1. A German subsidiary of a U.S. firm has the British pound as its functional currency. Under the provisions of...


1. A German subsidiary of a U.S. firm has the British pound as its functional currency. Under the provisions of ASC Topic 830, the U.S. dollar from the subsidiary’s viewpoint would be:
(a) Its local currency
(b) Its recording currency
(c) A foreign currency
(d) None of the above
2. Which of the following foreign subsidiary accounts will be converted into the same number of U.S. dollars, regardless of whether translation or remeasurement is used?
(a) Accounts receivable
(b) Inventories
(c) Machinery
(d) Prepaid insurance
3. Which one of the following items from the financial statements of a foreign subsidiary would be translated into dollars using the historical exchange rate?
Accounts payable
(b) Amortization of bond premium
(c) Common stock
(d) Inventories

4. Average exchange rates are used to translate certain items from foreign income statements into U.S. dollars. Such averages are used to:
(a) Approximate the effects of using the current exchange rates in effect on the transaction dates
(b) Avoid using different exchange rates for some revenue and expense accounts
(c) Eliminate large and temporary fluctuations in exchange rates that may reverse in the near future
(d) Smooth out large exchange gains and losses

5. Pal, a U.S. Corporation, made a long-term, dollar-denominated loan of $600,000 to its British subsidiary on January 1, 2011, when the exchange rate for British pounds was $1.73. If the subsidiary’s functional currency is its local currency, this transaction is a foreign currency transaction of:
(a) The parent company but not the subsidiary
(b) The subsidiary company but not the parent
(c) Both the subsidiary and the parent
(d) Neither the subsidiary nor the parent

6. Sum is a 100%-owned subsidiary of a U.S. corporation. The country in which Sum is located has been determined to have a highly inflationary economy. Given this information, the functional currency of Sum is:
(a) Its local currency
(b) The U.S. dollar
(c) Its recording currency
(d) None of the above

7. An exchange gain on a long-term loan of a U.S. parent company to its British subsidiary whose functional currency is the British pound is:
(a) Recognized in consolidated income currently
(b) Deferred until the loan is settled
(c) Treated as an equity adjustment from translation
(d) Treated as an equity adjustment from remeasurement

8. A U.S. firm has a $10,000,000 investment in a foreign subsidiary, and the U.S. dollar is weakening against the currency of the country in which the foreign entity is located, which is also the subsidiary’s functional currency. On the basis of this information, one would expect the consolidated financial statements to show:
(a) Translation gains
(b) Translation losses
(c) Stockholders’ equity increase from remeasurement adjustments
(d) Stockholders’ equity decrease from remeasurement adjustments

9. Which one of the following would not give rise to changes in a parent company’s equity adjustment from translation account?
(a) Remeasurement of a foreign subsidiary’s statements
(b) Hedge of a net investment in a foreign subsidiary
(c) Long-term intercompany loans to its foreign subsidiary
(d) Translation of a foreign subsidiary’s statements

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...

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Advanced Accounting

ISBN: 9780132568968

11th Edition

Authors: Floyd A. Beams, Joseph H. Anthony, Bruce Bettinghaus, Kenneth Smith

Question Details
Chapter # 14
Section: Exercises
Problem: 1
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Question Posted: October 18, 2011 07:07:14