International Accounting 4E Timothy DoupnikHect.docx
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International Accounting 4E Timothy DoupnikHect.docx
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InternationalAccounting4ETimothyDoupnikHect
Chapter08
TranslationofForeignCurrencyFinancialStatements
MultipleChoiceQuestions
1.
Whatismeantbythe"translation"offoreigncurrencyfinancialstatements?
A.
ConvertingfinancialstatementspreparedunderforeignGAAPintodomesticGAAP
B.
Convertingfinancialstatementsofaforeigncurrencyintoadomesticcurrency
C.
Convertingthelanguageusedinfinancialstatementsfromforeigntodomestic
D.
Convertinghistoriccostfinancialstatementsintocurrentcostfinancialstatements
2.
paniesmustchoosebetweenwhichexchangeratesforconsolidatingforeignsubsidiaries?
A.
Spotrateandforwardrate
B.
Spotrateandclosingrate
C.
Currentrateandhistoricalrate
D.
Domesticrateandinternationalrate
3.
Whentheparentpanyofaforeignsubsidiarybelievesthatallofitsinvestmentinthesubsidiaryisexposedtoforeignexchangerisk,whatmethodoftranslationshouldbeusedinconsolidatingthefinancialstatements?
A.
Currentratemethod
B.
Current/noncurrentmethod
C.
Monetary/nonmonetarymethod
D.
Temporalmethod
4.
Whenwouldthebalancesheetexposurearisingfromthecurrentratemethodbeerealized?
A.
Itisrealizedoncethefinancialstatementsoftheforeignoperationandtheparentareconsolidated.
B.
Itisrealizedanytimethehistoricalexchangerateisdifferentfromthespotrateatthebalancesheetdate.
C.
Itisrealizedwhentheforeignoperationissoldatbookvalueandtheproceedsareconvertedintoparentpanycurrency.
D.
Itcanneverberealizedbecauseitisonlytheresultofthechoiceofaccountingmethodsanddoesnotreflectrealexposure.
5.
Intheirresearchpublishedin1988relatedtotranslatingforeigncurrencyfinancialstatements,DoupnikandEvansfoundthatU.S.multinationalswerebiasedinfavorofusingaforeigncurrencyasthefunctionalcurrency.Whatreasondidtheresearchersgiveforthismanagementdecision?
A.
ItwaseasierthanprovingtotheFASBthatasubsidiary'sfunctionalcurrencywastheU.S.dollar.
B.
Doingsoallowedpaniesgreaterlatitudeinselectingthemethodoftranslatingforeigncurrencyfinancialstatements.
C.
Thisallowstheuseofthecurrentmethod,whichdefersrecognizingtranslationgainsorlossesinine.
D.
Thisallowstheuseofthetemporalmethod,whichdefersrecognizingtransactionadjustmentsinine.
6.
WhichofthefollowingisNOTamongthefourmethodswhichhavebeenusedtotranslateforeigncurrencyfinancialstatementsglobally?
A.
Thehistoric/non-historicmethod
B.
Themonetary/nonmonetarymethod
C.
Thetemporalmethod
D.
Thecurrent/noncurrentmethod
7.
NonmonetaryassetsDONOTinclude:
A.
fixedassets.
B.
inventory.
C.
accountsreceivable.
D.
customerdeposits.
8.
Whichofthefollowingistrueofmonetaryassets?
A.
Monetaryassetsaretranslatedathistoricalexchangeratesunderalltranslationmethods.
B.
Monetaryassetsarethoseassetswhosevaluesdonotfluctuateovertime.
C.
Monetaryassetsincludecurrentassetslikemarketablesecurities.
D.
Monetaryassetsarealwaystranslatedatcurrentexchangerates.
9.
Whichofthefollowingstatementsistrueofnonlocalcurrencybalancesintheforeigncurrencyfinancialstatementsofforeignoperations?
A.
Thesearenotreportedintheconsolidatedfinancialstatements.
B.
Anygainisshowninthebalancesheetofthepanyasanasset.
C.
Anylossisreflectedinthemeasurementofconsolidatednetine.
D.
Nogainorlossisreportedinthefinancialstatements.
10.
Whatisthecauseofbalancesheetexposure?
A.
Convertingsubsidiaryaccountbalancestobalancesdenominatedintheparentpany'scurrencyathistoricalexchangerates
B.
pletinginternationaltransactionsincurrencyotherthanthecurrencyofthehomepany
C.
Translatingsubsidiaryaccountbalancestoamountsdenominatedintheparentpany'scurrency
D.
Noneoftheabove
11.
Whatisanothertermfor"balancesheetexposure?
"
A.
Transactionexposure
B.
Exchangeexposure
C.
Translationexposure
D.
Negativeexposure
12.
Whichofthefollowingitemsinthebalancesheetissubjecttoaccountingexposure?
A.
Onlyassets
B.
Onlyliabilitiesandowners'equity
C.
Allaccountstranslatedathistoricalexchangerates
D.
Allaccountstranslatedatcurrentexchangerates
13.
Homeko,Inc.islocatedintheU.S.,butithassubsidiariesinGermany.WhentheeuroappreciatesrelativetotheU.S.dollar,whatisthedirectionofthetranslationadjustmenttoconsolidateHomeko'sfinancialstatements?
A.
Whenthereisnetassetexposure,thetranslationadjustmentwillbepositive.
B.
Whenthereisnetliabilityexposure,thetranslationadjustmentwillbepositive.
C.
Thedirectionoftheadjustmentisindeterminate.
D.
Therewillbenoadjustmentnecessaryunlessthedifferenceisrealized.
14.
Whatistheprimarydifferencebetweentransactionexposureandaccountingexposure?
A.
Transactionexposureresultsfromchangesincurrencyexchangerates,whereasaccountingexposureistheresultofchangesinaccountingmethod.
B.
Transactionexposureresultsinchangesincashflow,whereasaccountingexposuredoesnotnecessarilyresultinchangesincashflow.
C.
Transactionexposuremustbehedged,butaccountingexposuredoesnotneedtobehedged.
D.
Transactionexposureaffectsonlymonetaryassetsandliabilities,whereasaccountingexposureaffectsallassetsandliabilities.
15.
ExcellentInc.islocatedintheU.S.,butithassubsidiariesinJapan.WhentheyendepreciatesrelativetotheU.S.dollar,whatisthedirectionofthetranslationadjustmenttoconsolidateExcellent'sfinancialstatements?
A.
Whenthereisnetassetexposure,thetranslationadjustmentwillbepositive.
B.
Therewillbenoadjustmentnecessaryunlessthedifferenceisrealized.
C.
Whenthereisnetliabilityexposure,thetranslationadjustmentwillbepositive.
D.
Thedirectionoftheadjustmentisindeterminate.
16.
Whichofthefollowingmethodsfortranslatingforeigncurrencyfinancialstatementsattemptstoproduceconsolidatedfinancialstatementsasifaforeignsubsidiaryhadactuallyusedtheparentpany'scurrencyforallitstransactions?
A.
Current/Noncurrentmethod
B.
Monetary/Nonmonetarymethod
C.
Currentratemethod
D.
Temporalmethod
17.
Ofthefollowingmethodsfortranslatingforeigncurrencyfinancialstatements,whichonemaintainstheunderlyingvaluationmethod(i.e.historicalcostorcurrentvalue)usedbytheforeignsubsidiary?
A.
Currentratemethod
B.
Current/Noncurrentmethod
C.
Temporalmethod
D.
Monetary/Nonmonetarymethod
18.
EsscoLtd,aforeignsubsidiaryofPeakoCorp.,haswrittendownitsinventorytocurrentmarketvalueundera"lowerofcostormarket"rule.WhenconsolidatingEssco'sbalancesheetintoPeako'sbalancesheetusingthecurrentratemethod,whatexchangerateshouldbeusedfortheinventoryunderthetemporalmethod?
A.
Historicalrate
B.
Currentrate
C.
Averagerate
D.
Cannotbedeterminedwiththeinformationgiven
19.
WhatexchangerateshouldbeusedtotranslatethemonstockofEsscoLtd,aforeignsubsidiaryofPeakoCorp.,whenconsolidatingthefinancialstatementsusingthecurrentratemethod?
A.
Currentrate
B.
Historicalrate
C.
Averagerate
D.
Cannotbedeterminedwiththeinformationgiven
20.
Underthetemporalmethodofconsolidatingforeigncurrencyfinancialstatements,whatexchangerateshouldbeusedfortranslatingthedepreciationexpenserecordedbyasubsidiary?
A.
Averagerate
B.
Currentrate
C.
Historicalrate
D.
Forwardrate
21.
ADanishsubsidiaryofaU.S.corporationrecordedabuildingitpurchasedin2010for100,000,000krone,whentheexchangeratewas$0.132/krone.Thecurrentexchangerateis$0./krone.Underthetemporalmethod,howshouldthetranslatedamountoftherestatedassetbeinterpreted?
A.
TheU.S.parentwouldhavetopay$16,300,000toacquirethebuildingtoday.
B.
TheU.S.parentwouldhavehadtopay$13,200,000toacquirethebuildingin2010.
C.
Thebuildingisworth$13,200,000totheU.S.parenttoday.
D.
Noneoftheabove
22.
ADanishsubsidiaryofaU.S.corporationrecordedabuildingitpurchasedin2010for100,000,000krone,whentheexchangeratewas$0.132/krone.Thecurrentexchangerateis$0./krone.Underthecurrentratemethod,howshouldthetranslatedamountoftherestatedassetbeinterpreted?
A.
TheU.S.parentwouldhavetopay$16,300,000toacquirethebuildingtoday.
B.
TheU.S.parentwouldhavehadtopay$13,200,000toacquirethebuildingin2010.
C.
Thebuildingisworth$13,200,000totheU.S.parenttoday.
D.
Noneoftheabove
23.
Whichofthefollowingmethodsusesthecurrentexchangeratetoconsolidateallaccountsofaforeignsubsidiaryintothefinancialstatementsofitsparent?
A.
Currentratemethod
B.
Temporalmethod
C.
Current/noncurrentmethod
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