Part 2

Circle the correct answer

1. Under the temporal method,

a. the objective is to translate financial statements

b. the parent company should use the subsidiary currency

c. Items carried on subsidiarys books at fair market value

d. Items carried on subsidiarys books at current value are never translated at current exchange rates

2. The current rate method

a. Objective is to reflect that the parents entire investment in a foreign subsidiary is exposed to exchange risk

b. Assets are never translated at the current exchange rate

c. Equity accounts are translated using the market value

d. Revenues and expenses are not translated.

3. Stockholders equity items are translated

a. At historical exchange rates under both the temporal and current rate methods

b. But not included in the consolidated financial statements

c. At market rate

d. at historical exchange rates excluding the retained earnings

4. Keeping track of the --------------, --------------, ----------------- is necessary under temporal method and not under current rate method

a. historical rates for inventory, prepaid expenses, fixed assets

b. tangible assets, intangible assets and marketable securities

c. current rates for inventory prepaid expenses, fixed assets

d. all choices are correct

5. Which of the following items is normally translated the same way under both the temporal and the current rate methods of translation

a. Sales revenue

b. equipment

c. deprecation expense

d. inventory

6. Which method of translation maintains, in the translated financial statements, the underlying valuation methods used in the foreign currency exchange financial statements?

a. temporal method

b. monetary/nonmonetary method

c. current rate method, income statement is translated at average exchange rate for the year

d. current rate method, income statement translated at exchange rate at the balance sheet date