Ch. 10 LS

Under the temporal method of translation, balance sheet accounts translated at the current exchange rate include

cash and receivables; accounts and notes payable

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

current

The primary currency of a foreign entity's operating environment is its __________ currency

functional

The foreign currency financial statements of a foreign entity located in a highly inflationary economy

must be translated using the temporal method

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

negative

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

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

remeasured

The US dollar is the _______ currency for a US-based company

reporting

Under the temporal method, expenses are translated using

the average-for-the-year and historical exchange rate

Locations in the financial statements where companies typically present an analysis of the change in cumulative translation adjustment includes

the statement of comprehensive income; the notes of financial statements

Under the temporal method, depreciation expense and accumulated depreciation on property, plant, and equipment are translated

using the historical exchange rate when the property, plant, and equipment was acquired

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

the cumulative translation adjustment related to a specific foreign subsidiary is reported on the parent company's separate balance sheet

and on the foreign subsidiary's translated balance sheet

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

balance sheet exposure to foreign exchange risk

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

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

exposed

Under the temporal method of translation, foreign entities generally will

have a net liability balance sheet exposure

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

historical

Determining the functional currency of a foreign subsidiary

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

In determining the remeasurement gain or loss that results when the temporal method of translation is used the beginning net ____________ asset or liability position is translated using the beginning-of-the-year exchange rate.

monetary

Under the current rate method of translation, a gain on the sale of land should be translated at

the exchange rate on the date the land was sold

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

common stock and additional paid-in capital; equipment, buildings, and land

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

positive

The functional currency of a foreign entity is defined as the

primary currency of the foreign entity's operating environment

Under the current rate method of translation,

expenses incurred evenly throughout the year are translated at the average-for-the-year exchange rate; revenues generated evenly throughout the year are translated at the average-for-the-year exchange rate

Under the temporal method of translation, assets carried on the foreign entity's balance sheet at historical cost are translated using

historical exchange rate

A company reports a negative cumulative translation adjustment of $200 at the beginning of the year and a positive cumulative translation adjustment of $100 at the end of the year. All of the company's foreign operations have a foreign currency as their functional currency. In aggregate, the foreign currencies in which the company primarily operates must have

increased in value (appreciated) in the current year

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

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

the current exchange rate

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

net asset position

Under the temporal method, revenues that are earned evenly throughout the year are translated using

the average-for-the-year exchange rate

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

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 parent company currency

Under the temporal method of translation, a foreign entity

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

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

Current US GAAP recognizes that some foreign entities

are closely integrated with their parent company and therefore primarily conduct business using parent company currency; are relatively self-contained and integrated with the local economy and therefore primarily conduct business using foreign currency

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.

asset

When the temporal method of translation is used, inventory carried at foreign currency cost on the foreign entity's balance sheet under the lower of cost or net realizable value rule

could be carried at net realized value in parent currency on the parent's consolidated balance sheet; could be carried at cost in parent currency on the parent's consolidated balance sheet

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

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

A US-based company has a foreign subsidiary. The functional currency of the foreign subsidiary can be either the US dollar or a ___________ currency

foreign

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

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

A basic objective of the temporal method of translation is to

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

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 rates

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

Under the temporal method, a gain on the sale of land in foreign currency (FC) is translated into parent company currency by multiplying the cash proceeds from the sale in FC by the exchange rate in effect on the date of sale and

subtracting the product of multiplying the cost of the land in FC by the exchange rate in effect when the land was acquired

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

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

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