Question 1

When the functional currency is identified as the U.S. dollar, land purchased by a foreign subsidiary after the controlling interest was acquired by the parent company should be translated using the:

Accepted Answer

When the functional currency is identified as the U.S. dollar, assets acquired by a foreign subsidiary, such as land, should be translated using the historical exchange rate in effect at the date of purchase. This approach maintains the historical cost principle.

Question 2

Which of the following would be restated using the average exchange rate under the temporal method?

Accepted Answer

Under the temporal method, non-monetary items such as inventory (which affects cost of goods sold), and long-lived assets (which affects depreciation and amortization expense), are typically translated at historical exchange rates, not the average exchange rate.

Question 3

In preparing consolidated financial statements of a U.S. parent company and a foreign subsidiary, the foreign subsidiary's functional currency is the currency:

Accepted Answer

The functional currency is the currency of the primary economic environment in which the entity operates, essentially the currency in which the entity primarily generates and spends cash.

Question 4

Average exchange rates are used to translate certain items from foreign financial statements into U.S. dollars. Such averages are used in order to:

Accepted Answer

The answer of Average exchange rates are used to translate...

Question 5

A foreign subsidiary's functional currency is its local currency which has not experienced significant inflation. The weighted average exchange rate for the current year would be the appropriate exchange rate for translating:

Accepted Answer

The weighted average exchange rate for the year is typically used for translating income statement items such as wages expense and sales to customers, as these reflect operations over the entire period rather than a specific point in time.

Question 6

The process of translating the accounts of a foreign entity into its functional currency when they are stated in another currency is called:

Accepted Answer

The answer of The process of translating the accounts of...

Question 7

Paid-in capital accounts are translated using the historical exchange rate under:

Accepted Answer

Paid-in capital accounts are translated using the historical exchange rate under both the current rate and temporal methods because these accounts represent historical transactions and their values are not adjusted for changes in exchange rates over time.

Question 8

The objective of remeasurement is to:

Accepted Answer

Remeasurement is a process used in accounting to convert the financial statements of a foreign entity from its functional currency into the reporting currency of the parent company. The objective is to reflect the financial statements as if they were originally maintained in the functional currency, not in the local currency or the currency of the entity's largest customer.

Question 9

A foreign subsidiary's functional currency is its local currency and inflation of over 100 percent has been experienced over a three-year period. For consolidation purposes, SFAS No. 52 requires the use of:

Accepted Answer

SFAS No. 52 specifies that when a foreign subsidiary operates in a highly inflationary environment (defined as cumulative inflation of approximately 100% or more over a three-year period), the temporal method should be used for translation. This method uses the exchange rates at the dates of the transactions for monetary items and historical rates for non-monetary items.

Question 10

P Company acquired 90% of the outstanding common stock of S Company which is a foreign company. The acquisition was accounted for using the purchase method. In preparing consolidated statements, the paid-in capital of S Company should be converted at the:

Accepted Answer

In the purchase method of accounting for an acquisition, the assets and liabilities of the acquired company are recorded at their fair values at the date of acquisition. Therefore, the paid-in capital of S Company should be converted at the exchange rate effective on the date of purchase of the stock of S Company by P Company. This ensures that the investment is accurately reflected in the parent company's financial statements at its cost at the time of acquisition.

Question 11

When translating foreign currency financial statements for a company whose functional currency is the U.S. dollar, which of the following accounts is translated using historical exchange rates?

Accepted Answer

Equipment is translated using historical exchange rates because it is a non-monetary asset, while notes payable, a monetary liability, is translated using the current exchange rate.

Question 12

A wholly owned subsidiary of a U.S. parent company has certain expense accounts for the year ended December 31, 2017, stated in local currency units (LCU) as follows: 
 The exchange rates at various dates are as follows:  Assume that the LCU is the subsidiary's functional currency and that the charges to the expense accounts occurred approximately evenly during the year. What total dollar amount should be included in the translated income statement to reflect these expenses?

Accepted Answer

The answer of A wholly owned subsidiary of a U.S....

Question 13

Assuming no significant inflation, gains resulting from the process of translating a foreign entity's financial statements from the functional currency to U.S. dollars should be included as a(n):

Accepted Answer

Gains from translating a foreign entity's financial statements from the functional currency to U.S. dollars are included in other comprehensive income, not in the net income, because they are unrealized and relate to the translation of financial statements rather than reflecting the entity's operational performance.

Question 14

Gains from remeasuring a foreign subsidiary's financial statements from the local currency, which is NOT the functional currency, into the parent company's currency should be reported as a(n):

Accepted Answer

Gains from remeasuring a foreign subsidiary's financial statements from the local currency into the parent company's currency are reported as part of continuing operations. This is because such gains or losses are considered to result from the normal operations of the business when the local currency is not the functional currency.

Question 15

Which of the following would be restated using the current exchange rate under the temporal method?

Accepted Answer

The answer of Which of the following would be restated...

Question 16

The translation adjustment that results from translating the financial statements of a foreign subsidiary using the current rate method should be:

Accepted Answer

The translation adjustment from using the current rate method is reported in the stockholders' equity section of the balance sheet as a component of accumulated other comprehensive income, not in the income statement or as a deferred item.

Question 17

The following balance sheet accounts of a foreign subsidiary at December 31, 2017, have been translated into U.S. dollars as follows:  What total should be included in the translated balance sheet at December 31, 2017, for the above items? Assume the U.S. dollar is the functional currency.

Accepted Answer

The answer of The following balance sheet accounts of a...

Question 18

If the functional currency is determined to be the U.S. dollar and its financial statements are prepared in the local currency, SFAS 52, requires which of the following procedures to be followed?

Accepted Answer

When the functional currency is the U.S. dollar but the financial statements are prepared in a local currency, SFAS 52 requires the financial statements to be remeasured into U.S. dollars using the temporal method.

Question 19

Under the temporal method, monetary assets and liabilities are translated by using the exchange rate existing at the:

Accepted Answer

Under the temporal method, monetary assets and liabilities are translated using the exchange rate existing at the balance sheet date.

Question 20

The appropriate exchange rate for translating a plant asset in the balance sheet of a foreign subsidiary in which the functional currency is the U.S. dollar is the:

Accepted Answer

When the functional currency is the U.S. dollar, assets and liabilities should be translated using the current exchange rate except for plant assets (and other non-monetary assets), which should be translated at the historical exchange rate in effect at the date of acquisition. This is because plant assets are recorded at their historical cost, and translating them at the historical rate maintains this cost principle in the translated financial statements.

Quiz 13: Translation of Financial Statements of Foreign Affiliates