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Test Bank for International Accounting final exam 6th Edition by Timothy Doupnik
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Test Bank for International Accounting final exam 6th Edition by Timothy Doupnik
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B. Converting financial statements of a foreign currency into a domestic currency - ANSWhat ismeant by the "translation" of foreign currency financial statements?
C. Current rate and historical rate - ANSCompanies must choose between which exchange
rates for consolidating foreign subsidiaries?
A. Current rate method - ANSWhen the parent company of a foreign subsidiary believes that all
of its investment in the subsidiary is exposed to foreign exchange risk, what method of
translation should be used in consolidating the financial statements?
C. It is realized when the foreign operation is sold at book value and the proceeds are converted
into parent company currency. - ANSWhen would the balance sheet exposure arising from the
current rate method become realized?
A. The historic/non-historic method - ANSWhich of the following is NOT among the four
methods which have been used to translate foreign currency financial statements globally?
C. accounts receivable. - ANSNonmonetary assets DO NOT include:
B. Monetary assets are those assets whose values do not fluctuate over time. - ANSWhich of
the following is true of monetary assets?
C. Translation exposure - ANSWhat is another term for "balance sheet exposure?"
D. All accounts translated at current exchange rates - ANSWhich of the following items in the
balance sheet is subject to accounting exposure?
C. When there is net liability exposure, the translation adjustment will be positive. -
ANSExcellent Inc. is located in the U.S., but it has 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?
D. Temporal method - ANSWhich of the following methods for translating foreign currency
financial statements attempts to produce consolidated financial statements as if a foreign
subsidiary had actually used the parent company's currency for all its transactions?
C. Temporal method - ANSOf 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?
B. Current rate - ANSEssco 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, what
exchange rate should be used for the inventory under the temporal method?
,B. Historical rate - ANSWhat exchange rate should be used to translate the common stock of
Essco Ltd, a foreign subsidiary of Peako Corp., when consolidating the financial statements
using the current rate method?
C. Historical rate - ANSUnder the temporal method of consolidating foreign currency financial
statements, what exchange rate should be used for translating the depreciation expense
recorded by a subsidiary?
B. The U.S. parent would have had to pay $13,200,000 to acquire the building in 2010. - ANSA
Danish subsidiary of a U.S. corporation recorded a building it purchased 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?
D. None of the above - ANSA Danish subsidiary of a U.S. corporation recorded a building it
purchased 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 current rate method, how should the
translated amount of the restated asset be interpreted?
D. None of the above - ANSWhich of the following methods uses the current exchange rate to
consolidate all accounts of a foreign subsidiary into the financial statements of its parent?
C. It is equal to the foreign operation's net asset position. - ANSUnder the current rate method
of translating foreign currency financial statements, what is the amount of the balance sheet
exposure?
B. Historical rate - ANSUnder 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?
B. Average rate during the year - ANSUnder the current rate method of translating foreign
currency financial statements, what exchange rate should be used for cost of goods sold?
D. There is no single rate that can be used for this purpose - ANSUnder the temporal method of
translating foreign currency financial statements, what exchange rate should be used for cost of
goods sold?
C. Lower of parent currency cost or parent currency market at appropriate exchange rate -
ANSUsing the temporal method of translating foreign currency financial statements, what basis
should be employed when using the "lower of cost or market" rule for inventory valuation?
B. $437,600 - ANSPlaco 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.
, What amount should be used to consolidate Placo's cost of goods sold into Limko's income
statement under the current rate method?
A. $443,900 - ANSWhat amount should be used to consolidate Placo's cost of goods sold into
Limko's income statement under the temporal method?
C. Financial ratios after translation will be distorted. - ANSWhich of the following is a limitation of
using the temporal method for translating foreign currency financial statements?
C. Net income is calculated differently, depending upon which method is used. - ANSWhat is
one problem in translating retained earnings using either the temporal or current rate method?
D. Historical rate - ANSUnder both the temporal method and the current rate method, what
exchange rate should be used to translate a foreign subsidiary's additional paid-in capital into
parent company currency?
D. Temporal method for subsidiaries that are closely controlled by the parent and current rate
method for subsidiaries which are not - ANSWhich method of translating foreign currency
financial statements must be used according to FASB ASC 830, Foreign Currency Matters?
A. As gains or losses on the current period consolidated income statement - ANSUnder FASB
ASC 830, Foreign Currency Matters, when the temporal method is used, how are translation
adjustments treated in the consolidated financial statements?
B. High inflation can result in extreme decreases in the reported amounts for foreign fixed
assets. - ANSWhat is the "disappearing plant" problem that is addressed by FASB ASC 830,
Foreign Currency Matters?
D. Cumulative three-year inflation over 100% - ANSHow does FASB ASC 830, Foreign
Currency Matters define a "highly inflationary economy?"
C. Temporal method - ANSUnder U.S. GAAP, what method of translating foreign currency
financial statements must be used for subsidiaries in highly inflationary economies?
B. the currency of the primary economic environment in which the subsidiary operates. -
ANSInternational accounting standards define functional currency as:
C. High volume of intercompany transactions - ANSAccording 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. Sales price not affected by changes in exchange rate in the short-run - ANSAccording 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?
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