Chp 12 Learnsmart

Plafix Chemicals Inc. is a U.S.-based parent company which has a subsidiary, Alpha Chemicals, located in Ireland. Which of the following statements are true about Plafix's financial reporting?

-because the subsidiary is located in Ireland, the local currency of Alpha is the euro -because the parent company is located in the U.S., the reporting currency of Plafix is the U.S. dollar

Self-contained foreign affiliates

-generate and spend local currency units -reinvest the currency they generate and/or distribute dividends to the parent company -use local currency as the functional currency

Which of the following statements are true when the recording currency is not the functional currency, but the functional currency is the reporting currency?

-the consolidation and financial reports are prepared and reported in the functional currency which is also the reporting currency -the financial statements require remeasurement from the recording currency to the functional currency

Identify features the FASB adopted as indicating a functional currency

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

When is the U.S. dollar the functional currency for foreign affiliates?

-when the subsidiary is directly affected by changes in the exchange rates -when the subsidiary is dependent on the U.S. economy for sales markets, production components, or financing

Interosis Equipment Inc. is a US-based company with a subsidiary (Emipia Solutions) in Sweden. The US dollar will be considered the functional currency when

Interosis primarily provides financing to Emipia

Which of the following statements is true of a local currency unit?

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

Which of the following statements is true about the current exchange rate?

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

Which of the following statements is true about financial statement remeasurement using the temporal method?

It remeasures the financial statements from the recording currency to the functional currency

Identify a reason to use a parent company's currency as the functional currency.

Most of the subsidiary's cash transactions are in the parent company's currency.

What happens when the recording currency, the functional currency, and the reporting currency are all different?

The financial statements are remeasured from the recording currency to the functional currency; the financial statements are translated from the functional currency to the reporting currency

True or false: ASC 220 requires the reporting of comprehensive income as part of the entity's primary financial statements

True

Beta Financials Inc is a US-based parent company with a subsidiary (Surplus Enterprises) based in France. In Surplus' trial balance on December 31, 20X1, there are foreign currency units worth $3,500 USD. When the US dollars are received, the spot exchange rate is $1.40 = euro 1. Which of the following accounts will be debited by Surplus Enterprises to record the change in the exchange rate from $1.40 to $1.25 = euro 1 on December 31, 20X1?

Foreign Currency Units

To maintain the economic relationships in the functional currency statements, the translation is made using the current exchange rate for all

assets and liabilities

The allocation and amortization of the difference between an investment's cost and its book value should be

made in the foreign subsidiary's functional currency before translation.

Which of the following would be assigned a share of the translation adjustment in the consolidation of a less-tan-wholly-owned subsidiary?

noncontrolling interest

The foreign currency is the functional currency when the

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"

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

Which of the following statements is true regarding a parent company's adjustment resulting from the translation of the differential?

the parent company's original investment in the subsidiary should be revised based on new exchange rates

The balancing item that makes the translated trial balance debits equal the credits is called the _______ adjustment

translation

Monity Tech Inc. is a US-based parent company with a subsidiary (Omega Solutions) based in Ireland. If Omega Solution's functional currency is the euro, Omega should

use translation to restate the financial statements in US dollars

A translation adjustment arises because an investee's assets, liabilities, and stockholders' equity are translated

using different exchange rates

The historical exchange rate is the

exchange rate that existed on the date the initial transaction took place