ACC. 4010 Ch.10 Concepts

Under the temporal method, a gain on the sale of land in foreign currency is translated into parent company currency by

- Multiplying the cash proceeds from the sale in foreign currency by the exchange rate in effect on the date of sale - Subtracting the product of multiplying the cost of the land in foreign currency by the exchange rate in effect when the land was acquired

The Canadian subsidiary of a U.S.-based company has an account receivable in British pounds. To report this account receivable in the U.S.-parent's consolidated balance sheet, the

- British pound receivable should be translated into Canadian dollars using the current exchange rate - the Canadian dollar translated amount for the British pound receivable should be translated into U.S. dollars using the current exchange rate

Assuming that all expenses are incurred evenly throughout the year, those expenses translated using a different exchange rate under the current method than under the temporal method include

- COGS - Depreciation expense

Assets translated using a different exchange rate under the current rate method than under the temporal method include

- PPE - Intangible assets

Under the temporal method, 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 -long term debt -APIC

Current U.S. GAAP recognizes that some foreign entities are

- closely integrated with their parent company or - are relatively self contained and are integrated with the local economy

Under the temporal method, inventory reported at cost on the foreign currency balance sheet could be reported on the parent currency balance sheet at either

- cost - net realizable value

U.S. companies must use the current rate method to translate the FS of a foreign subsidiary whose functional currency is

a foreign currency

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

Determining the functional currency of a foreign subsidiary is

a matter of fact but may require management judgement in evaluating the facts

Translating a foreign currency balance sheet account at the current exchange rate gives rise to

balance sheet exposure to foreign exchange risk

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 ________ into U.S. dollars

converted

In consolidating a foreign subsidiary, the current translation adjustment on the excess of fair value over book value related to that foreign subsidiary must be

recognized through an adjusting entry on the consolidation worksheet

When the temporal method is used, the FS items of a foreign entity are said to be __________ into parent company currency

remeasured

The net asset balance sheet exposure of a foreign entity can be hedged using a

- foreign currency option - foreign currency note payable - foreign currency forward contract

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 - are located in highly inflationary economies

Conceptually, translation adjustments that result from applying either the current rate or temporal method could be

- included in consolidated net income as a translation gain or loss - included in consolidated OCI as a deferred translation gain or loss

Locations in the FS where companies typically present an analysis of the change in cumulative translation adjustments include

- the notes to the FS - the statement of comprehensive income

The cumulative translation adjustment related to a specific foreign subsidiary is reported on

- the parent company's separate balance sheet - on the foreign subsidiary's translated balance sheet

The indicators provided by the FASB for determining the functional currency of a foreign entity include

- whether the sales are directly affected by short term fluctuations in the exchange rate - whether the foreign entity's cash flows directly affect the parent's cash flows - the currency in which the foreign entity obtains its financing

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

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

-equipment, buildings, and land -common stock and APIC

The current rate method of translation assumes that a foreign subsidiary is

a net asset that is exposed to foreign exchange risk

Under the temporal method, foreign entities generally will have

a net liability balance sheet exposure

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

Translating an asset on a foreign subsidiary's balance sheet at the current exchange rate results in

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

Translating a liability on a foreign subsidiary's balance sheet at the current exchange rate results in

a positive translation adjustment when the foreign currency has depreciated a negative translation adjustment when the foreign currency has appreciated

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

asset

In determining remeasurement gains and losses under the temporal method, the focus is on determining the impact that the exchange rate changes have on the

beginning balance and changes in net monetary assets and liabilities

Under the temporal method, a foreign entity

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

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 ______ exchange rate is the 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

Under the current rate method of translation all assets are translated at the

current exchange rate

A company reports a negative translation adjustment in year 1 and an even larger negative translation adjustment in year 2. In aggregate, the foreign currencies in which the company primarily operates must have

depreciated in year 2 by a larger amount than they depreciated in year 1

To determine whether a country has a hyper-inflationary economy, IFRS

does not provide a specific threshold but instead provides a list of indicators indicative of hyperinflation

When an asset carried at historical cost on a foreign currency balance sheet is translated into parent company currency using the current rate method the resulting parent currency amount for that asset

does not represent either the historical cost nor the fair value of that asset in parent currency

One of the consolidation worksheet entries used to eliminate the investment in subsidiary account must

eliminate the amount of cumulative translation adjustment that is included in the investment account

The net asset balance sheet exposure related to a French subsidiary can be hedged with a

euro note payable

A positive translation adjustment will arise when a foreign currency decreases in value (depreciates) and the foreign subsidiary

has a net liability balance sheet exposure

The ______ exchange rate is the rate that existed when a transaction occurred sometime in the past

historical

Under the temporal method, COGS in foreign currency is decomposed into beginning inventory, purchases, ending inventory and then each component is translated into U.S. dollars using the appropriate __________ exchange rate

historical

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

The functional currency of a foreign entity is the U.S. dollar. The gain on forward contract designated as a hedge of the net investment in this foreign entity should be reported

in AOCI on the consolidated balance sheet

A net liability balance sheet exposure coupled with an appreciation in the value of a foreign currency will result in a ________ translation adjustment

negative

Balance sheet exposure under the current rate method of translation is equal to a foreign operation's

net asset position

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

positive

A basic objective of the temporal method of translation is to

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

In determining the functional currency of a foreign subsidiary, IFRS

provides a hierarchy of primary and other factors to be considered

In assessing the indicators provided by the FASB for determining the functional currency of a foreign entity, the FASB

provides no guidance with regard to how the indicators should be weighted

In applying the equity method to account for the investment in a foreign subsidiary, the current year's positive translation adjustment calculated by reference to changes in net assets and an appreciation in the foreign currency is

recognized as a credit to the Cumulative Translation Adjustment account on the parent company's books

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

recognized as a gain or loss in net income

When the current rate method is appropriate, the resulting translation adjustment must be

reported in AOCI on the balance sheet

Under both the current and temporal methods the retained earnings of a foreign entity requires

separate translation of foreign currency net income and dividends and then combining these with beginning retained earnings in parent company

The current year's translation adjustment related to a foreign subsidiary is recognized as an adjustment to

the Investment in Foreign Subsidiary account on the parent company's books

A net asset balance sheet exposure exists when

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

In translating foreign currency financial statements into parent company currency using the current rate method, a translation adjustment can be calculated as a balancing amount. This balancing amount is

the cumulative translation adjustment

Exposure to translation adjustment exists for those foreign currency balances that are translated at

the current exchange rate

Some of the ratios calculated from a foreign entity's foreign currency FS will have the same value in parent company currency when the foreign FS are translated using

the current rate method

In translating the FS of a foreign entity located in a hyper inflationary economy, IFRS requires

the foreign FS to be restated for inflation and then all restated balances are translated at the current exchange rate

The translation adjustment that results from applying the temporal method can be realized in cash only if

the foreign entity's liabilities are paid using the parent company currency

Under both IFRS and U.S. GAAP, the cumulative translation adjustment related to a foreign subsidiary and the cumulative gain or loss on the net investment hedge of that subsidiary are transferred from accumulated other comprehensive income to net income when

the foreign subsidiary is sold

Net cash from operations reported in the translated statement of cash flows will be

the same regardless of which method is used

Each of the ratios calculated from a foreign entity's foreign currency FS will have a different value in parent company currency when the foreign FS are translated using

the temporal method

The foreign currency FS of a foreign entity located in a highly inflationary economy must be translated using

the temporal method

The methods used in valuing assets on the foreign currency FS of a foreign entity are maintained in the translated parent company currency FS when

the temporal method is used to translate the foreign FS

Under the current rate method of translation, revenues and expenses generally are translated at

the-average-for-the-period exchange rate