MBA 6315 - Ch. 12 Pre-Reading

The foreign currency is the functional currency when the ______ (Choice One) 1. sales contracts are denominated in the parent's currency. 2. sales prices are responsive to the short-term changes in the exchange rates and the worldwide competition. 3. subsidiary's cash flows are in the foreign currency and they do not affect the parent's cash flows. 4. foreign entity is an investment or financing arm for the parent. 5. Need help? Review these concept resources.

Subsidiary's cash flows are in the foreign currency and they do not affect the parent's cash flows.

Identify the statement that defines "recording currency". Choice One. 1. The currency in which a company records its transactions in the financial statements 2. The currency that is used by the local company as a legal tender currency 3. The currency in which the financial reports will be presented to the shareholders of the foreign affiliate 4. The currency in which the financial reports will be presented to the tax authorities of the parent company's country

The currency in which a company records its transactions in the financial statements

ASC 830 provides guidelines for the ______ (Choice One) 1. reporting of currency in which an entity invests money. 2. translation of foreign currency into U.S. dollars in the preparation of consolidated financial statements. 3. usage of a foreign subsidiary's local currency to report the consolidated results of the parent company and the subsidiary. 4. adoption of the functional currency of the primary economic environment in the consolidated financial statements.

Translation of foreign currency into U.S. dollars in the preparation of consolidated financial statements.

To compare inventory's cost and the market value when the recording currency is not the entity's functional currency, the foreign entity's financial statements must be Multiple choice question. remeasured into the recording currency. remeasured into the functional currency. translated into the recording currency. translated into the functional currency. Need help? Review these concept resources

remeasured into the functional currency.

Multiple Choice Question Accounts reported in the statement of cash flows should be restated in U.S. dollars using the Multiple choice question. simple average exchange rate for the current year. same rates as those used for income statement purposes. spot exchange rate on the balance sheet date. historical exchange rate on the date of the transaction.

same rates as those used for income statement purposes.

Multiple Select Question Select all that apply Which of the following factors indicate that the foreign currency is the functional currency? Multiple select question. Few intercompany transactions occur with the parent company. Labor, materials, and other costs are primarily local costs for the subsidiary. Sales markets are mostly located in the parent's country. Sales prices are responsive to the short-term changes in the exchange rates. Need help? Review these concept resources.

Few intercompany transactions occur with the parent company. Labor, materials, and other costs are primarily local costs for the subsidiary.

Select all that apply Which of the following are required by ASC 830 in recording the aggregate foreign transaction gain or loss? Multiple select question. It is separately disclosed in the income statement or in an accompanying note. It is included in the income statement. It is limited to the effective portion on the revaluation of the net assets. It is recognized in the gain on the net asset investment in a foreign affiliate. Need help? Review these concept resources.

It is separately disclosed in the income statement or in an accompanying note. It is included in the income statement.

Which of the following statements is true of a local currency unit? Multiple choice question. It is the currency in which a country records all its transactions. It is the currency that is used in the presentation of financial reports to the stakeholders. It is the currency in the country or jurisdiction where an affiliated subsidiary is located. It is the currency that is used in another country that has maximum trade relations with the parent country.

It is the currency in the country or jurisdiction where an affiliated subsidiary is located.

Which of the following statements is true about the current exchange rate? Choice One. 1. It is the exchange rate at the end of the trading day on the balance sheet date. 2. It is the exchange rate on the date of acquisition of the raw material for production. 3. It is the spot exchange rate at any given point of time. 4. It is a simple average of the exchange rates for a given period of time to measure revenues and expenses.

It is the exchange rate at the end of the trading day on the balance sheet date.

Azure Retail Inc. is a U.S.-based parent company with an Italian subsidiary, Omega Solutions. Omega's records are maintained in its local currency. However, Azure's CFO believes that its functional currency is the pound sterling as most of its business activities are being conducted in the pound sterling. Identify the proper steps for translation of the financial statements. Multiple choice question. Translate Azure's financial statements into the pound sterling and translate Omega's financial statement into the pound sterling. Remeasure Omega's financial statements into the pound sterling and translate into U.S. dollars. Remeasure Azure's financial statements into the pound sterling and translate the consolidated financial statement into the euros. Translate Omega's financial statements into U.S. dollars and remeasure into the pound sterling.

Remeasure Omega's financial statements into the pound sterling and translate into U.S. dollars.

Multiple Choice Question The translation adjustments on the long-term receivables or payables resulting from intercompany transactions are Multiple choice question. remeasured in the foreign affiliate's functional currency. adjusted for any changes in exchange rates and eliminated. deferred and accumulated as part of the cumulative translation adjustment account. considered part of the net investment in the foreign entity.

deferred and accumulated as part of the cumulative translation adjustment account.

Question Mode Multiple Choice Question Significant exchange rate changes that occur after the balance sheet date should be Multiple choice question. used to revise the value of investment in a foreign subsidiary as per the balance sheet. deducted from the other comprehensive income. added to the amortization account for translation loss. disclosed in the footnotes of the consolidated financial statements. Need help? Review these concept resources.

disclosed in the footnotes of the consolidated financial statements.

Severe inflation is defined as inflation Multiple choice question. exceeding 100 percent over a three-year period exceeding 75 percent over a two-year period. less than 75 percent over a two-year period. less than 100 percent over a three-year period. Need help? Review these concept resources.

exceeding 100 percent over a three-year period

Identify factors that can influence the development of accounting principles in a country. (Select all that apply.) 1. The needs of the central government economic planners 2. The information needs of the taxing authorities 3. The country's economic, legal, educational, and political systems 4. The needs of the competitor companies in the global market 5. Need help? Review these concept resources.

· The needs of the central government economic planners · The information needs of the taxing authorities · The country's economic, legal, educational, and political systems

Multiple Choice Question To translate a subsidiary's financial statement from the local (functional) currency to U.S. dollars, the Multiple choice question. local currency balance sheet should be translated into U.S. dollars using the current exchange rate. revenues and expenses occurring uniformly in the income statement should be translated using the current rate. financial statement should be readjusted for currency rate changes in the prior period financial statement. amount of the translation adjustment should be added to the gross income of the parent company. Need help? Review these concept resources.

local currency balance sheet should be translated into U.S. dollars using the current exchange rate.

The ______ rate is usually a simple average for a period of time.

Average Rate

Select all that apply How are foreign entity statements restated into U.S. dollars? Multiple select question. By the remeasurement of the foreign entity's statements into its functional currency By the translation of the foreign entity's functional currency statements into U.S. dollars By the translation after remeasurement if the functional currency is not the U.S. dollar By the remeasurement after translation if the functional currency is not the U.S. dollar Need help? Review these concept resources.

By the translation of the foreign entity's functional currency statements into U.S. dollars By the remeasurement of the foreign entity's statements into its functional currency By the translation after remeasurement if the functional currency is not the U.S. dollar

Multiple Choice Question Honeydew Global Inc. is a U.S.-based company with an Italian subsidiary (Caesium Solutions). Caesium's Chief Financial Officer believes that its local currency, the euro, is also its functional currency as all the records of Caesium are maintained in euros. However, Honeydew's CFO believes that its functional currency is the pound sterling. Which of the following arguments supports Honeydew's CFO'S opinion? Multiple choice question. Honeydew Global Inc. is extensively financed by companies located in the United Kingdom. Honeydew Global Inc. plans to expand its business operations in the United Kingdom. Caesium Solutions carries out very significant business activities in the pound sterling. Caesium Solutions follows business strategies that are followed more commonly in the United Kingdom.

Caesium Solutions carries out very significant business activities in the pound sterling.

Multiple Choice Question Which of the following entries is required to record the translation adjustment related to a subsidiary's undistributed earnings that are expected to be received by its parent company? Multiple choice question. Debit Income Taxes Payable; Credit Deferred Taxes Payable Debit Deferred Taxes Payable; Credit Other Comprehensive Income-Translation Adjustment Debit Other Comprehensive Income-Translation Adjustment; Credit Deferred Taxes Payable Debit Deferred Taxes Payable; Credit Income Taxes Payable

Debit Other Comprehensive Income-Translation Adjustment; Credit Deferred Taxes Payable

The different factors that influence the development of accounting standards have led to significant ______ in accounting standards from one nation to another. Choice One. 1. coordination 2. diversity 3. links 4. similarity

Diversity

Multiple Choice Question Azure Retail Inc. is a U.S.-based parent company with an Italian subsidiary, Omega Solutions. Omega's records are maintained in its local currency. However, Azure's CFO believes that its functional currency is the pound sterling as most of its business activities are being conducted in the pound sterling. Identify the proper steps for translation of the financial statements. Multiple choice question. Translate Omega's financial statements into U.S. dollars and remeasure into the pound sterling. Translate Azure's financial statements into the pound sterling and translate Omega's financial statement into the pound sterling. Remeasure Omega's financial statements into the pound sterling and translate into U.S. dollars. Remeasure Azure's financial statements into the pound sterling and translate the consolidated financial statement into the euros.

Remeasure Omega's financial statements into the pound sterling and translate into U.S. dollars.

Question Mode Multiple Choice Question Identify the exchange rate used to translate the beginning and ending cash balances in the statement of cash flows. Multiple choice question. Historical exchange rate Average exchange rate Weighted average exchange rate Respective spot exchange rate Need help? Review these concept res

Respective spot exchange rate

Question Mode Multiple Select Question Select all that apply Which of the following balance sheet items are considered monetary items in the remeasurement process? Multiple select question. Short-term receivables Inventories Long-term payables Cash Need help? Revi

Short-term receivables Long-term payables Cash

Multiple Choice Question A remeasurement gain results for a subsidiary's income when transacting in the ______. Multiple choice question. stronger currency cryptocurrency same currency weaker currency

Stronger currency

Multiple Select Question Select all that apply Which of the following are true about a foreign affiliate using the remeasurement method for restating its financial statements? Multiple select question. The foreign affiliate allocates the translation adjustment to the minority interest based on the remeasurement of the financial statements. The foreign affiliate which uses the U.S. dollar as both its functional and its reporting currency is not required to remeasure. The foreign entity should use the dollar as its functional currency if it is located in a highly inflationary economy. The foreign affiliate should remeasure when it uses the local currency to record its operations & the local currency is not the functional currency.

The foreign affiliate which uses the U.S. dollar as both its functional and its reporting currency is not required to remeasure. The foreign affiliate should remeasure when it uses the local currency to record its operations & the local currency is not the functional currency. The foreign entity should use the dollar as its functional currency if it is located in a highly inflationary economy.

Multiple Select Question Select all that apply Identify features the FASB has adopted as indicating a functional currency. Multiple select question. The functional currency is the currency of the environment in which an entity primarily generates and receives cash. The functional currency presents results that are inversely related to the real economic effects of exchange rate movements. The functional currency is the currency of the primary economic environment in which the entity operates. The functional currency consolidates the self-contained foreign operations with the operations that are the extension of the parent company. Need help? Review these concept resources.

The functional currency is the currency of the environment in which an entity primarily generates and receives cash. The functional currency is the currency of the primary economic environment in which the entity operates.

Multiple Choice Question Which of the following statements is true about the application of the lower-of-cost-or-market rule to foreign affiliates inventory? Multiple choice question. The market value of the inventories is translated using the historical exchange rate to recognize any write-downs to market. The historical cost of the inventories are remeasured using the historical exchange rates for the functional currency historical cost value. The historical costs are compared with the market value of the inventories translated using the average rate. The cost and market value of the inventories are remeasured using the current exchange rate and to recognize any write-downs to market.

The historical cost of the inventories are remeasured using the historical exchange rates for the functional currency historical cost value.

In a consolidated income statement, the net remeasurement gain after offsetting the foreign currency transaction loss account is reported in Multiple choice question. the income statement. retained earnings of the parent company's balance sheet. the unamortized portion of the differential. other comprehensive income. Need help? Review these conce

The income Statement

Beta Manufacturers Inc. is a US-based parent company with a German subsidiary (Bisque Equipments). Bisque records its financial statements in euros. As Bisque primarily takes orders from German customers for U.S.-manufactured goods, its financial statements require remeasurement in U.S. dollars. Bisque's reported income is 12 percent higher when the dollar is the functional currency as compared to the reported income under translation. Which of the following statements is a reason for the remeasurement gain? Multiple choice question. The reporting currency of the consolidated financial statements was weaker than the local currency. The recording currency of the foreign affiliate was the US dollar. The reporting currency of the consolidated financial statements is stronger than the foreign currency. The local currency of the foreign affiliate was stronger than the functional currency, U.S. dollar.

The local currency of the foreign affiliate was stronger than the functional currency, U.S. dollar.

Select all that apply Epsilon Chemicals Inc. has a subsidiary in Sweden. Its financial analyst finds that the income reported by the remeasurement is higher than that reported by a translation. Which of the following is the most likely reason for the higher income? Multiple select question. The U.S. dollar is weakening against the European euro, resulting in a remeasurement gain for the subsidiary. The subsidiary's operating expenses are remeasured at a higher exchange rate. The subsidiary's operating expenses are remeasured at a lower exchange rate due to weakening U.S. dollar. The U.S. dollar became stronger against the European euro, resulting in a remeasurement gain for the subsidiary. Need help? Review these conce

The subsidiary's operating expenses are remeasured at a lower exchange rate due to weakening U.S. dollar. The U.S. dollar is weakening against the European euro, resulting in a remeasurement gain for the subsidiary.

The reporting currency of the U.S. parent (the U.S. dollar) should be used as the foreign entity's functional currency when the foreign entity is located in highly inflationary economies. True false question.TrueFalse Need help?

True Reason: In cases of operations located in highly inflationary economies, the reporting currency - the U.S. dollar - should be used as the foreign entity's functional currency.

True or False Question True or false: Any exchange gain or loss adjustment relating to an intercompany transaction should be classified as part of the cumulative translation adjustment account in stockholders' equity. True false question.TrueFalse Need help? Review these con

True (Reason: Any exchange gain or loss adjustment relating to an intercompany transaction should be classified as part of the cumulative translation adjustment account in stockholders' equity.)