Chapter 10

What is a company's functional currency? A. the currency of the primary economic environment in which it operates. B. the currency of the country where it has its headquarters. C. the currency in which it prepares its financial statements. D. the reporting currency of its parent for a subsidiary. E. the currency it chooses to designate as such.

A

In accounting, the term translation refers to A. the calculation of gains or losses from hedging transactions. B. the calculation of exchange rate gains or losses on individual transactions in foreign currencies. C. the procedure required to identify a company's functional currency. D. the calculation of gains or losses from all transactions for the year. E. a procedure to prepare a foreign subsidiary's financial statements for consolidation.

E

Which method of remeasuring a foreign subsidiary's financial statements is correct? A. Historical rate method. B. Working capital method. C. Current rate method. D. Translation. E. Temporal method.

E

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? A. first translate them, then remeasure them. B. first remeasure them, then translate them. C. state all of the subsidiary's accounts in U.S. dollars using the exchange rate in effect at the balance sheet date. D. translate them. E. remeasure them.

E

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? A. Most of the subsidiary's sales and purchases were with companies in the U.S. B. Dilty's functional currency is the dollar and Dilty is the parent. C. Dilty's other subsidiaries all had the dollar as their functional currency. D. Generally accepted accounting principles require that the subsidiary's functional currency must be the dollar if consolidated financial statements are to be prepared. E. Dilty is located in the U.S.

A

A highly inflationary economy is defined as A. Cumulative 5-year inflation in excess of 100%. B. Cumulative 3-year inflation in excess of 100%. C. Cumulative 5-year inflation in excess of 90%. D. Cumulative 3-year inflation in excess of 90%. E. Any country designated as a company operating in a third-world

B

A historical exchange rate for common stock of a foreign subsidiary is best described as A. The rate at date of the acquisition business combination. B. The rate when the common stock was originally issued for the acquisition transaction. C. The average rate from date of acquisition to the date of the balance sheet. D. The rate from the prior year's balances. E. The January 1 exchange rate.

B

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? A. the temporal method. B. the current rate method. C. the current/noncurrent method. D. the monetary/nonmonetary method. E. the noncurrent rate method.

B

When preparing a consolidating statement of cash flows, which of the following statements is false? A. All operating activity items are translated at an average exchange rate for the period. B. A change in accounts receivable is translated using the current rate. C. A change in long-term debt is translated using the historical rate at the date of the change. D. Dividends paid are translated using the historical rate at the date of the payment. E. All items follow translation rates used for the balance sheet and the income statement.

B

Which accounts are translated using current exchange rates? A. all revenues and expenses. B. all assets and liabilities. C. cash, receivables, and most liabilities. D. all current assets and liabilities. E. all noncurrent assets and liabilities.

B

The translation adjustment from translating a foreign subsidiary's financial statements should be shown as A. an asset or liability (depending on the balance) in the consolidated balance sheet. B. a revenue or expense (depending on the balance) in the consolidated income statement. C. a component of stockholders' equity in the consolidated balance sheet. D. a component of cash flows from financing activities in the consolidated statement of cash flows. E. an element of the notes which accompany the consolidated financial statements.

C

Under the current rate method, inventory at market would be translated at what rate? A. Beginning of the year rate. B. Average rate. C. Current rate. D. Historical rate. E. Composite amount.

C

Under the current rate method, property, plant & equipment would be translated at what rate? A. Beginning of the year rate. B. Average rate. C. Current rate. D. Historical rate. E. Composite amount.

C

Under the temporal method, inventory at market would be remeasured at what rate? A. Beginning of the year rate. B. Average rate. C. Current rate. D. Historical rate. E. Composite amount.

C

When consolidating a foreign subsidiary, which of the following statements is true? A. Parent reports a cumulative translation adjustment from adjusting its investment account under the equity method. B. Parent reports a gain or loss in net income from adjusting its investment account under the equity method. C. Subsidiary's cumulative translation adjustment is carried forward to the consolidated balance sheet. D. Subsidiary's income/loss is carried forward to the consolidated balance sheet. E. All foreign currency gains/losses are eliminated in the consolidated income statement and balance sheet.

C

Which accounts are remeasured using current exchange rates? A. all revenues and expenses. B. all assets and liabilities. C. cash, receivables, and most liabilities. D. all current assets and liabilities. E. all noncurrent assets and liabilities.

C

Which method of translating a foreign subsidiary's financial statements is correct? A. Historical rate method. B. Working capital method. C. Current rate method. D. Remeasurement. E. Temporal method.

C

A net asset balance sheet exposure exists and the foreign currency depreciates. Which of the following statements is true? A. There is no translation adjustment. B. There is a transaction loss. C. There is a transaction gain. D. There is a negative translation adjustment. E. There is a positive translation adjustment.

D

A net liability balance sheet exposure exists and the foreign currency appreciates. Which of the following statements is true? A. There is no translation adjustment. B. There is a transaction loss. C. There is a transaction gain. D. There is a negative translation adjustment. E. There is a positive translation adjustment.

D

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? A. Current/Noncurrent Method. B. Monetary/Nonmonetary Method. C. Current Rate Method. D. Temporal Method. E. Indirect Method.

D

If a subsidiary is operating in a highly inflationary economy, how are the financial statements to be restated? A. Historical rate. B. Working capital rate. C. Translation. D. Remeasurement. E. Current rate.

D

In translating a foreign subsidiary's financial statements, which exchange rate does the current method require for the subsidiary's assets and liabilities? A. the exchange rate in effect when each asset or liability was acquired. B. the average exchange rate for the current year. C. a calculated exchange rate based on market value. D. the exchange rate in effect as of the balance sheet date. E. the exchange rate in effect at the start of the current year.

D

Under the current rate method, common stock would be translated at what rate? A. Beginning of the year rate. B. Average rate. C. Current rate. D. Historical rate. E. Composite amount.

D

Under the temporal method, common stock would be remeasured at what rate? A. Beginning of the year rate. B. Average rate. C. Current rate. D. Historical rate. E. Composite amount.

D

Under the temporal method, property, plant & equipment would be remeasured at what rate? A. Beginning of the year rate. B. Average rate. C. Current rate. D. Historical rate.

D

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? A. The cumulative translation adjustment included in the Investment in Subsidiary account is eliminated. B. The excess of fair value over book value since the date of acquisition is revalued for the change in exchange rate. C. The amount of equity income recognized by the parent in the current year is eliminated. D. The allocations of excess of fair value over book value at the date of acquisition are eliminated. E. The subsidiary's stockholders'; equity accounts as of the beginning of the year are eliminated.

D

A net asset balance sheet exposure exists and the foreign currency appreciates. Which of the following statements is true? A. There is no translation adjustment. B. There is a transaction loss. C. There is a transaction gain. D. There is a negative translation adjustment. E. There is a positive translation adjustment.

E

A net liability balance sheet exposure exists and the foreign currency depreciates. Which of the following statements is true? A. There is no translation adjustment. B. There is a transaction loss. C. There is a transaction gain. D. There is a negative translation adjustment. E. There is a positive translation adjustment.

E