Question 1

IAS 21 and SFAS 52 have the one transaction perspective.

Accepted Answer

A) True 
 B)False

Question 2

In the current rate method the assets are translated at market on the balance sheet date.

Accepted Answer

A) True 
 B)False

Question 3

If a parent company has a subsidiary in a country where the cumulative rate of inflation for the past three years is around 100 percent, which translation methodology would they use under FASB Statement No. 52?

Accepted Answer

A)  the temporal method. 
B)  the temporal method after adjusting for inflation. 
C)  the current rate method. 
D)  the current rate method after adjusting for inflation.

Question 4

According to IAS 21,

Accepted Answer

A)  a forward contract may be used to set the value of a nonmonetary asset whose purchase was hedged by the forward contract. 
B)  a forward contract can hedge the value of a commitment but not a transaction. 
C)  the current rate method may be used but not the temporal method. 
D)  long-term monetary items may be translated at the historical rate. 
E)  Two of the above.

Question 5

The local currency is

Accepted Answer

A)  the currency in which the parent company prepares its financial statements. 
B)  any currency other than the parent currency. 
C)  the currency of the primary economic environment in which the firm operates. 
D)  the currency of the country where the foreign firm is operating.

Question 6

From the standpoint of the parent company, a foreign currency is

Accepted Answer

A)  the currency in which the parent company prepares its financial statements. 
B)  any currency other than the parent currency. 
C)  the currency of the primary economic environment in which the firm operates. 
D)  the currency in the country where the foreign firm is operating.

Question 7

According to the temporal method of translation,

Accepted Answer

A)  Transaction gains and losses are taken to income, but translation gains and losses are taken to the owners' equity section of the balance sheet. 
B)  Transaction and translation gains and losses are taken to the income statement. 
C)  Transaction and translation gains and losses are taken to the owners' equity section of the balance sheet. 
D)  Transaction gains and losses are taken to the owners' equity section of the balance sheet, but translation gains and losses are taken to the income statement.

Question 8

The process by which one currency is changed into another is known as

Accepted Answer

A)  translation. 
B)  conversion. 
C)  restatement. 
D)  mark-to-market.

Question 9

According to FASB Statement No. 52, which of the following does not have to be disclosed?

Accepted Answer

A)  The aggregate transaction gain or loss included in income. 
B)  The beginning and ending amount of cumulative translation adjustments. 
C)  The average exchange rate movement of countries whose operations are material to the parent company's results. 
D)  The aggregate adjustment for the period resulting from translation adjustments.

Question 10

If a parent company has a subsidiary in a country where the cumulative rate of inflation for the past three years is around 100 percent, which translation methodology would they use according to the IASC?

Accepted Answer

A)  the temporal method. 
B)  the temporal method after adjusting for inflation. 
C)  the current rate method. 
D)  the current rate method after adjusting for inflation.

Question 11

Which foreign currency translation standard uses the following objective:
"1) Provide information that is generally compatible with the expected economic effects of a rate change on an enterprise's cash flows and equity.
2) Reflect in consolidated statements the financial results and relationships of the individual consolidated entities as measured in their functional currencies in conformity with generally accepted accounting principles."

Accepted Answer

A)  Accounting Research Study #12 
B)  FASB Statement 8 
C)  FASB Statement 52 
D)  International Accounting Standard 14.

Question 12

No foreign exchange accounting problem arises as long as the transactions are denominated in the firm's domestic currency.

Accepted Answer

A) True 
 B)False

Question 13

The currency of the country where the foreign company is operating is the

Accepted Answer

A)  base currency. 
B)  parent currency. 
C)  local currency. 
D)  third country currency.

Question 14

If a U.S.-based company has a subsidiary in Germany, and the German subsidiary imports components from Britain, the British pound would most likely be considered (from the standpoint of the German subsidiary)

Accepted Answer

A)  the local currency. 
B)  a foreign currency. 
C)  the functional currency. 
D)  the reporting currency.

Question 15

Outright forward transactions do not involve the exchange of currency three or more days after the date on which the traders agree to the transaction.

Accepted Answer

A) True 
 B)False

Exam 10: Foreign Currency Transactions and Translation

IAS 21 and SFAS 52 have the one transaction perspective.

In the current rate method the assets are translated at market on the balance sheet date.

If a parent company has a subsidiary in a country where the cumulative rate of inflation for the past three years is around 100 percent, which translation methodology would they use under FASB Statement No. 52?

According to IAS 21,

The local currency is

From the standpoint of the parent company, a foreign currency is

According to the temporal method of translation,

The process by which one currency is changed into another is known as

According to FASB Statement No. 52, which of the following does not have to be disclosed?

If a parent company has a subsidiary in a country where the cumulative rate of inflation for the past three years is around 100 percent, which translation methodology would they use according to the IASC?

No foreign exchange accounting problem arises as long as the transactions are denominated in the firm's domestic currency.

The currency of the country where the foreign company is operating is the

If a U.S.-based company has a subsidiary in Germany, and the German subsidiary imports components from Britain, the British pound would most likely be considered (from the standpoint of the German subsidiary)

Outright forward transactions do not involve the exchange of currency three or more days after the date on which the traders agree to the transaction.