Chapter 10 Exam 3

27 Questions | Total Attempts: 295

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Questions and Answers
  • 1. 
    1.  In accounting, the term translation refers to
    • A. 

      A) The calculation of gains or losses from hedging transactions.

    • B. 

      B) The calculation of exchange rate gains or losses on individual transactions in foreign currencies.

    • C. 

      C) The procedure required to identify a company's functional currency.

    • D. 

      D) The calculation of gains or losses from all transactions for the year.

    • E. 

      E) A procedure to prepare a foreign subsidiary's financial statements for consolidation.

  • 2. 
    2.  What is a company's functional currency?
    • A. 

      A) The currency of the primary economic environment in which it operates.

    • B. 

      B) The currency of the country where it has its headquarters.

    • C. 

      C) The currency in which it prepares its financial statements.

    • D. 

      D) The reporting currency of its parent for a subsidiary.

    • E. 

      E) The currency it chooses to designate as such.

  • 3. 
    3.  According to U.S. GAAP, when the local currency is the functional currency, which method is usually required for translating a foreign subsidiary's financial statements into the parent's reporting currency?
    • A. 

      A) The temporal method.

    • B. 

      B) The current rate method.

    • C. 

      C) The current/noncurrent method.

    • D. 

      D) The monetary/nonmonetary method.

    • E. 

      E) The noncurrent rate method.

  • 4. 
    4.  In translating a foreign subsidiary's financial statements, which exchange rate does the current method require for the subsidiary's assets and liabilities?
    • A. 

      A) The exchange rate in effect when each asset or liability was acquired.

    • B. 

      B) The average exchange rate for the current year.

    • C. 

      C) A calculated exchange rate based on market value.

    • D. 

      D) The exchange rate in effect as of the balance sheet date.

    • E. 

      E) The exchange rate in effect at the start of the current year.

  • 5. 
    5-  Westmore, Ltd. is a British subsidiary of a U.S. company.  Westmore's functional currency is the pound sterling (£).  The following exchange rates were in effect during 2018:      Westmore reported sales of £1,500,000 during 2018.  What amount (rounded) would have been included for this subsidiary in calculating consolidated sales?
    • A. 

      A)  $2,415,000.

    • B. 

      B)  $2,400,000.

    • C. 

      C)  $2,385,000.   

    • D. 

      D)  $   943,396.

    • E. 

      E)  $   931,677.

  • 6. 
    6-  Darron Co. was formed on January 1, 2018 as a wholly owned foreign subsidiary of a U.S. corporation.  Darron's functional currency was the stickle (§).  The following transactions and events occurred during 2018:        What exchange rate should have been used in translating Darron's revenues and expenses for 2018?
    • A. 

      A)  $1 = §.48.

    • B. 

      B)  $1 = §.44.    

    • C. 

      C)  $1 = §.46.

    • D. 

      D)  $1 = §.42.

    • E. 

      E)  $1 = §.45.

  • 7. 
    7.  Sinkal Co. was formed on January 1, 2018 as a wholly owned foreign subsidiary of a U.S. corporation. Sinkal's functional currency was the stickle (§).  The following transactions and events occurred during 2018:       What was the amount of the translation adjustment for 2018?
    • A. 

      A) $52,000 decrease in relative value of net assets.

    • B. 

      B) $60,400 decrease in relative value of net assets.

    • C. 

      C) $60,400 increase in relative value of net assets.

    • D. 

      D) $440,000 decrease in relative value of net assets.

    • E. 

      E) $26,000 increase in relative value of net assets.

  • 8. 
    8.  Under the current rate method, which accounts are translated using current exchange rates?
    • A. 

      A) All revenues and expenses.

    • B. 

      B) All assets and liabilities.

    • C. 

      C) Cash, receivables, and most liabilities.

    • D. 

      D) All current assets and deferred income.

    • E. 

      E) All stockholders’ equity.

  • 9. 
    9.  Under the temporal method, which accounts are remeasured using current exchange rates?
    • A. 

      A) All revenues and expenses.

    • B. 

      B) All assets and liabilities.

    • C. 

      C) Cash, receivables, and most liabilities.

    • D. 

      D) All current assets and deferred income.

    • E. 

      E) All stockholders’ equity.

  • 10. 
    10.  For a foreign subsidiary that uses the U.S. dollar as its functional currency, what method is required to ready the financial statements for consolidation?
    • A. 

      A) Current/Noncurrent Method.

    • B. 

      B) Monetary/Nonmonetary Method.

    • C. 

      C) Current Rate Method.

    • D. 

      D) Temporal Method.

    • E. 

      E) Indirect Method.

  • 11. 
    11.  Which one of the following statements would justify this conclusion?
    • A. 

      A) Most of the subsidiary's sales and purchases were with companies in the U.S.

    • B. 

      B) Dilty's functional currency is the dollar and Dilty is the parent.

    • C. 

      C) Dilty's other subsidiaries all had the dollar as their functional currency.

    • D. 

      D) Generally accepted accounting principles require that the subsidiary's functional currency must be the dollar if consolidated financial statements are to be prepared.

    • E. 

      E) Dilty is located in the U.S.

  • 12. 
    13.  A net liability balance sheet exposure exists and the foreign currency depreciates.  Which of the following statements is true?
    • A. 

      A) There is no translation adjustment.

    • B. 

      B) There is a transaction loss.

    • C. 

      C) There is a transaction gain.

    • D. 

      D) There is a negative translation adjustment.

    • E. 

      E) There is a positive translation adjustment.

  • 13. 
    14.  Which method of translating a foreign subsidiary's financial statements is correct if it is assumed that the parent’s net investment is exposed to foreign exchange risk?
    • A. 

      A) Historical rate method.

    • B. 

      B) Working capital method.

    • C. 

      C) Current rate method.

    • D. 

      D) Remeasurement.

    • E. 

      E) Temporal method.

  • 14. 
    15.  Which method is used for remeasuring a foreign subsidiary's financial statements?
    • A. 

      A) Historical rate method.

    • B. 

      B) Working capital method.

    • C. 

      C) Current rate method.

    • D. 

      D) Translation.

    • E. 

      E) Temporal method.

  • 15. 
    16.  Under the temporal method, inventory at net realizable value would be remeasured for the balance sheet at what rate?
    • A. 

      A) Beginning of the year rate.

    • B. 

      B) Average rate.

    • C. 

      C) Current rate.

    • D. 

      D) Historical rate.

    • E. 

      E) Composite amount.

  • 16. 
    17.  Under the temporal method, common stock would be remeasured at what rate?
    • A. 

      A) Beginning of the year rate.

    • B. 

      B) Average rate.

    • C. 

      C) Current rate.

    • D. 

      D) Historical rate.

    • E. 

      E) Composite amount.

  • 17. 
    18.  Under the current rate method, retained earnings would be translated at what rate?
    • A. 

      A) Beginning of the year rate.

    • B. 

      B) Average rate.

    • C. 

      C) Current rate.

    • D. 

      D) Historical rate.

    • E. 

      E) Composite amount.

  • 18. 
    19.  Under the current rate method, depreciation expense would be translated at what rate?
    • A. 

      A) Beginning of the year rate.

    • B. 

      B) Average rate.

    • C. 

      C) Current rate.

    • D. 

      D) Historical rate.

    • E. 

      E) Composite amount.

  • 19. 
    20.  A highly inflationary economy is defined as
    • A. 

      A) Cumulative 5-year inflation in excess of 100%.

    • B. 

      B) Cumulative 3-year inflation in excess of 100%.

    • C. 

      C) Cumulative 5-year inflation in excess of 90%.

    • D. 

      D) Cumulative 3-year inflation in excess of 90%.

    • E. 

      E) Any country designated as a company operating in a third-world economy.

  • 20. 
    21.  When preparing a consolidated statement of cash flows, which of the following statements is false?
    • A. 

      A) All operating activity items are translated at an average exchange rate for the period.

    • B. 

      B) A change in accounts receivable is translated using the current rate.

    • C. 

      C) A change in long-term debt is translated using the historical rate at the date of the change.

    • D. 

      D) Dividends paid are translated using the historical rate at the date of the payment.

    • E. 

      E) All items follow translation rates used for the balance sheet and the income statement.

  • 21. 
    22-  Esposito is an Italian subsidiary of a U.S. company.         Esposito’s ending inventory is valued at the average cost for the last quarter of the year.        The following account balances are available for Esposito for 2018:          Compute the cost of goods sold for 2018 in U.S. dollars using the temporal method.
    • A. 

      A)  $376,650.

    • B. 

      B)  $387,750.

    • C. 

      C)  $388,800.

    • D. 

      D)  $400,950.

    • E. 

      E)  $409,050.

  • 22. 
    23-   A foreign subsidiary uses the first-in first-out inventory method.  The following inventory balances are given at December 31, 2018 in local currency units (LCU):        Compute the December 31, 2018, inventory balance using the lower of cost or net realizable value method under the temporal method.
    • A. 

      A)  $321,000.

    • B. 

      B)  $457,600.

    • C. 

      C)  $596,400.

    • D. 

      D)  $454,400.

    • E. 

      E)  $419,000.

  • 23. 
    24-   Perez Company, a Mexican subsidiary of a U.S. company, sold equipment costing 200,000 pesos with accumulated depreciation of 75,000 pesos for 140,000 pesos on March 1, 2018.  The equipment was purchased on January 1, 2017.  Relevant exchange rates for the peso are as follows:       The financial statements for Perez are translated by its U.S. parent.  What amount of gain or loss would be reported in its translated income statement?
    • A. 

      A)  $1,530.

    • B. 

      B)  $1,575.

    • C. 

      C)  $1,590.

    • D. 

      D)  $1,090.

    • E. 

      E)  $1,650.

  • 24. 
    25-   Certain balance sheet accounts of a foreign subsidiary of Parker Company at December 31, 2018, have been restated into U.S. dollars as follows:           Assuming the functional currency of the subsidiary is the U.S. dollar, what total should be included in Parker's consolidated balance sheet at December 31, 2018, for the above items?
    • A. 

      A)  $407,500.

    • B. 

      B)  $418,000.

    • C. 

      C)  $396,000.

    • D. 

      D)  $403,500.

    • E. 

      E)  $398,500.

  • 25. 
    26-  Certain balance sheet accounts of a foreign subsidiary of Parker Company at December 31, 2018, have been restated into U.S. dollars as follows:        Assuming the functional currency of the subsidiary is the local currency, what total should be included in Parker's consolidated balance sheet at December 31, 2018, for the above items?
    • A. 

      A)  $407,500.

    • B. 

      B)  $418,000.

    • C. 

      C)  $396,000.

    • D. 

      D)  $403,500.

    • E. 

      E)  $398,500.

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