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