Question 1

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. C

Question 2

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/non-current method 
D)  None of the above 
A)  Current rate method 
B)  Temporal method 
C)  Current/non-current method 
D)  None of the above D

Question 3

Which of the following methods for translating foreign currency financial statements attempts to produce consolidated financial statements as if a foreign subsidiary had actually used the parent company's currency for all its transactions?

Accepted Answer

A)  Current/Non-current method 
B)  Monetary/Non-monetary method 
C)  Current rate method 
D)  Temporal method 
A)  Current/Non-current method 
B)  Monetary/Non-monetary method 
C)  Current rate method 
D)  Temporal method D

Question 4

Which method of translating foreign currency financial statements must be used according to FASB ASC 830, Foreign Currency Matters?

Accepted Answer

A)  Temporal method for all subsidiaries 
B)  Current rate method for all subsidiaries 
C)  U.S. parent companies may choose between the temporal method and the current rate method 
D)  Temporal method for subsidiaries that are closely controlled by the parent and current rate method for subsidiaries which are not 
A)  Temporal method for all subsidiaries 
B)  Current rate method for all subsidiaries 
C)  U.S. parent companies may choose between the temporal method and the current rate method 
D)  Temporal method for subsidiaries that are closely controlled by the parent and current rate method for subsidiaries which are not

Question 5

Parentco, Inc. had a negative cumulative translation adjustment of ($250,000) on its balance sheet pertaining to its investment in Subko Ltd at the point in time that Parentco sold its interest in Subko. How must Parentco handle this translation adjustment when it records the sale of Subko?

Accepted Answer

A)  As an increase in income (gain on disposal) 
B)  As a decrease in income (loss on disposal) 
C)  The cumulative translation adjustment will not be affected by the sale. 
D)  It will be a prior period adjustment to retained earnings. 
A)  As an increase in income (gain on disposal) 
B)  As a decrease in income (loss on disposal) 
C)  The cumulative translation adjustment will not be affected by the sale. 
D)  It will be a prior period adjustment to retained earnings.

Question 6

Which of the following methods for translating foreign currency financial statements is no longer allowed under U.S. GAAP?

Accepted Answer

A)  Temporal method 
B)  Current/Non-current method 
C)  Current rate method 
D)  None of the above methods are allowed under GAAP. 
A)  Temporal method 
B)  Current/Non-current method 
C)  Current rate method 
D)  None of the above methods are allowed under GAAP.

Question 7

A Danish subsidiary of a U.S. corporation recorded a building it purchased in 2020 for 100,000,000 krone, when the exchange rate was $0.132/krone. The current exchange rate is $0.163/krone. Under the temporal 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 2020. 
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 2020. 
C)  The building is worth $13,200,000 to the U.S. parent today. 
D)  None of the above

Question 8

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 9

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 10

A Danish subsidiary of a U.S. corporation recorded a building it purchased in 2020 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 2020. 
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 2020. 
C)  The building is worth $13,200,000 to the U.S. parent today. 
D)  None of the above

Question 11

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 12

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 13

Under IAS 21, which of the following is NOT a factor in determining functional currency?

Accepted Answer

A)  It is the currency that influences sales prices for goods and services. 
B)  It is the currency that mainly influences labor, material and other costs of providing goods and services. 
C)  It is the currency least likely to experience hyperinflation. 
D)  It is the currency in which funds from financing activities are generated. 
A)  It is the currency that influences sales prices for goods and services. 
B)  It is the currency that mainly influences labor, material and other costs of providing goods and services. 
C)  It is the currency least likely to experience hyperinflation. 
D)  It is the currency in which funds from financing activities are generated.

Question 14

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 15

What is the paradox of hedging balance sheet exposure?

Accepted Answer

A)  Real costs can be incurred to hedge an unrealized translation adjustment. 
B)  The hedging process rarely works the way management intended. 
C)  Hedging is a conceptual process that is nearly impossible to undertake in the real world. 
D)  Markets have yet to be developed that offer the kinds of derivative instruments required for hedging. 
A)  Real costs can be incurred to hedge an unrealized translation adjustment. 
B)  The hedging process rarely works the way management intended. 
C)  Hedging is a conceptual process that is nearly impossible to undertake in the real world. 
D)  Markets have yet to be developed that offer the kinds of derivative instruments required for hedging.

Question 16

How is the international standard for translating foreign currency financial statements (IAS 21) different from U.S. GAAP with respect to subsidiaries in hyperinflationary economies?

Accepted Answer

A)  IAS 21 requires that the subsidiary's financial statements be restated to account for the inflation before using the current exchange rate for all balance sheet accounts. 
B)  IAS 21 requires that the temporal method be used for translating the foreign currency financial statement. 
C)  IAS 21 requires the current rate method without taking into consideration any inflation adjustment. 
D)  U.S. GAAP requires that foreign subsidiary financial statements be restated to account for inflation before applying the current rate method. 
A)  IAS 21 requires that the subsidiary's financial statements be restated to account for the inflation before using the current exchange rate for all balance sheet accounts. 
B)  IAS 21 requires that the temporal method be used for translating the foreign currency financial statement. 
C)  IAS 21 requires the current rate method without taking into consideration any inflation adjustment. 
D)  U.S. GAAP requires that foreign subsidiary financial statements be restated to account for inflation before applying the current rate method.

Question 17

Which of the following is NOT among the four methods which have been used to translate foreign currency financial statements globally?

Accepted Answer

A)  The historic/non-historic method 
B)  The monetary/non-monetary method 
C)  The temporal method 
D)  The current/non-current method 
A)  The historic/non-historic method 
B)  The monetary/non-monetary method 
C)  The temporal method 
D)  The current/non-current method

Question 18

What exchange rate should be used to translate the common stock of Essco Ltd, a foreign subsidiary of Peako Corp., when consolidating the financial statements using the current rate method?

Accepted Answer

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

Question 19

Excellent Inc. is located in the U.S., but it has subsidiaries in Japan. When the yen depreciates relative to the U.S. dollar, what is the direction of the translation adjustment to consolidate Excellent's financial statements?

Accepted Answer

A)  When there is net asset exposure, the translation adjustment will be positive. 
B)  There will be no adjustment necessary unless the difference is realized. 
C)  When there is net liability exposure, the translation adjustment will be positive. 
D)  The direction of the adjustment is indeterminate. 
A)  When there is net asset exposure, the translation adjustment will be positive. 
B)  There will be no adjustment necessary unless the difference is realized. 
C)  When there is net liability exposure, the translation adjustment will be positive. 
D)  The direction of the adjustment is indeterminate.

Question 20

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

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

Which of the following methods for translating foreign currency financial statements attempts to produce consolidated financial statements as if a foreign subsidiary had actually used the parent company's currency for all its transactions?

Which method of translating foreign currency financial statements must be used according to FASB ASC 830, Foreign Currency Matters?

Parentco, Inc. had a negative cumulative translation adjustment of ($250,000) on its balance sheet pertaining to its investment in Subko Ltd at the point in time that Parentco sold its interest in Subko. How must Parentco handle this translation adjustment when it records the sale of Subko?

Which of the following methods for translating foreign currency financial statements is no longer allowed under U.S. GAAP?

A Danish subsidiary of a U.S. corporation recorded a building it purchased in 2020 for 100,000,000 krone, when the exchange rate was $0.132/krone. The current exchange rate is $0.163/krone. Under the temporal method, how should the translated amount of the restated asset be interpreted?

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

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

A Danish subsidiary of a U.S. corporation recorded a building it purchased in 2020 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?

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

Under IAS 21, which of the following is NOT a factor in determining functional currency?

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?

What is the paradox of hedging balance sheet exposure?

How is the international standard for translating foreign currency financial statements (IAS 21) different from U.S. GAAP with respect to subsidiaries in hyperinflationary economies?

Which of the following is NOT among the four methods which have been used to translate foreign currency financial statements globally?

What exchange rate should be used to translate the common stock of Essco Ltd, a foreign subsidiary of Peako Corp., when consolidating the financial statements using the current rate method?

Excellent Inc. is located in the U.S., but it has subsidiaries in Japan. When the yen depreciates relative to the U.S. dollar, what is the direction of the translation adjustment to consolidate Excellent's financial statements?

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

Introduction to International Accounting

Worldwide Accounting Diversity

International Convergence of Financial Reporting

International Financial Reporting Standards: Part I

International Financial Reporting Standards: Part II

Foreign Currency Transactions and Hedging Foreign Exchange Risk

International Taxation

International Transfer Pricing

Management Accounting Issues in Multinational Corporations

Auditing and Corporate Governance: An International Perspective

International Sustainability Reporting

Filters

Exam 7: Translation of Foreign Currency Financial Statements

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

Which of the following methods for translating foreign currency financial statements attempts to produce consolidated financial statements as if a foreign subsidiary had actually used the parent company's currency for all its transactions?

Which method of translating foreign currency financial statements must be used according to FASB ASC 830, Foreign Currency Matters?

Parentco, Inc. had a negative cumulative translation adjustment of ($250,000) on its balance sheet pertaining to its investment in Subko Ltd at the point in time that Parentco sold its interest in Subko. How must Parentco handle this translation adjustment when it records the sale of Subko?

Which of the following methods for translating foreign currency financial statements is no longer allowed under U.S. GAAP?

A Danish subsidiary of a U.S. corporation recorded a building it purchased in 2020 for 100,000,000 krone, when the exchange rate was $0.132/krone. The current exchange rate is $0.163/krone. Under the temporal method, how should the translated amount of the restated asset be interpreted?

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

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

A Danish subsidiary of a U.S. corporation recorded a building it purchased in 2020 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?

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

Under IAS 21, which of the following is NOT a factor in determining functional currency?

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?

What is the paradox of hedging balance sheet exposure?

How is the international standard for translating foreign currency financial statements (IAS 21) different from U.S. GAAP with respect to subsidiaries in hyperinflationary economies?

Which of the following is NOT among the four methods which have been used to translate foreign currency financial statements globally?

What exchange rate should be used to translate the common stock of Essco Ltd, a foreign subsidiary of Peako Corp., when consolidating the financial statements using the current rate method?

Excellent Inc. is located in the U.S., but it has subsidiaries in Japan. When the yen depreciates relative to the U.S. dollar, what is the direction of the translation adjustment to consolidate Excellent's financial statements?

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

Introduction to International Accounting

Worldwide Accounting Diversity

International Convergence of Financial Reporting

International Financial Reporting Standards: Part I

International Financial Reporting Standards: Part II

Foreign Currency Transactions and Hedging Foreign Exchange Risk

International Taxation

International Transfer Pricing

Management Accounting Issues in Multinational Corporations

Auditing and Corporate Governance: An International Perspective

International Sustainability Reporting

Filters