ACC 677 Ch. 7

Which one of the following items is remeasured using the current exchange rate under the temporal method? a. accounts payable b. dividends declared c. additional paid in capital d. amortization expense

a. accounts payable

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? a. current rate method b. current/noncurrent method c. monetary/nonmonetary method d. temporal method

a. current rate method

Homeko Inc is located in the US but it has subsidiaries in Germany. When the euro appreciates relative to the US dollar, what is the direction of the translation adjustment to consolidate Homeko's financial statements? a. when there is net asset exposure, the translation adjustment will be positive b. when there is net liability exposure, the translation adjustment will be positive c. the direction of the adjustment is indeterminate d. there will be no adjustment necessary unless the difference is realized

a. when there is net asset exposure, the translation adjustment will be positive

Under the current rate method of translating foreign currency financial statements, what exchange rate should be used for COGS? a. spot rate at the end of the year b. average rate during the year c. spot rate mid-year d. there is no single rate because beginning and ending inventory must be converted at different exchange rates than purchases

b. average rate during the year

Essco Ltd, a foreign subsidiary of Peako Corp., has written down its inventory to current market value under a "lower of cost or net realizable value" rule. When consolidating Essco's balance sheet into Peako's balance sheet using the current rate method, what exchange rate should be used for the inventory? a. historical rate b. current rate c. average rate d. cannot be determined with the information given

b. current rate

What exchange rate should be used to translate the common stock of Essco Ltd, a foreign subsidiary of Peak Corp, when consolidating the financial statements using the current rate method? a. current rate b. historical rate c. average rate d. cannot be determined with the information given

b. historical rate

In accordance with US GAAP, which translation combination would be appropriate for a foreign operation whose functional currency is the US dollar? a. temporal; separate component of stockholders' equity b. temporal; gain or loss in income statement c. current rate; separate component of stockholders' equity d. current rate; gain or loss in income statement

b. temporal; gain or loss in income statement

A Danish subsidiary of a US corporation recorded a building it purchased in 2020 for 100,000,000 krone, when the exchange rate was $0.132/krone. The current exchange rate is $0.163/krone. Under the temporal method, how should the translated amount of the restated asset be interpreted? a. the US parent would have to pay $16,300,000 to acquire the building today b. the US parent would have had to pay $13,200,000 to acquire the building in 2020 c. the building is worth $13,200,000 to the US parent today d. none of the above

b. the US parent would have had to pay $13,200,000 to acquire the building in 2020

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 under IFRS? a. a translation gain must be reported in net income b. a positive translation adjustment must be reported in stockholders' equity c. a negative translation adjustment must be reported in stockholders' equity d. a translation loss must be reported in net income

c. a negative translation adjustment must be reported in stockholders' equity

Non-monetary assets DO NOT include: a. fixed assets b. inventory c. accounts receivable d. customer deposits

c. accounts receivable

In accordance with IFRS, which translation combination would be appropriate for a foreign operation whose functional currency is the currency of the host country (foreign currency)? a. temporal; separate component of stockholders' equity b. temporal; gain or loss in income statement c. current rate; separate component of stockholders' equity d. current rate; gain or loss in income statement

c. current rate; separate component of stockholders' equity

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? a. average rate b. current rate c. historical rate d. forward rate

c. historical rate

Under the current rate method of translating foreign currency financial statements, what is the amount of the balance sheet exposure? a. it is equal to the amount of assets recorded by the subsidiary b. it is equal to the amount of liabilities recorded by the subsidiary c. it is equal to the foreign operation's net asset position d. it is equal to total assets plus total liabilities

c. it is equal to the foreign operation's net asset position

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

c. it is realized when the foreign operation is sold at book value and the proceeds are converted into parent company currency

Which one of the following items is normally translated the same way under both the current rate and temporal methods of translation? a. inventory b. equipment c. sales revenue d. depreciation expense

c. sales revenue

In the translated financial statements, which method of translation maintains 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

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 assets than monetary liabilities, and the foreign currency appreciates in value b. the foreign subsidiary has more monetary liabilities than monetary assets, and the foreign currency depreciates in value c. the foreign subsidiary has more monetary assets than monetary liabilities, and the foreign currency depreciates in value d. the foreign subsidiary has more total assets than total liabilities, and the foreign currency appreciates in value

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

In translating the financial statements of a foreign subsidiary into the parent's reporting currency under the current rate method, which of the following statements is true? a. expenses are translated using a combination of current and historical exchange rates b. intangible assets are translated at the historical exchange rates in effect on the date the assets are purchased c. the translation adjustment is a function of the foreign subsidiary's net assets d. the translation adjustment is a function of the relative amount of monetary assets and monetary liabilities held by the foreign subsidiary

c. the translation adjustment is a function of the foreign subsidiary's net assets

What is another term for balance sheet exposure? a. transaction exposure b. exchange exposure c. translation exposure d. negative exposure

c. translation exposure

Which of the following items in the balance sheet is subject to accounting exposure? a. only assets b. only liabilities and owners' equity c. all accounts translated at historical exchange rates d. all accounts translated at current exchange rates

d. all accounts translated at current exchange rates

Which of the following methods for translating foreign currency financial statements attempts to produce consolidated financial statements as if a foreign subsidiary had actually used the parent company's currency for all its transactions? a. current/non-current method b. monetary/non-monetary method c. current rate method d. temporal method

d. temporal method

Which method of translating foreign currency financial statements must be used according to FASB ASC 830, Foreign Currency Matters? a. temporal method for all subsidiaries b. current rate method for all subsidiaries c. US parent companies may choose between the temporal method and the current rate method d. temporal method for subsidiaries that are closely controlled by the parent and current rate method for subsidiaries which are not

d. temporal method for subsidiaries that are closely controlled by the parent and current rate method for subsidiaries which are not

Under FASB ASC 830, Foreign Currency Matters, what is the definition of functional currency? a. the primary currency used by the parent company b. the currency that minimizes the translation adjustment on the consolidated financial statements c. the currency in which the subsidiary does its financial operating d. the primary currency of the foreign entity's operating environment

d. the primary currency of the foreign entity's operating environment

Assuming that the foreign subsidiary is determined to have the foreign currency as its functional currency in accordance with IAS 21, determine the total amount that should be included in Pacter's consolidated balance sheet for the assets listed in accordance with IFRS.

670,000 (100,000 + 200,000 + 120,000 + 250,000)

Assuming that the foreign subsidiary is determined to have Pacter's reporting currency as its functional currency in accordance with IAS 21, determine the amount that should be included in Pacter's consolidated balance sheet for the assets listed in accordance with IFRS.

770,000 (100,000 + 240,000 + 130,000 + 300,000)