Chapter 10 - Advanced Accounting

Select all that apply Under the temporal method of translation, balance sheet accounts translated at historical exchange rates include -Equipment, buildings, and land. -Accounts and notes payable -Cash and cash receivables -Common stock and additional paid-in capital.

-Equipment, buildings, and land -Common stock and additional paid-in capital.

A depreciation in the value of a foreign currency will result in a negative translation adjustment when a foreign subsidiary has a net ____________ balance sheet exposure.

Assets

The translation adjustment that results from the use of the temporal method is a realized (cash) gain or loss that is caused by changes in exchange rates. -True -False

False - Translation adjustments are not realized in cash

Exposure to translation adjustment exists for those foreign currency balances that are translated at -The historical exchange rate -The current exchange rate -Both the current and historical exchange rates.

The current exchange rate

Select all that apply Under the temporal method of translation, balance sheet accounts translated at the current exchange rate include -Accounts and notes payable -Common stock and additional paid in capital -Equipment, buildings, and land -Cash and receivables

-Accounts and notes payable -Cash and receivables

Select all that apply Balance sheet accounts translated using the same exchange rate under both the current rate and temporal methods include -Cash and receivables -Intangible assets -Long-term debt -Additional paid in capital

-Cash and receivables -Long-term debt -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 -Intangible assets -Cash and receivables -Property, plant, and equipment

-Intangible assets -Property, plant, and equipment

Under the current rate method of translation, -All assets other than goodwill are translated at the current exchange rate -Current assets are translated at the current exchange rate and noncurrent assets are translated at historical rates. -Monetary assets are translated at the current exchange rate and nonmonetary assets are translated at historical rates. -All assets are translated at the current exchange rate.

All assets are translated at the current exchange rate

Sales revenue recognized evenly throughout the year by a foreign subsidiary should be translated under the current rate method using the -End of year exchange rate -Average-for-the-period exchange rate -Beginning of year exchange rate

Average-for-the-period exchange rate.

Under the temporal method of translation, a foreign entity -Always has a net liability balance sheet exposure -Can have a net asset or a net liability balance sheet exposure -Always has a net asset balance sheet exposure

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

The _________ exchange rate is the exchange rate that exists at the balance sheet date.

Current

The accounts of a foreign subsidiary are translated into the parent's currency using a combination of -Current and historical exchange rates -Current and future exchange rates -Spot and forward exchange rates

Current and Historical exchange rates

Under both the current rate and temporal methods of translation the parent currency amount of retained earnings at the end of the year is determined by translating the -Ending retained earnings in foreign currency at the current exchange rate -Dividends and ending retained earnings in foreign currency at the average-for-the-year exchange rate. -Current year's net income and dividends in foreign currency separately and combining these with beginning retained earnings

Current year's net income and dividends in foreign currency separately and combining these with beginning retained earnings.

Under both the current rate and temporal methods of translation the retained earnings of a foreign entity are translated into parent company currency by multiplying ending retained earnings in foreign currency by the average-for-the-period exchange rate. -True -False

False - Translation of retained earnings requires separate translation of foreign currency net income and dividends and then combining these with beginning retained earnings in parent currency

A net balance sheet exposure exists when -The amount of liabilities translated at the current exchange rate is higher than the amount of assets translated at the current exchange rate. -The amount of assets translated at the current exchange rate is higher than the amount of liabilities translated at the current exchange rate. -The amount of assets translated at the historical exchange rate is higher than the amount of assets translated at the current exchange rate. -The amount of assets translated at the current exchange rate is higher than the amount of assets translated at the historical exchange rate.

The amount of assets translated at the current exchange rate is higher than the amount of liabilities translated at the current exchange rate.

Under the temporal method, revenues that are earned evenly throughout the year are translated using -Historical exchange rates -The current exchange rate -The average-for-the-year exchange rate.

The average-for-the-year exchange rate

Under the current rate method of translation, a gain of the sale of land should be translated at -The exchange rate on the date the land was purchased -The average-for-the-period exchange rate -The current exchange rate -The exchange rate on the date the land was sold

The exchange rate on the date the land was sold

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

-A negative translation adjustment when the foreign currency has appreciated -A positive translation adjustment when the foreign currency has depreciated

When the amount of assets translated at the current exchange rate is lower than the amount of liabilities translated at the current exchange rate -A net liability balance sheet exposure exists -A net asset transaction exposure exists. -A net liability transaction exposure exists. -A net asset balance sheet exposure exists.

A net liability balance sheet exposure exists

Under the current rate method of translation, -Current liabilities are translated at the current exchange rate and noncurrent liabilities are translated at historical rates. -All liabilities other than deferred income taxes are translated at the current exchange rate -All liabilities are translated at the current exchange rate -Monetary liabilities are translated at the current exchange rate and nonmonetary liabilities are translated at historical rates.

All liabilities are translated at the current exchange rate

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

exposed

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

positive

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 ____________ exchange rate.

Current

The translation adjustment that results from applying the temporal method -Is realized in cash immediately, just as is true when the current rate method is used to translate financial statements. -Can be realized in cash if the foreign entity is sold and the cash proceeds are converted to parent company currency -Can be realized in cash if the foreign entity's liabilities are paid using parent company currency

Can be realized in cash only if the foreign entity's liabilities are paid using parent company currency

Under the temporal method, expenses related to assets that are translated at historical exchange rates (such as depreciation expense) are translated using -The average-for-the-year exchange rate. -The current exchange rate -Historical exchange rates.

Historical exchange rates

A net asset balance sheet exposure will generate a positive translation adjustment when the foreign currency -Increases (appreciates) in value. -Decreases (depreciates) in value. -Does not change in value.

Increases (appreciates) in value.

Balance sheet exposure under the current rate method of translation is equal to a foreign operation's -Net monetary liability position -Net asset position -Retained earnings -Net income

Net asset position

A basic objective of the temporal method of translation is to -Reflect in the translated financial statements that a foreign operation is a net asset that is exposed to foreign exchange risk -Reflect in the translated financial statements the net realized gain or loss that results from a change in the value of the foreign currency -Produce a set of translated financial statements as if the foreign operation had used the parent company's currency in its daily operations.

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

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 -Assets translated at historical exchange rates under the temporal method.

-Assets translated at the current exchange rate under the temporal method. -Assets translated under the current rate method.

The translation adjustment arising under the current rate method becomes a realized (cash) gain or loss when -A foreign subsidiary is sold and the sales proceeds are converted into parent company currency -The parent sends parent company currency to the foreign subsidiary that is used to pay all of its liabilities -A foreign subsidiary's assets and liabilities are translated at the current exchange rate.

A foreign subsidiary is sold and the sales proceeds are converted into parent company currency

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. -The current value of the land in terms of the foreign currency. -The current value of the land in terms of the parent company's currency.

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

A positive translation adjustment will arise when a foreign currency decreases in value (depreciates) and the foreign subsidiary -Does not have a balance sheet exposure -Has a net asset balance sheet exposure -Has a net liability balance sheet exposure

Has a net liability balance sheet exposure

Under the temporal method of translation, foreign entities generally will -Have a net liability balance sheet exposure -Have a net asset balance sheet exposure -Not have a balance sheet exposure

Have a net liability balance sheet exposure

Under the temporal method of translation, assets carried on the foreign entity's balance sheet at historical cost are translated using -The average-for-the-period exchange rate -The current exchange rate -Historical exchange rates

Historical exchange rates

Under the temporal method, expenses related to assets that are translated at historical exchange rates (such as depreciation expense) are translated using -The current exchange rate -Historical exchange rates -The average-for-the-year exchange rate

Historical exchange rates

The translation adjustment arising under the current rate method becomes a realized gain or loss when the foreign subsidiary is sold and the foreign currency proceeds from the sale are _____________ in U.S. dollars.

Converted