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