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Chapter 8 - Advanced Financial Accounting | Comprehensive Questions and Answers Latest Updated 2024/2025 With 100% Verified Solutions The accounts of a foreign subsidiary are translated into the parent's currency using a combination of - current and historical exchange rates. Translating a foreign currency asset at the current exchange rate when the foreign currency has appreciated gives rise to a translation adjustment. - positive Foreign currency balance sheet accounts that are translated at the current exchange rate are to translation adjustment. - exposed When the amount of assets translated at the current exchange rate is lower than the amount of liabilities translated at the current exchange rate - a net liability balance sheet exposure exists. A net liability balance sheet exposure coupled with an appreciation in the value of a foreign currency will result in a translation adjustment. - negative The exchange rate is the exchange rate that exists at the balance sheet date. - current Translating a liability on a foreign subsidiary's balance sheet at the current exchange rate results in - a positive translation adjustment when the foreign currency has depreciated. a negative translation adjustment when the foreign currency has appreciated. Exposure to translation adjustment exists for those foreign currency balances that are translated at - the current exchange rate. A net asset balance sheet exposure exists when - the amount of assets translated at the current exchange rate is higher than the amount of liabilities translated at the current exchange rate. A depreciation in the value of a foreign currency will result in a negative translation adjustment when a foreign subsidiary has a net balance sheet exposure. - asset
The exchange rate is the exchange rate that existed when a transaction occurred sometime in the past. - historical Translating an asset on a foreign subsidiary's balance sheet at the current exchange rate results in - a positive translation adjustment when the foreign currency has appreciated. a negative translation adjustment when the foreign currency has depreciated. Translating a foreign currency balance sheet account at the current exchange rate gives rise to - balance sheet exposure to foreign exchange risk. A net asset balance sheet exposure will generate a positive translation adjustment when the foreign currency - increases (appreciates) in value. The current rate method of translation assumes that a foreign subsidiary is - a net asset that is exposed to foreign exchange risk. Under the current rate method of translation, the balance sheet items translated at the current exchange rate are - all assets and all liabilities. The translation adjustment arising under the current rate method becomes a realized (cash) gain or loss when - a foreign subsidiary is sold and the sales proceeds are converted into parent company currency. A positive translation adjustment will arise when a foreign currency decreases in value (depreciates) and the foreign subsidiary - has a net liability balance sheet exposure. Under the current rate method of translation, revenues and expenses generally are translated at - the average-for-the-period exchange rate. A basic objective of the temporal method of translation is to - produce a set of translated financial statements as if the foreign operation had used the parent company's currency in its daily operations.
Under the temporal method of translation, assets carried on the foreign entity's balance sheet at a current or future value are translated using - the current exchange rate. The translation adjustment that results from applying the temporal method - can be realized in cash only if the foreign entity's liabilities are paid using parent company currency. The translation adjustment arising under the current rate method becomes a realized gain or loss when the foreign subsidiary is sold and the foreign currency proceeds from the sale are into U.S. dollars. - converted Under the temporal method, revenues that are earned evenly throughout the year are translated using - the average-for-the-year exchange rate. Under the temporal method of translation, foreign entities generally will - have a net liability balance sheet exposure. Balance sheet accounts translated using the same exchange rate under both the current rate and temporal methods include - long-term debt. cash and receivables. additional paid in capital. Under both the current rate and temporal methods of translation the retained earnings of a foreign entity are translated into parent company currency by multiplying ending retained earnings in foreign currency by the average-for-the-period exchange rate. - False The translation adjustment that results from the use of the temporal method is a realized (cash) gain or loss that is caused by changes in exchange rates. - False Under the temporal method, expenses related to assets that are translated at historical exchange rates (such as depreciation expense) are translated using - historical exchange rates. There is no need to keep record of the acquisition date exchange rates related to - assets translated at the current exchange rate under the temporal method.
assets translated under the current rate method. Assuming that all expenses are incurred evenly throughout the year, those expenses translated using a different exchange rate under the current rate method than under the temporal method include - depreciation expense. cost of goods sold. Under both the current rate and temporal methods of translation the parent currency amount of retained earnings at the end of the year is determined by translating the - current year's net income and dividends in foreign currency separately and combining these with beginning retained earnings. Under the temporal method, cost of goods sold (COGS) in foreign currency (FC) is translated into parent company currency by - decomposing COGS in FC into components and then multiplying each of these components by its appropriate historical exchange rate. Under the temporal method, expenses are translated using - the average-for-the-year and historical exchange rates. The accounting system must keep track of the acquisition date exchange rates related to those assets that are translated at - historical exchange rates under the temporal method. True or false: Under the temporal method, inventory reported at cost on the foreign currency balance sheet could be reported at either cost or at net realizable value on the parent currency balance sheet. - True Under the temporal method, cost of goods sold (COGS) in foreign currency is decomposed into beginning inventory, purchases, and ending inventory and then each component is translated into U.S. dollars using the appropriate exchange rate. - historical Under the temporal method, depreciation expense and accumulated depreciation are translated using the exchange rate when the related property, plant, and equipment was acquired. - historical The gain on the sale of an asset is translated under the temporal method by first translating the received from the sale using the exchange rate on the date of sale. - cash
A U.S.-based company must use the temporal method to translate the financial statements of a foreign subsidiary whose functional currency is - the U.S. dollar. The U.S. dollar is the currency for a U.S.-based company. - reporting The functional currency of a foreign entity is defined as the - primary currency of the foreign entity's operating environment. In assessing the indicators provided by the FASB for determining the functional currency of a foreign entity, the FASB - provides no guidance with regard to how the indicators should be weighted. Determining the functional currency of a foreign entity might require management to exercise considerable judgment in considering relevant facts. - True When the temporal method of translation is appropriate, the resulting translation adjustment must be - recognized as a gain or loss in net income. The reporting currency for a U.S.-based company is the - U.S. dollar. The primary currency of a foreign entity's operating environment is its currency. - functional The functional currency of a foreign entity located in a highly inflationary country - does not need to be identified because the entity's foreign currency financial statements must be translated using the temporal method. The indicators provided by the FASB for determining the functional currency of a foreign entity include - whether sales prices are directly affected by short-term fluctuations in the exchange rate. the currency in which the foreign entity obtains its financing. whether the foreign entity's cash flows directly affect the parent's cash flows. Determining the functional currency of a foreign subsidiary - is a matter of fact but may require management judgment in evaluating the facts.
In determining the translation adjustment when the current rate method is used, the foreign entity's net asset balance at the beginning of the year is translated using the - beginning-of-the-year exchange rate. When the current rate method of translation is appropriate, the resulting translation adjustment must be - reported in accumulated other comprehensive income on the balance sheet. The U.S. dollar is the currency for a U.S.-based company. - reporting In determining the remeasurement gain or loss that results when the temporal method of translation is used the beginning net asset or liability position is translated using the beginning-of-the-year exchange rate. - monetary Translation using the temporal method with remeasurement gains and losses recognized in net income is appropriate for those foreign entities - that are located in highly inflationary economies. that have the U.S. dollar as their functional currency. In determining the translation adjustment when the current rate method is used, dividends declared by the foreign entity in the current year are translated using the - exchange rate on the date the dividends are declared. In determining the remeasurement gain or loss that results when the temporal method is used, the beginning-of-the-year net monetary asset or liability position of the foreign entity is translated using the
- beginning-of-the-year exchange rate. The foreign currency financial statements of a foreign entity located in a highly inflationary economy - must be translated using the temporal method. Net cash from operations reported in the translated statement of cash flows will be the same regardless of whether a foreign entity's financial statements have been translated using the current rate method or remeasured using the temporal method. - True A U.S.-based company has a foreign subsidiary that has the Mexican peso as its functional currency. The Mexican subsidiary recognizes in its Mexican peso income statement a foreign exchange gain on a
Each of the ratios calculated from a foreign entity's foreign currency financial statements will have a different value in parent company currency when the foreign financial statements are translated using - the temporal method.
