Exam IIII Advanced Accounting

The current spot rate to purchase a foreign currency is $1.00. The intrinsic value of an option to purchase that foreign currency at a strike price of $0.90 is

$0.10 per foreign currency unit

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

Current U.S. GAAP recognizes that

-some foreign entities primarily conduct their operations in parent company currency. -some foreign entities primarily conduct their operations in foreign currency.

The reporting currency for a U.S.-based company is the

U.S. dollar.

Translation adjustments included in other comprehensive income are

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

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, 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 of translation, a foreign entity

can have a net asset or a net liability balance sheet exposure.

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

cash

A U.S.-based company has a foreign subsidiary. The functional currency of the foreign subsidiary can be either the U.S. dollar or a (blank) currency

foreign

The exchange rate today at which a foreign currency can be purchased or sold on a specific future date is the

forward 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.

The original discount (or premium) on a forward contract is determined by the difference in the spot rate on the date the forward contract is signed and

the forward rate on the date the forward contract is signed.

The original discount (or premium) on a forward contract is determined by the difference in the forward rate on the date the forward contract is signed and

the spot rate on the date the forward contract is signed.

The current spot rate to sell a foreign currency is $1.00. The intrinsic value of an option to sell that foreign currency at a strike price of $0.90 is

zero; the option has no intrinsic value.

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

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

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

cash and receivables. accounts and notes payable.

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

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

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.

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

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

The price at which foreign currency can be sold for U.S. dollars is known as the foreign currency

exchange rate.

The (blank) exchange rate is the price today at which a foreign currency can be purchased or sold at a specific date in the future

forward

The primary currency of a foreign entity's operating environment is its (blank) currency.

functional

Under the temporal method of translation, foreign entities generally will

have a net liability balance sheet exposure.

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 (blank) exchange rate.

historical

Under the temporal method, expenses related to assets that are translated at historical exchange rates (such as depreciation expense) are translated using

historical exchange rates

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

In accounting for a forward contract used as a cash flow hedge of a foreign currency denominated asset or liability, the original discount or premium on the forward contract is recognized

in net income over the life of the forward contract.

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 assessing the effectiveness of an option as a foreign currency hedge, the option's time value

may be excluded.

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

monetary

The functional currency of a foreign entity is defined as the

primary currency of the foreign entity's operating environment.

A basic objective of the temporal method of translation is to

produce a set of translated financial statements as if the foreign operation had used the parent company's currency in its daily operations.

When the temporal method of translation is appropriate, the resulting translation adjustment must be

recognized as a gain or loss in net income.

A company makes a credit sale denominated in a foreign currency. On the date of sale the company enters into a forward contract to sell the foreign currency when it is received. The forward contract is a hedge of a(n)

recognized foreign currency denominated asset.

Consistent with the basic objective of the temporal method, land held on the balance sheet of a foreign subsidiary should be translated into the parent company's currency so that the translated amount

reflects the amount of parent company currency that would have been paid to acquire the land.

When the temporal method is used, the financial statement items of a foreign entity are said to be (blank) into parent company currency.

remeasured

The current or (blank) exchange rate is the price at which a foreign currency can be purchased or sold today.

spot

Under the temporal method, revenues that are earned evenly throughout the year are translated using

the average-for-the-year exchange rate.

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.

A company accepts a sales order from a foreign customer and will receive payment in foreign currency when it ships goods to the foreign customer in three months. On the date the order is accepted, the company enters into a forward contract to sell the foreign currency when it is received. The forward contract is a hedge of a(n)

unrecognized foreign currency firm commitment.