Question 1

When the temporal method is used, any exchange rate change adjustment to a parent's long-term intercompany receivable from (or payable to) its foreign subsidiary is reported currently in earnings-only if the amount is not expected to be paid in the foreseeable future.

Accepted Answer

Under the temporal method, exchange rate changes affecting long-term intercompany receivables or payables are reported in current earnings regardless of the expected timing of settlement.

Question 2

When the temporal method is used, any exchange rate change adjustment to a parent's long-term intercompany receivable from (or payable to) its foreign subsidiary is reported as an adjustment to Other Comprehensive Income account (bypassing earnings)-if the amount is not expected to be paid in the foreseeable future.

Accepted Answer

Under the temporal method, exchange rate changes affecting long-term intercompany receivables or payables are recognized in the income statement, not in Other Comprehensive Income, regardless of the expected timing of settlement.

Question 3

When the temporal method is used, any exchange rate change adjustment to a parent's Dividend Receivable from its foreign subsidiary is reported currently in earnings.

Accepted Answer

Under the temporal method, monetary items like dividend receivable are remeasured at the current exchange rate, and any exchange rate changes are recognized in the income statement, affecting current earnings.

Question 4

When the temporal method is used, any exchange rate change adjustment to a parent's Dividend Receivable from its foreign subsidiary is reported as an adjustment to Other Comprehensive Income (bypassing earnings).

Accepted Answer

Under the temporal method, exchange rate changes affecting monetary assets and liabilities, such as Dividends Receivable, are recognized in the income statement, not in Other Comprehensive Income.

Question 5

When the temporal method is used, the calculation of any unrealized intercompany profit on inventory transfers is made using the current exchange rate.

Accepted Answer

When using the temporal method, the calculation of any unrealized intercompany profit on inventory transfers is made using the historical exchange rate at which the inventory was originally recorded, not the current exchange rate.

Question 6

The risk of investing in foreign countries can be virtually eliminated by having the foreign units invest their assets in nonmonetary assets.

Accepted Answer

Investing in nonmonetary assets in foreign countries does not eliminate the risks associated with foreign investments, such as political risk, exchange rate risk, and economic instability.

Question 7

The risk of investing in foreign countries can be greatly minimized by making intercompany loans that are to be repaid in U.S. dollars as opposed to making investments in common stocks of the foreign unit.

Accepted Answer

Intercompany loans repaid in U.S. dollars can mitigate currency risk but do not address other risks associated with investing in foreign countries, such as political risk, economic instability, or changes in regulatory environments. Investing in common stocks of a foreign unit also exposes investors to market risk, which is not necessarily mitigated by the currency in which loans are repaid.

Question 8

The accounting for the gain or loss on the hedging of a net investment position depends on whether the foreign currency or the U.S. dollar is the foreign unit's functional currency.

Accepted Answer

The accounting for the gain or loss on the hedging of a net investment position depends on whether the foreign currency or the U.S. dollar is the foreign unit's functional currency.

Question 9

When the temporal method is used and a net monetary liability position is hedged, there may not be an offsetting effect to the FX transaction gain or loss resulting from the remeasurement process.

Accepted Answer

When using the temporal method, the exchange rate effects on monetary items do not necessarily offset the FX transaction gains or losses from hedging activities, because the temporal method remeasures monetary items at historical rates for some items and current rates for others, which can lead to mismatches.

Question 10

_____ Which of the following statements does not hold true for the U.S. dollar unit of measure approach?

Accepted Answer

The answer of _____ Which of the following statements does...

Question 11

_____ When using the U.S. dollar unit of measure approach, the focus is on the

Accepted Answer

The answer of _____ When using the U.S. dollar unit...

Question 12

_____ Under the temporal method, what is the effect of a decrease in the direct exchange rate under each of the following situations?

Accepted Answer

The answer of _____ Under the temporal method, what is...

Question 13

_____ Under the temporal method, what is the effect of an increase in the direct exchange rate under each of the following situations?

Accepted Answer

The answer of _____ Under the temporal method, what is...

Question 14

_____ Under the temporal method, what is the effect of a decrease in the direct exchange rate under each of the following situations?

Accepted Answer

The answer of _____ Under the temporal method, what is...

Question 15

_____ Under the temporal method, what is the effect of an increase in the direct exchange rate under each of the following situations?

Accepted Answer

The answer of _____ Under the temporal method, what is...

Question 16

_____ Which of the following statements is correct?

Accepted Answer

None of the statements are universally correct as the effects of changes in exchange rates depend on specific circumstances, such as the direction of the change and the accounting method used.

Question 17

_____ Under the temporal method of translation, which translation procedures are followed?

Accepted Answer

Under the temporal method, a combination of current and historical exchange rates are used to translate financial statements. This means that some balance sheet and income statement items are translated at current exchange rates, while others are translated at historical rates, depending on the nature of the item.

Question 18

_____ Under the temporal method of translation, which translation procedures are followed?

Accepted Answer

The answer of _____ Under the temporal method of translation,...

Question 19

_____ Under the temporal method of translation, which of the following occurs?

Accepted Answer

The answer of _____ Under the temporal method of translation,...

Question 20

_____ Which exchange rates are used to express the following accounts in dollars under the temporal method of translation?

Accepted Answer

The answer of _____ Which exchange rates are used to...

Quiz 16: Translating Foreign Currency Statements: The Temporal Method and the Functional Currency Concept

When the temporal method is used, any exchange rate change adjustment to a parent's long-term intercompany receivable from (or payable to) its foreign subsidiary is reported currently in earnings-only if the amount is not expected to be paid in the foreseeable future.

When the temporal method is used, any exchange rate change adjustment to a parent's Dividend Receivable from its foreign subsidiary is reported currently in earnings.

When the temporal method is used, any exchange rate change adjustment to a parent's Dividend Receivable from its foreign subsidiary is reported as an adjustment to Other Comprehensive Income (bypassing earnings).

When the temporal method is used, the calculation of any unrealized intercompany profit on inventory transfers is made using the current exchange rate.

The risk of investing in foreign countries can be virtually eliminated by having the foreign units invest their assets in nonmonetary assets.

The risk of investing in foreign countries can be greatly minimized by making intercompany loans that are to be repaid in U.S. dollars as opposed to making investments in common stocks of the foreign unit.

The accounting for the gain or loss on the hedging of a net investment position depends on whether the foreign currency or the U.S. dollar is the foreign unit's functional currency.

When the temporal method is used and a net monetary liability position is hedged, there may not be an offsetting effect to the FX transaction gain or loss resulting from the remeasurement process.

_____ Which of the following statements does not hold true for the U.S. dollar unit of measure approach?

_____ When using the U.S. dollar unit of measure approach, the focus is on the

_____ Under the temporal method, what is the effect of a decrease in the direct exchange rate under each of the following situations?

_____ Under the temporal method, what is the effect of an increase in the direct exchange rate under each of the following situations?

_____ Under the temporal method, what is the effect of a decrease in the direct exchange rate under each of the following situations?

_____ Under the temporal method, what is the effect of an increase in the direct exchange rate under each of the following situations?

_____ Which of the following statements is correct?

_____ Under the temporal method of translation, which translation procedures are followed?

_____ Under the temporal method of translation, which translation procedures are followed?

_____ Under the temporal method of translation, which of the following occurs?

_____ Which exchange rates are used to express the following accounts in dollars under the temporal method of translation?