Chapter 08 Translation of Foreign Currency Financial Statements

Where is the disposition of a translation loss reported in the parent company's financial statements

Accumulated other comprehensive income

Which of the following is translated at the average exchange rate under the current rate method? Revenues Cost of goods sold Amortization of intangibles All of the above

All of the above

Under the current rate method, depreciation expense would be translated at what rate

Average rate

Under the current rate method, how would cost of goods sold be translated

Average rate

According to the text, which of the following is translated at the average rate for both the current rate and temporal methods? Depreciation of PPE Most expenses Retained earnings Cost of goods sold None of the above

Most Expenses

Dilty Corp. owned a subsidiary in France. Dilty concluded that the subsidiary's functional currency was the U.S. dollar. Which one of the following statements would justify this conclusion?

Most of the subsidiary's sales and purchases were with companies in the U.S.

Where is the disposition of a remeasurement gain or loss reported in the parent company's financial statements

Net income/loss in the income statement

Which of the following accounts is(are) translated at the historical rate with the temporal method? Prepaid expenses Long-term liabilities PPE Inventory measured at market Marketable securities measured at market Cash

Prepaid Expenses PPE

If a subsidiary is operating in a highly inflationary economy, how are the financial statements to be restated?

Remeasurement

Which of the following is translated at the same exchange rate under the current rate method AND temporal methods?

Revenues

When consolidating a foreign subsidiary, which of the following statements is true

Subsidiary's cumulative translation adjustment is carried forward to the consolidated balance sheet.

For a foreign subsidiary that uses the U.S. dollar as its functional currency, what method is required to ready the financial statements for consolidation?

Temporal Method

Which method of remeasuring a foreign subsidiary's financial statements is correct

Temporal method

For which of the following situations would the parent company incur a translation loss to net income? Temporal method is used, subsidiary has net asset exposure, subsidiary's currency strengthens relative to the parent's currency Temporal method is used, subsidiary has net asset exposure, subsidiary's currency weakens relative to the parent's currency Current rate method is used, subsidiary has net liability exposure, subsidiary's currency strengthens relative to the parent's currency Current rate method is used, subsidiary has net liability exposure, subsidiary's currency weakens relative to the parent's currency.

Temporal method is used, subsidiary has net asset exposure, subsidiary's currency weakens relative to the parent's currency

When preparing a consolidation worksheet for a parent and its foreign subsidiary accounted for under the equity method, which of the following statements is false?

The allocations of excess of fair value over book value at the date of acquisition are eliminated.

A historical exchange rate for common stock of a foreign subsidiary is best described as

The rate when the common stock was originally issued for the acquisition transaction

A net asset balance sheet exposure exists and the foreign currency depreciates. Which of the following statements is true?

There is a negative translation adjustment

A net liability balance sheet exposure exists and the foreign currency appreciates. Which of the following statements is true?

There is a negative translation adjustment

A net asset balance sheet exposure exists and the foreign currency appreciates. Which of the following statements is true?

There is a positive translation adjustment

A net liability balance sheet exposure exists and the foreign currency depreciates. Which of the following statements is true?

There is a positive translation adjustment

The translation adjustment from translating a foreign subsidiary's financial statements should be shown as

a component of stockholders' equity in the consolidated balance sheet.

In accounting, the term translation refers to

a procedure to prepare a foreign subsidiary's financial statements for consolidation.

See the following balance sheet numbers for a subsidiary: Cash, 5,000 Inventory (at cost), 10,000 PPE, 15,000 Accts. Payable, 4,000 Long-term debt, 20,000 Capital stock, 1,000 Retained earnings, 5,000 Assuming the temporal method is used, what is the balance sheet exposure?

19,000 net liability position

The following are balance sheet accounts with amounts translated into the parent's currency. The current rate translation is first and the historical rate translation is second. Cash: 2,000; 2,000 Accts Receivable: 10,000; 9,000 Inventory (at market): 5,000; 3,000 PPE: 22,000; 26,000 Assuming the foreign subsidiary's currency is determined to be the functional currency, what is the total amount of assets to be included on the parent's balance sheet?

39000

The following are balance sheet accounts with amounts translated into the parent's currency. The current rate translation is first and the historical rate translation is second. Cash: 2,000; 2,000 Accts Receivable: 10,000; 9,000 Inventory (at market): 5,000; 3,000 PPE: 22,000; 26,000 Assuming the parent's currency is determined to be the functional currency, what is the total amount of assets to be included on the parent's balance sheet?

43,000

See the following balance sheet numbers for a subsidiary: Cash, 5,000 Inventory (at cost), 10,000 PPE, 15,000 Accts. Payable, 4,000 Long-term debt, 20,000 Capital stock, 1,000 Retained earnings, 5,000 Assuming the current rate method is used, what is the balance sheet exposure?

6,000 net asset position

When preparing a consolidating statement of cash flows, which of the following statements is false?

A change in accounts receivable is translated using the current rate

Under the temporal method, how would cost of goods sold be remeasured?

A combination of historical rates

Which accounts are remeasured using current exchange rates?

cash, receivables, and most liabilities

Dilty Corp. owned a subsidiary in France. Dilty concluded that the subsidiary's functional currency was the U.S. dollar. What must Dilty do to ready the subsidiary's financial statements for consolidation?

remeasure them

What is a company's functional currency

the currency of the primary economic environment in which it operates.

According to U.S. GAAP for a local currency perspective, which method is usually required for translating a foreign subsidiary's financial statements into the parent's reporting currency?

the current rate method

In translating a foreign subsidiary's financial statements, which exchange rate does the current method require for the subsidiary's assets and liabilities?

the exchange rate in effect as of the balance sheet date

A foreign subsidiary of Wampoa Ltd. has one asset (inventory) and no liabilities. The subsidiary operates with a significant degree of autonomy from Wampoa and primarily uses the local currency (the won) in carrying out its transactions. Since the date the inventory was acquired, the won has decreased in value in relation to Wampoa's reporting currency. In translating the foreign subsidiary's won financial statements into the parent's reporting currency, which of the following is true? a. A translation gain must be reported in net income b. A positive translation adjustment must be reported in stockholder's equity. c. A negative translation adjustment must be reported in stockholder's equity. d. a. A translation loss must be reported in net income

C. A negative translation adjustment must be reported in stockholder's equity.

Which of the following accounts is(are) translated at the historical rate with the current rate method? Long-term liabilities Capital stock Prepaid expenses Cash Dividends PPE

Capital Stock Dividends

A highly inflationary economy is defined as

Cumulative 3-year inflation in excess of 100%.

Under the current rate method, inventory at market would be translated at what rate

Current rate

Under the current rate method, property, plant & equipment would be translated at what rate

Current rate

Under the temporal method, inventory at market would be remeasured at what rate?

Current rate

Which method of translating a foreign subsidiary's financial statements is correct

Current rate method

For which of the following situations would the parent company incur a positive translation adjustment to other comprehensive income? Temporal method is used, subsidiary has net asset exposure, subsidiary's currency weakens relative to the parent's currency Current rate method is used, subsidiary has net liability exposure, subsidiary's currency strengthens relative to the parent's currency Current rate method is used, subsidiary has net liability exposure, subsidiary's currency weakens relative to the parent's currency. Temporal method is used, subsidiary has net asset exposure, subsidiary's currency strengthens relative to the parent's currency

Current rate method is used, subsidiary has net liability exposure, subsidiary's currency weakens relative to the parent's currency.

Using the current rate method, which of the following will be translated at the current rate? Capital stock Equipment Long-term debt Inventory at cost

Equipment Long-term debt Inventory at cost

Current Rate, net liability exposure, foreign currency is strengthening (depreciating)

Gain

Temporal, net liability exposure, foreign currency is weakening (appreciating)

Gain

Under the current rate method, retained earnings would be translated at what rate

Historical Rate

Under the temporal method, retained earnings would be remeasured at what rate?

Historical Rate

Under the current rate method, common stock would be translated at what rate

Historical rate

Under the temporal method, common stock would be remeasured at what rate

Historical rate

Under the temporal method, depreciation expense would be remeasured at what rate?

Historical rate

Under the temporal method, property, plant & equipment would be remeasured at what rate

Historical rate.

Assuming the parent company's currency is the functional currency, which of the following will be translated at the current rate? Equipment Capital stock Long-term debt Inventory at cost

Long-Term Debt

Current rate, Net asset exposure, Foreign currency is weakening (appreciating)

Loss

Temporal, net asset exposure, Foreign currency is strengthened (depreciating)

Loss

Which accounts are translated using current exchange rates?

all assets and liabilities

6. In accordance with U.S. GAAP, which translation combination would be appropriate for a foreign operation whose traditional currency in the U.S. dollar? a. Temporal, Separate component of stockholder's equity b. Temporal, gain or loss in income statement c. Current rate, separate component of of stockholder's equity d. Current rate, gain or loss in income statement

b. Temporal, gain or loss in income statement

5. Which method of translation maintains, in the translated financial statements, the underlying valuation methods used in the foreign currency financial statements? a. Current rate method; income statement translated at average exchange rate for the year b. Current rate method; income statement translated at exchange rate at the balance sheet date. c. Temporal method d. Monetary/nonmonetary method

c. Temporal Method

4. Which of the following best explains how a translation loss arises when the temporal method of translation is used to translate the foreign currency financial statements of a foreign subsidiary? a. The foreign subsidiary has more monetary assests than monetary liabilites, and the foreign currency appreciates in value. b. The foreign subsidiary has more monetary liabilites than monetary assets, and the foreign currency depreciates in value. c. The foreign subsidiary has more monetary assets than monetary liabilites, and the foreign currency depreciates in value. d. The foreign subsidiary has more total assets than total liabilites, and the foreign currency appreciates in value.

c. The foreign subsidiary has more monetary assets than monetary liabilites, and the foreign currency depreciates in value.