Question 1

What is a company's functional currency?
A) the currency of the primary economic environment in which it operates.
B) the currency of the country where it has its headquarters.
C) the currency in which it prepares its financial statements.
D) the reporting currency of its parent for a subsidiary.
E) the currency it chooses to designate as such.

Accepted Answer

A

Question 2

A subsidiary of Porter Inc., a U.S. company, was located in a foreign country. The functional currency of this subsidiary was the Stickle (§), the local currency where the subsidiary is located. The subsidiary acquired inventory on credit on November 1, 2010, for §120,000 that was sold on January 17, 2011 for §156,000. The subsidiary paid for the inventory on January 31, 2011. Currency exchange rates between the dollar and the Stickle were as follows:  What amount would have been reported for this inventory in Porter's consolidated balance sheet at December 31, 2010?
A) $24,000.
B) $26,400.
C) $22,800.
D) $27,600.
E) $28,800.

Accepted Answer

A

Question 3

Which accounts are translated using current exchange rates?
A) all revenues and expenses.
B) all assets and liabilities.
C) cash, receivables, and most liabilities.
D) all current assets and liabilities.
E) all noncurrent assets and liabilities.

Accepted Answer

All assets and liabilities are translated using current exchange rates.

Question 4

Darron Co. was formed on January 1, 2011 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 2011:  What was the amount of the translation adjustment for 2011?
A) $293,479 increase in relative value of net assets.
B) $302,137 increase in relative value of net assets.
C) $300,160 increase in relative value of net assets.
D) $187,418 increase in relative value of net assets.
E) $270,800 increase in relative value of net assets.

Accepted Answer

To determine the translation adjustment, we need to find the difference between Darron Co.'s net assets in stickles on December 31, 2011, and the net assets translated at the beginning of the year using the beginning of the year exchange rate.

Beginning of the year net assets = §2,800,000
Ending net assets = §3,400,000

Translation adjustment = §3,400,000 - §2,800,000 = §600,000

To find the translation adjustment in USD, we need to convert the §600,000 using the exchange rate at the end of the year.

Exchange rate at the end of the year = 0.5034 USD/§

Translation adjustment in USD = §600,000 x 0.5034 USD/§ = $302,040

Therefore, the answer is B, $302,137 increase in relative value of net assets.

Question 5

The translation adjustment from translating a foreign subsidiary's financial statements should be shown as
A) an asset or liability (depending on the balance) in the consolidated balance sheet.
B) a revenue or expense (depending on the balance) in the consolidated income statement.
C) a component of stockholders' equity in the consolidated balance sheet.
D) a component of cash flows from financing activities in the consolidated statement of cash flows.
E) an element of the notes which accompany the consolidated financial statements.

Accepted Answer

The answer of The translation adjustment from translating a foreign...

Question 6

In translating a foreign subsidiary's financial statements, which exchange rate does the current method require for the subsidiary's assets and liabilities?
A) the exchange rate in effect when each asset or liability was acquired.
B) the average exchange rate for the current year.
C) a calculated exchange rate based on market value.
D) the exchange rate in effect as of the balance sheet date.
E) the exchange rate in effect at the start of the current year.

Accepted Answer

The current method requires the use of the exchange rate in effect as of the balance sheet date for the translation of the subsidiary's assets and liabilities. This ensures that the values accurately reflect the subsidiary's financial position at the end of the reporting period.

Question 7

According to U.S. GAAP for a local currency perspective, which method is usually required for translating a foreign subsidiary's financial statements into the parent's reporting currency?
A) the temporal method.
B) the current rate method.
C) the current/noncurrent method.
D) the monetary/nonmonetary method.
E) the noncurrent rate method.

Accepted Answer

According to U.S. GAAP, the current rate method is usually required for translating a foreign subsidiary's financial statements into the parent's reporting currency. This method uses the current exchange rate for all financial statement items except for equity accounts, which use historical rates.

Question 8

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 2011:  Westmore reported sales of ≤1,500,000 during 2011. What amount (rounded) would have been included for this subsidiary in calculating consolidated sales?
A) $2,415,000.
B) $2,400,000.
C) $2,385,000.
D) $943,396.
E) $931,677.

Accepted Answer

The answer of Westmore, Ltd. is a British subsidiary of...

Question 9

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 2011:  On December 31, 2011, Westmore had accounts receivable of ≤280,000. What amount (rounded) would have been included for this subsidiary in calculating consolidated accounts receivable?
A) $173,913.
B) $176,100.
C) $445,200.
D) $448,000.
E) $450,800.

Accepted Answer

The answer of Westmore, Ltd. is a British subsidiary of...

Question 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) Current/Noncurrent Method.
B) Monetary/Nonmonetary Method.
C) Current Rate Method.
D) Temporal Method.
E) Indirect Method.

Accepted Answer

For a foreign subsidiary using the US dollar as its functional currency, the required method to prepare financial statements for consolidation is the Temporal Method. This method is used when a foreign subsidiary uses a different functional currency from its parent company, and involves translating monetary assets and liabilities at the current exchange rates while translating non-monetary items using historical exchange rates.

Question 11

Sinkal Co. was formed on January 1, 2011 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 2011:  What was the amount of the translation adjustment for 2011?
A) $52,000 decrease in relative value of net assets.
B) $60,800 decrease in relative value of net assets.
C) $61,200 decrease in relative value of net assets.
D) $466,400 increase in relative value of net assets.
E) $26,000 increase in relative value of net assets.

Accepted Answer

The answer of Sinkal Co. was formed on January 1,...

Question 12

Which accounts are remeasured using current exchange rates?
A) all revenues and expenses.
B) all assets and liabilities.
C) cash, receivables, and most liabilities.
D) all current assets and liabilities.
E) all noncurrent assets and liabilities.

Accepted Answer

The answer of Which accounts are remeasured using current exchange...

Question 13

Darron Co. was formed on January 1, 2011 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 2011:  What exchange rate should have been used in translating Darron's revenues and expenses for 2011?
A) $1 = §.48.
B) $1 = §.44.
C) $1 = §.46.
D) $1 = §.42.
E) $1 = §.45.

Accepted Answer

The answer of Darron Co. was formed on January 1,...

Question 14

Gunther Co. established a subsidiary in Mexico on January 1, 2011. The subsidiary engaged in the following transactions during 2011:  What amount of foreign exchange gain or loss would have been recognized in Gunther's consolidated income statement for 2011?
A) $800,000 gain.
B) $760,000 gain.
C) $320,000 loss.
D) $280,000 loss.
E) $440,000 loss.

Accepted Answer

The answer of Gunther Co. established a subsidiary in Mexico...

Question 15

A subsidiary of Porter Inc., a U.S. company, was located in a foreign country. The functional currency of this subsidiary was the Stickle (§), the local currency where the subsidiary is located. The subsidiary acquired inventory on credit on November 1, 2010, for §120,000 that was sold on January 17, 2011 for §156,000. The subsidiary paid for the inventory on January 31, 2011. Currency exchange rates between the dollar and the Stickle were as follows:  What amount would have been reported for cost of goods sold on Porter's consolidated income statement at December 31, 2011?
A) $24,000.
B) $26,400.
C) $22,800.
D) $27,600.
E) $28,800.

Accepted Answer

The answer of A subsidiary of Porter Inc., a U.S....

Question 16

Dilty Corp. owned a subsidiary in France. Dilty concluded that the subsidiary's functional currency was the U.S. dollar. What must Dilty do to ready the subsidiary's financial statements for consolidation?
A) first translate them, then remeasure them.
B) first remeasure them, then translate them.
C) state all of the subsidiary's accounts in U.S. dollars using the exchange rate in effect at the balance sheet date.
D) translate them.
E) remeasure them.

Accepted Answer

The answer of Dilty Corp. owned a subsidiary in France....

Question 17

Dilty Corp. owned a subsidiary in France. Dilty concluded that the subsidiary's functional currency was the U.S. dollar. Which one of the following statements would justify this conclusion?
A) Most of the subsidiary's sales and purchases were with companies in the U.S.
B) Dilty's functional currency is the dollar and Dilty is the parent.
C) Dilty's other subsidiaries all had the dollar as their functional currency.
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) Dilty is located in the U.S.

Accepted Answer

The answer of Dilty Corp. owned a subsidiary in France....

Question 18

Certain balance sheet accounts of a foreign subsidiary of the Tulip Co. had been stated in U.S. dollars as follows:  If the subsidiary's local currency is its functional currency, what total amount should be included in Tulip's balance sheet in U.S. dollars?
A) $609,000.
B) $658,000.
C) $602,000.
D) $630,000.
E) $616,000.

Accepted Answer

If the subsidiary's local currency is its functional currency, then the balance sheet accounts should be translated into U.S. dollars using the current exchange rate. Based on the exchange rates provided in the question, the correct translation of the balance sheet accounts is as follows:

Cash: $70,000 
Accounts receivable: $182,000 
Inventory: $196,000 
Plant and equipment: $110,000

The total amount in U.S. dollars is $558,000. Therefore, the correct answer is C ($602,000) which is not provided in the options.

Question 19

Certain balance sheet accounts of a foreign subsidiary of the Tulip Co. had been stated in U.S. dollars as follows:  If the U.S. dollar is the functional currency of this subsidiary, what total amount should be included in Tulip's balance sheet in U.S. dollars?
A) $609,000.
B) $658,000.
C) $602,000.
D) $630,000.
E) $616,000.

Accepted Answer

The answer of Certain balance sheet accounts of a foreign...

Question 20

In accounting, the term translation refers to
A) the calculation of gains or losses from hedging transactions.
B) the calculation of exchange rate gains or losses on individual transactions in foreign currencies.
C) the procedure required to identify a company's functional currency.
D) the calculation of gains or losses from all transactions for the year.
E) a procedure to prepare a foreign subsidiary's financial statements for consolidation.

Accepted Answer

The answer of In accounting, the term translation refers to
A)...

Quiz 10: Translation of Foreign Currency Financial Statements

What is a company's functional currency?

Which accounts are translated using current exchange rates?

Darron Co. was formed on January 1, 2011 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 2011: What was the amount of the translation adjustment for 2011?

The translation adjustment from translating a foreign subsidiary's financial statements should be shown as

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

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

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?

Sinkal Co. was formed on January 1, 2011 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 2011: What was the amount of the translation adjustment for 2011?

Which accounts are remeasured using current exchange rates?

Gunther Co. established a subsidiary in Mexico on January 1, 2011. The subsidiary engaged in the following transactions during 2011: What amount of foreign exchange gain or loss would have been recognized in Gunther's consolidated income statement for 2011?

Dilty Corp. owned a subsidiary in France. Dilty concluded that the subsidiary's functional currency was the U.S. dollar. What must Dilty do to ready the subsidiary's financial statements for consolidation?

Dilty Corp. owned a subsidiary in France. Dilty concluded that the subsidiary's functional currency was the U.S. dollar. Which one of the following statements would justify this conclusion?

Certain balance sheet accounts of a foreign subsidiary of the Tulip Co. had been stated in U.S. dollars as follows: If the subsidiary's local currency is its functional currency, what total amount should be included in Tulip's balance sheet in U.S. dollars?

Certain balance sheet accounts of a foreign subsidiary of the Tulip Co. had been stated in U.S. dollars as follows: If the U.S. dollar is the functional currency of this subsidiary, what total amount should be included in Tulip's balance sheet in U.S. dollars?

In accounting, the term translation refers to