internationalaccounting4etimothydoupnikhectorpereratestbankchapter.docx

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internationalaccounting4etimothydoupnikhectorpereratestbankchapter

Chapter08

TranslationofForeignCurrencyFinancialStatements

MultipleChoiceQuestions

1.

Whatismeantbythe"translation"offoreigncurrencyfinancialstatements 

A. 

ConvertingfinancialstatementspreparedunderforeignGAAPintodomesticGAAP

B. 

Convertingfinancialstatementsofaforeigncurrencyintoadomesticcurrency

C. 

Convertingthelanguageusedinfinancialstatementsfromforeigntodomestic

D. 

Convertinghistoriccostfinancialstatementsintocurrentcostfinancialstatements

2.

Companiesmustchoosebetweenwhichexchangeratesforconsolidatingforeignsubsidiaries 

A. 

Spotrateandforwardrate

B. 

Spotrateandclosingrate

C. 

Currentrateandhistoricalrate

D. 

Domesticrateandinternationalrate

3.

Whentheparentcompanyofaforeignsubsidiarybelievesthatallofitsinvestmentinthesubsidiaryisexposedtoforeignexchangerisk,whatmethodoftranslationshouldbeusedinconsolidatingthefinancialstatements 

A. 

Currentratemethod

B. 

Current/noncurrentmethod

C. 

Monetary/nonmonetarymethod

D. 

Temporalmethod

4.

Whenwouldthebalancesheetexposurearisingfromthecurrentratemethodbecomerealized 

A. 

Itisrealizedoncethefinancialstatementsoftheforeignoperationandtheparentareconsolidated.

B. 

Itisrealizedanytimethehistoricalexchangerateisdifferentfromthespotrateatthebalancesheetdate.

C. 

Itisrealizedwhentheforeignoperationissoldatbookvalueandtheproceedsareconvertedintoparentcompanycurrency.

D. 

Itcanneverberealizedbecauseitisonlytheresultofthechoiceofaccountingmethodsanddoesnotreflectrealexposure.

5.

Intheirresearchpublishedin1988relatedtotranslatingforeigncurrencyfinancialstatements,DoupnikandEvansfoundthat.multinationalswerebiasedinfavorofusingaforeigncurrencyasthefunctionalcurrency.Whatreasondidtheresearchersgiveforthismanagementdecision 

A. 

ItwaseasierthanprovingtotheFASBthatasubsidiary'sfunctionalcurrencywasthe.dollar.

B. 

Doingsoallowedcompaniesgreaterlatitudeinselectingthemethodoftranslatingforeigncurrencyfinancialstatements.

C. 

Thisallowstheuseofthecurrentmethod,whichdefersrecognizingtranslationgainsorlossesinincome.

D. 

Thisallowstheuseofthetemporalmethod,whichdefersrecognizingtransactionadjustmentsinincome.

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. 

Anygainisshowninthebalancesheetofthecompanyasanasset.

C. 

Anylossisreflectedinthemeasurementofconsolidatednetincome.

D. 

Nogainorlossisreportedinthefinancialstatements.

10.

Whatisthecauseofbalancesheetexposure 

A. 

Convertingsubsidiaryaccountbalancestobalancesdenominatedintheparentcompany'scurrencyathistoricalexchangerates

B. 

Completinginternationaltransactionsincurrencyotherthanthecurrencyofthehomecompany

C. 

Translatingsubsidiaryaccountbalancestoamountsdenominatedintheparentcompany'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.islocatedinthe.,butithassubsidiariesinGermany.Whentheeuroappreciatesrelativetothe.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.islocatedinthe.,butithassubsidiariesinJapan.Whentheyendepreciatesrelativetothe.dollar,whatisthedirectionofthetranslationadjustmenttoconsolidateExcellent'sfinancialstatements 

A. 

Whenthereisnetassetexposure,thetranslationadjustmentwillbepositive.

B. 

Therewillbenoadjustmentnecessaryunlessthedifferenceisrealized.

C. 

Whenthereisnetliabilityexposure,thetranslationadjustmentwillbepositive.

D. 

Thedirectionoftheadjustmentisindeterminate.

16.

Whichofthefollowingmethodsfortranslatingforeigncurrencyfinancialstatementsattemptstoproduceconsolidatedfinancialstatementsasifaforeignsubsidiaryhadactuallyusedtheparentcompany'scurrencyforallitstransactions 

A. 

Current/Noncurrentmethod

B. 

Monetary/Nonmonetarymethod

C. 

Currentratemethod

D. 

Temporalmethod

17.

Ofthefollowingmethodsfortranslatingforeigncurrencyfinancialstatements,whichonemaintainstheunderlyingvaluationmethod.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.

WhatexchangerateshouldbeusedtotranslatethecommonstockofEsscoLtd,aforeignsubsidiaryofPeakoCorp.,whenconsolidatingthefinancialstatementsusingthecurrentratemethod 

A. 

Currentrate

B. 

Historicalrate

C. 

Averagerate

D. 

Cannotbedeterminedwiththeinformationgiven

20.

Underthetemporalmethodofconsolidatingforeigncurrencyfinancialstatements,whatexchangerateshouldbeusedfortranslatingthedepreciationexpenserecordedbyasubsidiary 

A. 

Averagerate

B. 

Currentrate

C. 

Historicalrate

D. 

Forwardrate

21.

ADanishsubsidiaryofa.corporationrecordedabuildingitpurchasedin2010for100,000,000krone,whentheexchangeratewas$krone.Thecurrentexchangerateis$krone.Underthetemporalmethod,howshouldthetranslatedamountoftherestatedassetbeinterpreted 

A. 

The.parentwouldhavetopay$16,300,000toacquirethebuildingtoday.

B. 

The.parentwouldhavehadtopay$13,200,000toacquirethebuildingin2010.

C. 

Thebuildingisworth$13,200,000tothe.parenttoday.

D. 

Noneoftheabove

22.

ADanishsubsidiaryofa.corporationrecordedabuildingitpurchasedin2010for100,000,000krone,whentheexchangeratewas$krone.Thecurrentexchangerateis$krone.Underthecurrentratemethod,howshouldthetranslatedamountoftherestatedassetbeinterpreted 

A. 

The.parentwouldhavetopay$16,300,000toacquirethebuildingtoday.

B. 

The.parentwouldhavehadtopay$13,200,000toacquirethebuildingin2010.

C. 

Thebuildingisworth$13,200,000tothe.parenttoday.

D. 

Noneoftheabove

23.

Whichofthefollowingmethodsusesthecurrentexchangeratetoconsolidateallaccountsofaforeignsubsidiaryintothefinancialstatementsofitsparent 

A. 

Currentratemethod

B. 

Temporalmethod

C. 

Cur