Question 1

The Financial Accounting Standards Board sanctioned the current rate method for remeasuring foreign currency-denominated financial statements to the functional currency.

Accepted Answer

The Financial Accounting Standards Board (FASB) sanctioned the current rate method for translating, not remeasuring, foreign currency-denominated financial statements to the functional currency. Remeasurement involves the temporal method.

Question 2

Translation and remeasurement of foreign currency financial statements have the same objective.

Accepted Answer

Translation and remeasurement of foreign currency financial statements serve different purposes. Translation is used to convert the financial statements of a foreign subsidiary to the parent company's reporting currency for consolidation purposes. Remeasurement is used to adjust the financial statements of a foreign entity to reflect changes in exchange rates, typically when the functional currency is not the local currency.

Question 3

A U.S. multinational enterprise remeasures the financial statements of its foreign subsidiaries from the foreign local currency to the subsidiaries' functional currency.

Accepted Answer

The functional currency of a foreign subsidiary is the currency of the primary economic environment in which the subsidiary operates. Remeasurement to the functional currency is necessary to provide a more accurate representation of the subsidiary's financial performance.

Question 4

Under the monetary/nonmonetary method of remeasuring foreign currency financial statements, both inventories and current liabilities are remeasured at appropriate historical exchange rates.

Accepted Answer

Under the monetary/nonmonetary method, only monetary items (such as cash, receivables, and payables) are remeasured at the current exchange rate, while nonmonetary items (like inventories) are typically remeasured at historical exchange rates.

Question 5

The current/noncurrent method and the current rate method for translating foreign currency financial statements essentially are identical.

Accepted Answer

The current/noncurrent method and the current rate method are different in how they treat the translation of various balance sheet and income statement items. The current/noncurrent method translates current assets and liabilities at the current exchange rate, while noncurrent items are translated at historical rates. The current rate method, on the other hand, translates all assets and liabilities at the current exchange rate, regardless of their classification as current or noncurrent.

Question 6

According to FASB Statement No. 52, "Foreign Currency Translation," inventories of a foreign subsidiary carried at first-in, first-out cost in the subsidiary's functional currency balance sheet are translated to U.S. dollars at the historical exchange rate.

Accepted Answer

Inventories carried at FIFO (or any cost method) are translated at the exchange rates as of the dates the inventories were acquired, not necessarily the historical exchange rate, which is used for assets and liabilities carried at historical cost. The statement aims to reflect the value of the inventory at the current rate, not the historical rate.

Question 7

Foreign currency translation adjustments are not entered in a ledger account of a foreign branch or investee.

Accepted Answer

Foreign currency translation adjustments are part of the consolidation process when preparing the parent company's financial statements and are recorded in the equity section of the consolidated balance sheet, not in a specific ledger account of the foreign branch or investee.

Question 8

Remeasurement is synonymous with translation.

Accepted Answer

Remeasurement and translation are different processes used in accounting for foreign currency transactions. Remeasurement is the process of converting financial statements from a foreign subsidiary's functional currency into the parent company's reporting currency, while translation is used to adjust the value of individual transactions denominated in foreign currencies to the reporting currency.

Question 9

Foreign currency transaction gains and losses are displayed with foreign currency translation adjustments in the translated balance sheet of a foreign entity.

Accepted Answer

Foreign currency transaction gains and losses are recognized in the income statement, whereas foreign currency translation adjustments are reported in other comprehensive income and accumulated in a separate component of equity, not in the translated balance sheet.

Question 10

The remeasured financial statements of a foreign entity need never be translated.

Accepted Answer

Remeasured financial statements of a foreign entity often need to be translated into the reporting currency of the parent company for consolidation purposes. Remeasurement is the process of converting financial statements from the functional currency to the presentation currency, and translation is required when the presentation currency differs from the reporting currency of the parent company.

Question 11

In the remeasurement of foreign currency financial statements, which of the following items is remeasured at the current exchange rate?

Accepted Answer

Marketable equity securities carried at current fair value are remeasured at the current exchange rate because their value is directly influenced by current market conditions, which include current exchange rates.

Question 12

Inventories carried at cost in a foreign subsidiary's local currency financial statements are remeasured to functional currency dollar amounts at the historical exchange rate under the:

Accepted Answer

Under the monetary/nonmonetary method, inventories, being nonmonetary items, are remeasured at the historical exchange rate. This method distinguishes between monetary items (cash, receivables, and payables, which are remeasured at the current exchange rate) and nonmonetary items (like inventories, fixed assets, and equity, which are remeasured at the historical exchange rate).

Question 13

Under FASB Statement No. 52, "Foreign Currency Translation," the appropriate exchange rate for translating plant assets stated in functional currency amounts in the balance sheet of a foreign subsidiary is the:

Accepted Answer

The current exchange rate is used to translate plant assets stated in functional currency amounts in the balance sheet of a foreign subsidiary under FASB Statement No. 52, "Foreign Currency Translation."

Question 14

If a parent company bills all sales to its foreign subsidiary in U.S. dollars and is to be repaid in the same number of U.S. dollars, the Purchases ledger account in the subsidiary's trial balance is remeasured to U.S. dollars by use of the:

Accepted Answer

The subsidiary's purchases ledger account is remeasured to U.S. dollars using the amount recorded in the parent's accounting records for sales to the subsidiary, as the transactions are billed and repaid in U.S. dollars.

Question 15

The account (or accounts) in a foreign subsidiary's trial balance that are not remeasured to U.S. dollars (the functional currency) at the current exchange rate are:

Accepted Answer

Sales are recorded at the exchange rate on the date of the transaction, so they are not remeasured at the current exchange rate in a foreign subsidiary's trial balance. Other balance sheet items like payables, receivables, and long-term liabilities may be subject to remeasurement based on the current exchange rate or historical rates, depending on their nature and the accounting standards applied.

Question 16

Platt Corporation acquired 80% of the outstanding common stock of Smolt Company, a foreign subsidiary. In the preparation of consolidated financial statements, the paid-in capital of Smolt is translated from the foreign functional currency to U.S. dollars at the:

Accepted Answer

The paid-in capital of a foreign subsidiary is translated at the exchange rate effective on the date the parent acquired the subsidiary's common stock.

Question 17

The historical exchange rate is not used to remeasure to the functional currency a foreign subsidiary's:

Accepted Answer

The answer of The historical exchange rate is not used...

Question 18

Accumulated foreign currency translation adjustments arising from translation of the financial statements of a foreign entity to the reporting currency from the functional currency are displayed in the:

Accepted Answer

Accumulated foreign currency translation adjustments are reported in the stockholders' equity section of the entity's balance sheet. They are part of other comprehensive income and are not recognized in the income statement until the sale or liquidation of the underlying foreign operation.

Question 19

The trial balance of the Paris Branch of Cisalpine Company is presented below:
  The exchange rate for the euro on December 31, 2006, was i1 = $1.08, and the average exchange rate for 2006 was i1 = $1.07.
Complete the remeasurement of the Paris Branch trial balance to U.S. dollars, the functional currency, on December 31, 2006.

Accepted Answer

The answer of The trial balance of the Paris Branch...

Question 20

On January 2, 2006, Parliament Corporation, a U.S. multinational enterprise, acquired all the outstanding common stock of Sirius Company, which is located in a country whose currency is the locuro (LC). The locuro is the functional currency of Sirius.
For 2006, exchange rates for the locuro were as follows:

Accepted Answer

The answer of On January 2, 2006, Parliament Corporation, a...

Quiz 12: Translation of Foreign Currency Financial Statements