1. When consolidated financial statements for a U.S. parent and its foreign subsidiary are prepared, the account balances expressed in foreign currency must be converted into the currency of the reporting entity. One objective of the translation process is to provide information that:
(a) Reflects current exchange rates
(b) Reflects current monetary equivalents
(c) Is compatible with the economic effects of rate changes on the firm’s cash flows
(d) Reflects each translated account at its unexpired historical cost
2. A company is translating account balances from another currency into dollars for its December 31, 2011, statement of financial position and its calendar year 2011 earnings statement and statement of cash flows. The average exchange rate for 2011 should be used to translate:
(a) Cash at December 31, 2011
(b) Land purchased in 2011
(c) Retained earnings at January 1, 2011
(d) Sales for 2011
3. A subsidiary’s functional currency is the local currency, which has not experienced significant inflation. The appropriate exchange rate for translating the depreciation on plant assets in the income statement of the foreign subsidiary is the:
(a) Exit rate
(b) Historical exchange rate
(c) Weighted average exchange rate over the economic life of each plant asset
(d) Weighted average exchange rate for the current year
4. The year-end balance of accounts receivable on the books of a foreign subsidiary should be translated by the parent company for consolidation purposes at the:
(a) Historical rate
(b) Current rate
(c) Negotiated rate
(d) Average rate
5. When remeasuring foreign currency financial statements into the functional currency, which of the following items would be remeasured using historical exchange rates?
(a) Inventories carried at cost
(b) Marketable equity securities reported at market values
(c) Bonds payable
(d) Accrued liabilities