foreign currency option 
C) Foreign currency borrowing 
D) All of the above may be used to hedge balance sheet exposure.

Question 20

Essco Ltd, a foreign subsidiary of Peako Corp., has written down its inventory to current market value under a "lower of cost or market" rule.When consolidating Essco's balance sheet into Peako's balance sheet using the current rate method, what exchange rate should be used for the inventory under the temporal method?

Accepted Answer

A) Historical rate 
B) Current rate 
C) Average rate 
D) Cannot be determined with the information given 
A) Historical rate 
B) Current rate 
C) Average rate 
D) Cannot be determined with the information given

What is the objective in hedging balance sheet exposure?

Which of the following methods for translating foreign currency financial statements is required under IAS 21?

What is another term for "balance sheet exposure?"

What is the "disappearing plant" problem that is addressed by FASB ASC 830, Foreign Currency Matters?

What is the primary difference between transaction exposure and accounting exposure?

When would the balance sheet exposure arising from the current rate method become realized?

Which of the following is a limitation of using the temporal method for translating foreign currency financial statements?

Which of the following items in the balance sheet is subject to accounting exposure?

Under both the temporal method and the current rate method, what exchange rate should be used to translate a foreign subsidiary's dividends into parent company currency?

A Danish subsidiary of a U.S.corporation recorded a building it purchased in 2010 for 100,000,000 krone, when the exchange rate was $0.132/krone.The current exchange rate is $0.163/krone.Under the current rate method, how should the translated amount of the restated asset be interpreted?

Companies must choose between which exchange rates for consolidating foreign subsidiaries?

Under FASB ASC 830, Foreign Currency Matters, when the temporal method is used, how are translation adjustments treated in the consolidated financial statements?

Which of the following methods uses the current exchange rate to consolidate all accounts of a foreign subsidiary into the financial statements of its parent?

Under both the temporal method and the current rate method, what exchange rate should be used to translate a foreign subsidiary's additional paid-in capital into parent company currency?

Under U.S.GAAP, what method of translating foreign currency financial statements must be used for subsidiaries in highly inflationary economies?

Under the temporal method of consolidating foreign currency financial statements, what exchange rate should be used for translating the depreciation expense recorded by a subsidiary?

Why would the management of a multinational corporation incur real costs to hedge accounting exposure, which is only on paper?

Which of the following actions could a company use to hedge balance sheet exposure?

Introduction to International Accounting

Worldwide Accounting Diversity

International Convergence of Financial Reporting

International Financial Reporting Standards: Part I

International Financial Reporting Standards: Part II

Comparative Accounting

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Additional Financial Reporting Issues

Analysis of Foreign Financial Statements

International Taxation

International Transfer Pricing

Strategic Accounting Issues in Multinational Corporations

Comparative International Auditing and Corporate Governance

International Corporate Social Reporting

Filters

Exam 8: Translation of Foreign Currency Financial Statements

What is the objective in hedging balance sheet exposure?

Which of the following methods for translating foreign currency financial statements is required under IAS 21?

What is another term for "balance sheet exposure?"

What is the "disappearing plant" problem that is addressed by FASB ASC 830, Foreign Currency Matters?

What is the primary difference between transaction exposure and accounting exposure?

When would the balance sheet exposure arising from the current rate method become realized?

Which of the following is a limitation of using the temporal method for translating foreign currency financial statements?

Which of the following items in the balance sheet is subject to accounting exposure?

Under both the temporal method and the current rate method, what exchange rate should be used to translate a foreign subsidiary's dividends into parent company currency?

A Danish subsidiary of a U.S.corporation recorded a building it purchased in 2010 for 100,000,000 krone, when the exchange rate was $0.132/krone.The current exchange rate is $0.163/krone.Under the current rate method, how should the translated amount of the restated asset be interpreted?

Companies must choose between which exchange rates for consolidating foreign subsidiaries?

Under FASB ASC 830, Foreign Currency Matters, when the temporal method is used, how are translation adjustments treated in the consolidated financial statements?

Which of the following methods uses the current exchange rate to consolidate all accounts of a foreign subsidiary into the financial statements of its parent?

Under both the temporal method and the current rate method, what exchange rate should be used to translate a foreign subsidiary's additional paid-in capital into parent company currency?

Under U.S.GAAP, what method of translating foreign currency financial statements must be used for subsidiaries in highly inflationary economies?

Under the temporal method of consolidating foreign currency financial statements, what exchange rate should be used for translating the depreciation expense recorded by a subsidiary?

Why would the management of a multinational corporation incur real costs to hedge accounting exposure, which is only on paper?

Which of the following actions could a company use to hedge balance sheet exposure?

Introduction to International Accounting

Worldwide Accounting Diversity

International Convergence of Financial Reporting

International Financial Reporting Standards: Part I

International Financial Reporting Standards: Part II

Comparative Accounting

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Additional Financial Reporting Issues

Analysis of Foreign Financial Statements

International Taxation

International Transfer Pricing

Strategic Accounting Issues in Multinational Corporations

Comparative International Auditing and Corporate Governance

International Corporate Social Reporting

Filters