Question 1

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

Accepted Answer

A)  Current/Non-current method 
B)  Monetary/Non-monetary method 
C)  Temporal method 
D)  All of the above may be used under IAS 21. 
A)  Current/Non-current method 
B)  Monetary/Non-monetary method 
C)  Temporal method 
D)  All of the above may be used under IAS 21.

Question 2

In their research published in 1988 related to translating foreign currency financial statements, Doupnik and Evans found that U.S. multinationals were biased in favor of using a foreign currency as the functional currency. What reason did the researchers give for this management decision?

Accepted Answer

A)  It was easier than proving to the FASB that a subsidiary's functional currency was the U.S. dollar. 
B)  Doing so allowed companies greater latitude in selecting the method of translating foreign currency financial statements. 
C)  This allows the use of the current method, which defers recognizing translation gains or losses in income. 
D)  This allows the use of the temporal method, which defers recognizing transaction adjustments in income. 
A)  It was easier than proving to the FASB that a subsidiary's functional currency was the U.S. dollar. 
B)  Doing so allowed companies greater latitude in selecting the method of translating foreign currency financial statements. 
C)  This allows the use of the current method, which defers recognizing translation gains or losses in income. 
D)  This allows the use of the temporal method, which defers recognizing transaction adjustments in income.

Question 3

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 4

Using the temporal method of translating foreign currency financial statements, what basis should be employed when using the "lower of cost or market" rule for inventory valuation?

Accepted Answer

A)  Lower of parent currency cost or parent currency market at current exchange rate 
B)  Lower of subsidiary currency cost or subsidiary currency market at appropriate exchange rate 
C)  Lower of parent currency cost or parent currency market at appropriate exchange rate 
D)  Lower of subsidiary currency cost or parent currency market at current exchange rate 
A)  Lower of parent currency cost or parent currency market at current exchange rate 
B)  Lower of subsidiary currency cost or subsidiary currency market at appropriate exchange rate 
C)  Lower of parent currency cost or parent currency market at appropriate exchange rate 
D)  Lower of subsidiary currency cost or parent currency market at current exchange rate

Question 5

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.     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 6

What is one problem in translating retained earnings using either the temporal or current rate method?

Accepted Answer

A)  There is no problem, since both methods use the historic rate method for stockholders' equity accounts. 
B)  Dividends are based on an average cost method. 
C)  Net income is calculated differently, depending upon which method is used. 
D)  Dividends are based on the current exchange rate under the current rate method, while they are based on historical rates under the temporal method. 
A)  There is no problem, since both methods use the historic rate method for stockholders' equity accounts. 
B)  Dividends are based on an average cost method. 
C)  Net income is calculated differently, depending upon which method is used. 
D)  Dividends are based on the current exchange rate under the current rate method, while they are based on historical rates under the temporal method.

Question 7

How does FASB ASC 830, Foreign Currency Matters define a "highly inflationary economy?"

Accepted Answer

A)  Inflation rate over 50% annually 
B)  Inflation rate over 10% annually 
C)  Cumulative three-year inflation over 26% 
D)  Cumulative three-year inflation over 100% 
A)  Inflation rate over 50% annually 
B)  Inflation rate over 10% annually 
C)  Cumulative three-year inflation over 26% 
D)  Cumulative three-year inflation over 100%

Question 8

What is meant by the "translation" of foreign currency financial statements?

Accepted Answer

A)  Converting financial statements prepared under foreign GAAP into domestic GAAP 
B)  Converting financial statements of a foreign currency into a domestic currency 
C)  Converting the language used in financial statements from foreign to domestic 
D)  Converting historic cost financial statements into current cost financial statements 
A)  Converting financial statements prepared under foreign GAAP into domestic GAAP 
B)  Converting financial statements of a foreign currency into a domestic currency 
C)  Converting the language used in financial statements from foreign to domestic 
D)  Converting historic cost financial statements into current cost financial statements

Question 9

Non-monetary assets DO NOT include:

Accepted Answer

A)  fixed assets. 
B)  inventory. 
C)  accounts receivable. 
D)  customer deposits. 
A)  fixed assets. 
B)  inventory. 
C)  accounts receivable. 
D)  customer deposits.

Question 10

International accounting standards define functional currency as:

Accepted Answer

A)  the currency of the parent company. 
B)  the currency of the primary economic environment in which the subsidiary operates. 
C)  the currency of the primary economic environment in which the parent operates. 
D)  the currency used by a subsidiary for its financial reporting. 
A)  the currency of the parent company. 
B)  the currency of the primary economic environment in which the subsidiary operates. 
C)  the currency of the primary economic environment in which the parent operates. 
D)  the currency used by a subsidiary for its financial reporting.

Question 11

When the current rate method is used, the sign (+ or -) of the translation adjustment is the result of:

Accepted Answer

A)  appreciation or depreciation of the foreign currency. 
B)  the nature of the balance sheet exposure. 
C)  both (
A)  and (
B) . 
D)  None of the above 
A)  appreciation or depreciation of the foreign currency. 
B)  the nature of the balance sheet exposure. 
C)  both (
A)  and (
B) . 
D)  None of the above

Question 12

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

Question 13

Which of the following is a non-derivative hedging instrument?

Accepted Answer

A)  Forward contract on foreign currency 
B)  Foreign currency call option 
C)  Foreign currency borrowing 
D)  Foreign currency put option 
A)  Forward contract on foreign currency 
B)  Foreign currency call option 
C)  Foreign currency borrowing 
D)  Foreign currency put option

Question 14

What is the cause of balance sheet exposure?

Accepted Answer

A)  Converting subsidiary account balances to balances denominated in the parent company's currency at historical exchange rates 
B)  Completing international transactions in currency other than the currency of the home company 
C)  Translating subsidiary account balances to amounts denominated in the parent company's currency 
D)  None of the above 
A)  Converting subsidiary account balances to balances denominated in the parent company's currency at historical exchange rates 
B)  Completing international transactions in currency other than the currency of the home company 
C)  Translating subsidiary account balances to amounts denominated in the parent company's currency 
D)  None of the above

Question 15

When the parent company of a foreign subsidiary believes that all of its investment in the subsidiary is exposed to foreign exchange risk, what method of translation should be used in consolidating the financial statements?

Accepted Answer

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

Question 16

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 17

According to FASB ASC 830, Foreign Currency Matters, which of the following conditions would indicate that a foreign subsidiary's functional currency is the parent company's currency?

Accepted Answer

A)  Active local sales market 
B)  Sales price not affected by changes in exchange rate in the short-run 
C)  High volume of intercompany transactions 
D)  All of the above are indicators that the functional currency is the parent company's currency. 
A)  Active local sales market 
B)  Sales price not affected by changes in exchange rate in the short-run 
C)  High volume of intercompany transactions 
D)  All of the above are indicators that the functional currency is the parent company's currency.

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

In their research published in 1988 related to translating foreign currency financial statements, Doupnik and Evans found that U.S. multinationals were biased in favor of using a foreign currency as the functional currency. What reason did the researchers give for this management decision?

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

Using the temporal method of translating foreign currency financial statements, what basis should be employed when using the "lower of cost or market" rule for inventory valuation?

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

What is one problem in translating retained earnings using either the temporal or current rate method?

How does FASB ASC 830, Foreign Currency Matters define a "highly inflationary economy?"

What is meant by the "translation" of foreign currency financial statements?

Non-monetary assets DO NOT include:

International accounting standards define functional currency as:

When the current rate method is used, the sign (+ or -) of the translation adjustment is the result of:

What is another term for "balance sheet exposure?"

Which of the following is a non-derivative hedging instrument?

What is the cause of balance sheet exposure?

When the parent company of a foreign subsidiary believes that all of its investment in the subsidiary is exposed to foreign exchange risk, what method of translation should be used in consolidating the financial statements?

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?

According to FASB ASC 830, Foreign Currency Matters, which of the following conditions would indicate that a foreign subsidiary's functional currency is the parent company's currency?

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 methods for translating foreign currency financial statements is required to be used under IAS 21?

In their research published in 1988 related to translating foreign currency financial statements, Doupnik and Evans found that U.S. multinationals were biased in favor of using a foreign currency as the functional currency. What reason did the researchers give for this management decision?

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

Using the temporal method of translating foreign currency financial statements, what basis should be employed when using the "lower of cost or market" rule for inventory valuation?

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

What is one problem in translating retained earnings using either the temporal or current rate method?

How does FASB ASC 830, Foreign Currency Matters define a "highly inflationary economy?"

What is meant by the "translation" of foreign currency financial statements?

Non-monetary assets DO NOT include:

International accounting standards define functional currency as:

When the current rate method is used, the sign (+ or -) of the translation adjustment is the result of:

What is another term for "balance sheet exposure?"

Which of the following is a non-derivative hedging instrument?

What is the cause of balance sheet exposure?

When the parent company of a foreign subsidiary believes that all of its investment in the subsidiary is exposed to foreign exchange risk, what method of translation should be used in consolidating the financial statements?

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?

According to FASB ASC 830, Foreign Currency Matters, which of the following conditions would indicate that a foreign subsidiary's functional currency is the parent company's currency?

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