International Accounting E Timothy DoupnikHector Perera Test Bank Chapter

1、Chapter 08Translation of Foreign Currency Financial Statements Multiple Choice Questions 1.What is meant by the "translation" of foreign currency financial statements?  A. Converting financial statements prepared under foreign GAAP into domestic GAAPB. Convert

2、ing financial statements of a foreign currency into a domestic currencyC. Converting the language used in financial statements from foreign to domesticD. Converting historic cost financial statements into current cost financial statements 2.Companies must choose between which exchange

3、 rates for consolidating foreign subsidiaries?  A. Spot rate and forward rateB. Spot rate and closing rateC. Current rate and historical rateD. Domestic rate and international rate 3.When the parent company of a foreign subsidiary believes that all of its investmen

4、t in the subsidiary is exposed to foreign exchange risk, what method of translation should be used in consolidating the financial statements?  A. Current rate methodB. Current/noncurrent methodC. Monetary/nonmonetary methodD. Temporal method 4.When would the balanc

5、e sheet exposure arising from the current rate method become realized?  A. It is realized once the financial statements of the foreign operation and the parent are consolidated.B. It is realized any time the historical exchange rate is different from the spot rate at the balance

6、sheet date.C. It is realized when the foreign operation is sold at book value and the proceeds are converted into parent company currency.D. It can never be realized because it is only the result of the choice of accounting methods and does not reflect real exposure. 5.In their resear

7、ch published in 1988 related to translating foreign currency financial statements, Doupnik and Evans found that U.S. multinationals were biased in favor of using a foreign currency as the functional currency. What reason did the researchers give for this management decision?  A. It wa

8、s easier than proving to the FASB that a subsidiary's functional currency was the U.S. dollar.B. Doing so allowed companies greater latitude in selecting the method of translating foreign currency financial statements.C. This allows the use of the current method, which defers recognizi

9、ng translation gains or losses in income.D. This allows the use of the temporal method, which defers recognizing transaction adjustments in income. 6.Which of the following is NOT among the four methods which have been used to translate foreign currency financial statements globally? 

10、 A. The historic/non-historic methodB. The monetary/nonmonetary methodC. The temporal methodD. The current/noncurrent method 7.Nonmonetary assets DO NOT include:  A. fixed assets.B. inventory.C. accounts receivable.D. customer deposits.

11、0;8.Which of the following is true of monetary assets?  A. Monetary assets are translated at historical exchange rates under all translation methods.B. Monetary assets are those assets whose values do not fluctuate over time.C. Monetary assets include current assets like mar

12、ketable securities.D. Monetary assets are always translated at current exchange rates. 9.Which of the following statements is true of nonlocal currency balances in the foreign currency financial statements of foreign operations?  A. These are not reported in the consolidated

13、 financial statements.B. Any gain is shown in the balance sheet of the company as an asset.C. Any loss is reflected in the measurement of consolidated net income.D. No gain or loss is reported in the financial statements. 10.What is the cause of balance sheet exposure?  

14、;A. Converting subsidiary account balances to balances denominated in the parent company's currency at historical exchange ratesB. Completing international transactions in currency other than the currency of the home companyC. Translating subsidiary account balances to amounts den

15、ominated in the parent company's currencyD. None of the above 11.What is another term for "balance sheet exposure?"  A. Transaction exposureB. Exchange exposureC. Translation exposureD. Negative exposure 12.Which of the following items in th

16、e balance sheet is subject to accounting exposure?  A. Only assetsB. Only liabilities and owners' equityC. All accounts translated at historical exchange ratesD. All accounts translated at current exchange rates 13.Homeko, Inc. is located in the U.S., but it ha

17、s subsidiaries in Germany. When the euro appreciates relative to the U.S. dollar, what is the direction of the translation adjustment to consolidate Homeko's financial statements?  A. When there is net asset exposure, the translation adjustment will be positive.B. When there

18、is net liability exposure, the translation adjustment will be positive.C. The direction of the adjustment is indeterminate.D. There will be no adjustment necessary unless the difference is realized. 14.What is the primary difference between transaction exposure and accounting exposure

19、?  A. Transaction exposure results from changes in currency exchange rates, whereas accounting exposure is the result of changes in accounting method.B. Transaction exposure results in changes in cash flow, whereas accounting exposure does not necessarily result in changes in cas

20、h flow.C. Transaction exposure must be hedged, but accounting exposure does not need to be hedged.D. Transaction exposure affects only monetary assets and liabilities, whereas accounting exposure affects all assets and liabilities. 15.Excellent Inc. is located in the U.S., but it has

21、subsidiaries in Japan. When the yen depreciates relative to the U.S. dollar, what is the direction of the translation adjustment to consolidate Excellent's financial statements?  A. When there is net asset exposure, the translation adjustment will be positive.B. There will be

22、 no adjustment necessary unless the difference is realized.C. When there is net liability exposure, the translation adjustment will be positive.D. The direction of the adjustment is indeterminate. 16.Which of the following methods for translating foreign currency financial statements

23、attempts to produce consolidated financial statements as if a foreign subsidiary had actually used the parent company's currency for all its transactions?  A. Current/Noncurrent methodB. Monetary/Nonmonetary methodC. Current rate methodD. Temporal method 17.Of

24、the following methods for translating foreign currency financial statements, which one maintains the underlying valuation method (i.e. historical cost or current value) used by the foreign subsidiary?  A. Current rate methodB. Current/Noncurrent methodC. Temporal methodD.

25、60;Monetary/Nonmonetary method 18.Essco Ltd, a foreign subsidiary of Peako Corp., has written down its inventory to current market value under a "lower of cost or market" rule. When consolidating Essco's balance sheet into Peako's balance sheet using the current rate method, w

26、hat exchange rate should be used for the inventory under the temporal method?  A. Historical rateB. Current rateC. Average rateD. Cannot be determined with the information given 19.What exchange rate should be used to translate the common stock of Essco Ltd, a fore

27、ign subsidiary of Peako Corp., when consolidating the financial statements using the current rate method?  A. Current rateB. Historical rateC. Average rateD. Cannot be determined with the information given 20.Under the temporal method of consolidating foreign curre

28、ncy financial statements, what exchange rate should be used for translating the depreciation expense recorded by a subsidiary?  A. Average rateB. Current rateC. Historical rateD. Forward rate 21.A Danish subsidiary of a U.S. corporation recorded a building it purch

29、ased in 2010 for 100,000,000 krone, when the exchange rate was $0.132/krone. The current exchange rate is $0.163/krone. Under the temporal method, how should the translated amount of the restated asset be interpreted?  A. The U.S. parent would have to pay $16,300,000 to acquire the bu

30、ilding today.B. The U.S. parent would have had to pay $13,200,000 to acquire the building in 2010.C. The building is worth $13,200,000 to the U.S. parent today.D. None of the above 22.A Danish subsidiary of a U.S. corporation recorded a building it purchased in 2010 for 100,000,0

31、00 krone, when the exchange rate was $0.132/krone. The current exchange rate is $0.163/krone. Under the current rate method, how should the translated amount of the restated asset be interpreted?  A. The U.S. parent would have to pay $16,300,000 to acquire the building today.B. T

32、he U.S. parent would have had to pay $13,200,000 to acquire the building in 2010.C. The building is worth $13,200,000 to the U.S. parent today.D. None of the above 23.Which of the following methods uses the current exchange rate to consolidate all accounts of a foreign subsidiary into

33、 the financial statements of its parent?  A. Current rate methodB. Temporal methodC. Current/noncurrent methodD. None of the above 24.Under the current rate method of translating foreign currency financial statements, what is the amount of the balance sheet exposur

34、e?  A. It is equal to the amount of assets recorded by the subsidiary.B. It is equal to the amount of liabilities recorded by the subsidiary.C. It is equal to the foreign operation's net asset position.D. It is equal to total assets plus total liabilities. 25.U

35、nder both the temporal method and the current rate method, what exchange rate should be used to translate a foreign subsidiary's dividends into parent company currency?  A. Current rateB. Historical rateC. Average rateD. Any of the above methods can be used under bo

36、th the temporal and current method. 26.Under the current rate method of translating foreign currency financial statements, what exchange rate should be used for cost of goods sold?  A. Spot rate at the end of the yearB. Average rate during the yearC. Spot rate mid-yearD

37、. There is no single rate because beginning and ending inventory must be converted at different exchange rates than purchases. 27.Under the temporal method of translating foreign currency financial statements, what exchange rate should be used for cost of goods sold?  A. Spo

38、t rate at the end of the yearB. Average rate during the yearC. Spot rate mid-yearD. There is no single rate that can be used for this purpose 28.Using the temporal method of translating foreign currency financial statements, what basis should be employed when using the "lowe

39、r of cost or market" rule for inventory valuation?  A. Lower of parent currency cost or parent currency market at current exchange rateB. Lower of subsidiary currency cost or subsidiary currency market at appropriate exchange rateC. Lower of parent currency cost or pare

40、nt currency market at appropriate exchange rateD. Lower of subsidiary currency cost or parent currency market at current exchange rate Placo Ltd., a Scottish subsidiary of Limko, Inc., a U.S. company, showed cost of goods sold on its income statement for the year ended December 31, 2010.&#

41、160;    29.What amount should be used to consolidate Placo's cost of goods sold into Limko's income statement under the current rate method?  A. $417,600B. $437,600C. $448,000D. $443,900 30.What amount should be used to consolidate Placo

42、's cost of goods sold into Limko's income statement under the temporal method?  A. $443,900B. $437,600C. $432,500D. $448,000 31.Which of the following is a limitation of using the temporal method for translating foreign currency financial statements? &

43、#160;A. The translated asset and liability amounts have no meaningful interpretation.B. The translation adjustment will usually have a negative impact on income.C. Financial ratios after translation will be distorted.D. All of the above are limitations of the temporal method.

44、0;32.What is one problem in translating retained earnings using either the temporal or current rate method?  A. There is no problem, since both methods use the historic rate method for stockholders' equity accounts.B. Dividends are based on an average cost method.C. Net

45、income is calculated differently, depending upon which method is used.D. Dividends are based on the current exchange rate under the current rate method, while they are based on historical rates under the temporal method. 33.Under both the temporal method and the current rate method, what e

46、xchange rate should be used to translate a foreign subsidiary's additional paid-in capital into parent company currency?  A. Closing rateB. Current rateC. Average rateD. Historical rate 34.Which method of translating foreign currency financial statements must b

47、e used according to FASB ASC 830, Foreign Currency Matters?  A. Temporal method for all subsidiariesB. Current rate method for all subsidiariesC. U.S. parent companies may choose between the temporal method and the current rate methodD. Temporal method for subsidiaries

48、that are closely controlled by the parent and current rate method for subsidiaries which are not 35.Under FASB ASC 830, Foreign Currency Matters, when the temporal method is used, how are translation adjustments treated in the consolidated financial statements?  A. As gains or lo

49、sses on the current period consolidated income statementB. As prior period adjustments to retained earnings of the parentC. As part of other comprehensive income on the consolidated balance sheetD. None of the above because the temporal method is not allowed under FASB ASC 830. 3

50、6.Under FASB ASC 830, Foreign Currency Matters, when the current rate method is used, how are translation adjustments treated in the consolidated financial statements?  A. As gains or losses on the current period consolidated income statementB. As prior period adjustments to reta

51、ined earnings of the parentC. As part of other comprehensive income on the consolidated balance sheetD. None of the above because the temporal method is not allowed under FASB ASC 830. 37.Under FASB ASC 830, Foreign Currency Matters, what is the definition of "functional currency

52、?"  A. The primary currency used by the parent companyB. The currency that minimizes the translation adjustment on the consolidated financial statementsC. The currency in which the subsidiary does its financial reportingD. The primary currency of the foreign entity

53、's operating environment 38.Under FASB ASC 830, Foreign Currency Matters, what group is responsible for determining the functional currency of a foreign subsidiary for many cases?  A. Financial Accounting Standards BoardB. International Accounting Standards BoardC. 

54、Securities and Exchange CommissionD. Parent company management 39.What is the "disappearing plant" problem that is addressed by FASB ASC 830, Foreign Currency Matters?  A. This refers to the accelerated depreciation methods that are popular for fixed asset valuatio

55、n.B. High inflation can result in extreme decreases in the reported amounts for foreign fixed assets.C. Cheap foreign currency results in U.S. companies moving factory operations offshore.D. Investment in fixed assets was not being reported on foreign subsidiary financial statements.&

56、#160;40.How does FASB ASC 830, Foreign Currency Matters define a "highly inflationary economy?"  A. Inflation rate over 50% annuallyB. Inflation rate over 10% annuallyC. Cumulative three-year inflation over 26%D. Cumulative three-year inflation over 100% 

57、41.Under U.S. GAAP, what method of translating foreign currency financial statements must be used for subsidiaries in highly inflationary economies?  A. Current rate methodB. Current/noncurrent methodC. Temporal methodD. Monetary/nonmonetary method 42.International

58、 accounting standards define functional currency as:  A. the currency of the parent company.B. the currency of the primary economic environment in which the subsidiary operates.C. the currency of the primary economic environment in which the parent operates.D. the curre

59、ncy used by a subsidiary for its financial reporting. 43.According to FASB ASC 830, Foreign Currency Matters, which of the following conditions would indicate that a foreign subsidiary's functional currency is the parent company's currency?  A. Active local sales marketB.

60、 Sales price not affected by changes in exchange rate in the short-runC. High volume of intercompany transactionsD. All of the above are indicators that the functional currency is the parent company's currency. 44.According to FASB ASC 830, Foreign Currency Matters, which of the following conditions would indicate that a foreign subsidiary's functional currency is the foreign currency?  A. Sales price not affected by changes in exchange rate in the s