Chapter 10

The (1) exchange rate is the exchange rate that exists at the balance sheet date.

1. current

The (1) exchange rate is the exchange rate that existed when a transaction occurred sometime in the past.

Historical

In determining the remeasurement gain or loss that results when the temporal method is used, the beginning-of-the-year net monetary asset or liability position of the foreign entity is translated using the

beginning-of-the-year exchange rate.

Select all that apply Under the temporal method of translation, balance sheet accounts translated at historical exchange rates include

common stock and additional paid-in capital. equipment, buildings, and land.

The accounts of a foreign subsidiary are translated into the parent's currency using a combination of

current and historical exchange rates.

When the gain on the financial instrument used to hedge a net investment in foreign operation exceeds the translation adjustment being hedged, the difference is

recognized as a gain in net income.

In calculating the translation adjustment when the current rate method is used, the focus is on determining the impact that exchange rate changes have on

the beginning balance and changes in net assets.

Exposure to translation adjustment exists for those foreign currency balances that are translated at

the current exchange rate.

The methods used in valuing assets on the foreign currency financial statements of a foreign entity are maintained in the translated parent company currency financial statements when

the temporal method is used to translate the foreign financial statements.

Under both IFRS and U.S. GAAP, the cumulative translation adjustment related to a foreign subsidiary and the cumulative gain or loss on the net investment hedge of that subsidiary are transferred from accumulated other comprehensive income to net income

when the foreign subsidiary is sold.

The gain on the sale of an asset is translated under the temporal method by first translating the (1) received from the sale using the exchange rate on the date of sale.

1. cash

The use of different functional currencies by companies in the same industry distorts the intra-industry (1) of financial statements.

1. comparability

The translation adjustment calculated as the balancing amount in a translated balance sheet using the current rate method is the (1) translation adjustment.

1. cumulative

True or false: Under the temporal method, inventory reported at cost on the foreign currency balance sheet could be reported at either cost or at net realizable value on the parent currency balance sheet.

True

In consolidating a foreign subsidiary, the excess of fair value over book value must be translated into the parent's currency and

a translation adjustment related to the excess must be recognized in the consolidation worksheet.

Translation adjustments included in other comprehensive income are

accumulated in a stockholders' equity account on the consolidated balance sheet.

When an asset carried at historical cost on a foreign currency balance sheet is translated into parent company currency using the current rate method the resulting parent currency amount for that asset

does not represent either the historical cost nor the fair value of that asset in parent currency.

Under the temporal method, cost of goods sold (COGS) in foreign currency is decomposed into beginning inventory, purchases, and ending inventory and then each component is translated into U.S. dollars using the appropriate (1) exchange rate.

1. historical

Under the temporal method, depreciation expense and accumulated depreciation are translated using the (1) exchange rate when the related property, plant, and equipment was acquired.

1. historical

An analysis of the change in cumulative translation adjustment may be presented in the

notes to financial statements.

In translating the financial statements of a foreign entity located in a hyperinflationary economy, IFRS requires

the foreign financial statements to be restated for inflation and then all restated balances are translated at the current rate.

Select all that apply Current U.S. GAAP recognizes that

some foreign entities are closely integrated with their parent company. some foreign entities are relatively self-contained and are integrated with the local economy.

The current year's translation adjustment related to a foreign subsidiary is recognized as an adjustment to the Investment in Foreign Subsidiary account on the parent company's books.

True

Select all that apply The net asset balance sheet exposure of a foreign entity can be hedged using a

foreign currency forward contract. foreign currency option. foreign currency note payable.

The accounting system must keep track of the acquisition date exchange rates related to those assets that are translated at

historical exchange rates under the temporal method.

Under the temporal method of translation, assets carried on the foreign entity's balance sheet at historical cost are translated using

historical exchange rates.

The functional currency of a foreign entity is the currency of the country in which the entity is located. A gain on forward contract designated as a hedge of the net investment in this foreign entity is reported

in accumulated other comprehensive income on the consolidated balance sheet.

The functional currency of a foreign entity is the U.S. dollar. The gain on forward contract designated as a hedge of the net investment in this foreign entity should be reported

in net income in the consolidated income statement.

Select all that apply Conceptually, translation adjustments that result from applying either the current rate method or the temporal method could be

included in consolidated net income as a translation gain or loss. included in consolidated other comprehensive income as a deferred translation gain or loss.

In applying the equity method, the current year's negative translation adjustment calculated by reference to changes in net assets and a depreciation in the foreign currency

is recognized as a credit to the Investment in Foreign Subsidiary account.

Select all that apply Balance sheet accounts translated using the same exchange rate under both the current rate and temporal methods include

long-term debt. cash and receivables. additional paid in capital.

Select all that apply Assets translated using a different exchange rate under the current rate method than under the temporal method include

property, plant and equipment. intangible assets.

In determining the functional currency of a foreign subsidiary, IFRS

provides a hierarchy of primary and other factors to be considered.

A U.S.-based company has a foreign subsidiary that has the Mexican peso as its functional currency. The Mexican subsidiary recognizes in its Mexican peso income statement a foreign exchange gain on a Colombian peso account receivable. In preparing its consolidated income statement, the U.S. parent company should translate the Mexican subsidiary's foreign exchange gain into U.S. dollars using the

average-for-the-year exchange rate between the Mexican peso and U.S. dollar.

Translating a foreign currency balance sheet account at the current exchange rate gives rise to

balance sheet exposure to foreign exchange risk.

Select all that apply Under the temporal method of translation, balance sheet accounts translated at the current exchange rate include

cash and receivables. accounts and notes payable.

Select all that apply When the temporal method of translation is used, inventory carried at foreign currency cost on the foreign entity's balance sheet under the lower of cost or net realizable value rule

could be carried at net realizable value in parent currency on the parent's consolidated balance sheet. could be carried at cost in parent currency on the parent's consolidated balance sheet.

Balance sheet exposure under the current rate method of translation is equal to a foreign operation's

net asset position.

In consolidating a foreign subsidiary, the current translation adjustment on the excess of fair value over book value related to that foreign subsidiary must be

recognized through an adjusting entry on the consolidation worksheet.

Under the temporal method, a gain on the sale of land in foreign currency (FC) is translated into parent company currency by multiplying the cash proceeds from the sale in FC by the exchange rate in effect on the date of sale and

subtracting the product of multiplying the cost of the land in FC by the exchange rate in effect when the land was acquired.

Select all that apply Locations in the financial statements where companies typically present an analysis of the change in cumulative translation adjustment includes

the notes to financial statements. the statement of comprehensive income.

Under the temporal method, depreciation expense and accumulated depreciation on property, plant, and equipment are translated

using the historical exchange rate when the property, plant, and equipment was acquired.

Net cash from operations reported in the translated statement of cash flows

will be the same regardless of whether the current rate method or temporal method is used.

In determining remeasurement gains and losses under the temporal method, the focus is on determining the impact that exchange rate changes have on the

beginning balance and changes in net monetary assets and liabilities.

In determining the translation adjustment when the current rate method is used, the foreign entity's net asset balance at the beginning of the year is translated using the

beginning-of-the-year exchange rate.

Under the temporal method, cost of goods sold (COGS) in foreign currency (FC) is translated into parent company currency by

decomposing COGS in FC into components and then multiplying each of these components by its appropriate historical exchange rate.

Select all that apply Assuming that all expenses are incurred evenly throughout the year, those expenses translated using a different exchange rate under the current rate method than under the temporal method include

depreciation expense. cost of goods sold.

The functional currency of a foreign entity located in a highly inflationary country

does not need to be identified because the entity's foreign currency financial statements must be translated using the temporal method.

The net asset balance sheet exposure related to a French subsidiary can be hedged with a

euro note payable.

Comparability of financial statements across companies within an industry is made more difficult by

some companies identifying local currencies as functional currency and other companies identifying the U.S. dollar as functional currency.

Each of the ratios calculated from a foreign entity's foreign currency financial statements will have a different value in parent company currency when the foreign financial statements are translated using

the temporal method.

Foreign currency balance sheet accounts that are translated at the current exchange rate are (1) to translation adjustment.

1. exposed

In determining the remeasurement gain or loss that results when the temporal method of translation is used the beginning net (1) asset or liability position is translated using the beginning-of-the-year exchange rate.

1. monetary

Translating a foreign currency asset at the current exchange rate when the foreign currency has appreciated gives rise to a (1) translation adjustment.

1. positive

Under the temporal method of translation, assets carried on the foreign entity's balance sheet at a current or future value are translated using

the current exchange rate.

Some of the ratios calculated from a foreign entity's foreign currency financial statements will have the same value in parent company currency when the foreign financial statements are translated using

the current rate method.

Consistent with the underlying assumption of the current rate method that the net investment in a foreign operation is exposed to foreign exchange risk, all assets and liabilities of the foreign operation are translated into parent company currency using the (1) exchange rate.

1. current

Net cash from operations reported in the translated statement of cash flows will be the same regardless of whether a foreign entity's financial statements have been translated using the current rate method or remeasured using the temporal method.

True

Select all that apply Translating a liability on a foreign subsidiary's balance sheet at the current exchange rate results in

a negative translation adjustment when the foreign currency has appreciated. a positive translation adjustment when the foreign currency has depreciated.

Select all that apply Translating an asset on a foreign subsidiary's balance sheet at the current exchange rate results in

a negative translation adjustment when the foreign currency has depreciated. a positive translation adjustment when the foreign currency has appreciated.

The current rate method of translation assumes that a foreign subsidiary is

a net asset that is exposed to foreign exchange risk.

Select all that apply Current U.S. GAAP recognizes that some foreign entities

are relatively self-contained and integrated with the local economy and therefore primarily conduct business using foreign currency. are closely integrated with their parent company and therefore primarily conduct business using parent company currency.

Select all that apply There is no need to keep record of the acquisition date exchange rates related to

assets translated at the current exchange rate under the temporal method. assets translated under the current rate method.

In determining the translation adjustment when the current rate method is used, dividends declared by the foreign entity in the current year are translated using the

exchange rate on the date the dividends are declared.

The foreign currency financial statements of a foreign entity located in a highly inflationary economy

must be translated using the temporal method.

Similar to U.S. GAAP, IFRS requires the gain or loss on a financial instrument used to hedge a net investment in foreign operation to be

reported in accumulated other comprehensive income along with the translation adjustment being hedged.

When an asset carried at historical cost on a foreign currency balance sheet is remeasured into parent company currency using the temporal method the resulting parent currency balance for that asset

represents the historical cost of the asset in parent currency.

Select all that apply Translation using the temporal method with remeasurement gains and losses recognized in net income is appropriate for those foreign entities

that are located in highly inflationary economies. that have the U.S. dollar as their functional currency.

Select all that apply The Canadian subsidiary of a U.S.-based company has an account receivable in British pounds. To report this account receivable in the U.S.-parent's consolidated balance sheet, the

the Canadian dollar translated amount for the British pound receivable should be translated into U.S. dollars using the current exchange rate. British pound receivable should translated into Canadian dollars using the current exchange rate.

In translating foreign currency financial statements into parent company currency using the current rate method, a translation adjustment can be calculated as a balancing amount. This balancing amount is

the cumulative translation adjustment.