ACC 401 Week 9 Quiz – Strayer New
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Quiz 8 Chapter
13
Translation of
Financial Statements of Foreign Affiliates
Multiple Choice
1. When translating foreign currency
financial statements for a company whose functional currency is the U.S.
dollar, which of the following accounts is translated using historical exchange
rates?
Notes Payable Equipment
a. Yes Yes
b. Yes No
c. No No
d. No Yes
2. Under the temporal method, monetary
assets and liabilities are translated by using the exchange rate existing at
the:
a. beginning of the current year.
b. date the transaction occurred.
c. balance sheet date.
d. None of these.
3. The process of translating the accounts
of a foreign entity into its functional currency when they are stated in
another currency is called:
a. verification.
b. translation.
c. remeasurement.
d. None of these.
4. Which of the following would be
restated using the average exchange rate under the temporal method?
a. cost of goods sold
b. depreciation expense
c. amortization expense
d. None of these
5. Paid-in capital accounts are translated
using the historical exchange rate under:
a. the current rate method only.
b. the temporal method only.
c. both the current rate and temporal methods.
d. neither the current rate nor temporal
methods.
6. Which of the following would be
restated using the current exchange rate under the temporal method?
a. Marketable securities carried at cost.
b. Inventory carried at market.
c. Common stock.
d. None of these.
7. The translation adjustment that results
from translating the financial statements of a foreign subsidiary using the
current rate method should be:
a. included as a separate item in the
stockholders' equity section of the balance sheet.
b. included in the determination of net income
for the period it occurs.
c. deferred and amortized over a period not to
exceed forty years.
d. deferred until a subsequent year when a loss
occurs and offset against that loss.
8. Average exchange rates are used to translate
certain items from foreign financial statements into U.S. dollars. Such
averages are used in order to:
a. smooth out large translation gains and
losses.
b. eliminate temporary fluctuation in exchange
rates that may be reversed in the next fiscal period.
c. avoid using different exchange rates for some
revenue and expense accounts.
d. approximate the exchange rate in effect when
the items were recognized.
9. When the functional currency is
identified as the U.S. dollar, land purchased by a foreign subsidiary after the
controlling interest was acquired by the parent company should be translated
using the:
a. historical rate in effect when the land was
purchased.
b. current rate in effect at the balance sheet
date.
c. forward rate.
d. average exchange rate for the current period.
10. The appropriate exchange rate for
translating a plant asset in the balance sheet of a foreign subsidiary in which
the functional currency is the U.S. dollar is the:
a. current exchange rate.
b. average exchange rate for the current year.
c. historical exchange rate in effect when the
plant asset was acquired or the date of acquisition, whichever is later.
d. forward rate.
11. The following balance sheet accounts of a
foreign subsidiary at December 31, 2011, have been translated into U.S. dollars
as follows:
Translated at
Current
Rates Historical Rates
Accounts
receivable, current $ 600,000 $ 660,000
Accounts
receivable, long-term 300,000 324,000
Inventories
carried at market 180,000 198,000
Goodwill 190,000 220,000
$1,270,000 $1,402,000
What total should be included in the
translated balance sheet at December 31, 2011, for the above items? Assume the
U.S. dollar is the functional currency.
a. $1,270,000
b. $1,288,000
c. $1,300,000
d. $1,354,000
12. A foreign subsidiary's functional
currency is its local currency which has not experienced significant inflation.
The weighted average exchange rate for the current year would be the
appropriate exchange rate for translating
Wages expense Sales to customers
a. Yes Yes
b. Yes No
c. No No
d. No Yes
13. A wholly owned subsidiary of a U.S.
parent company has certain expense accounts for the year ended December 31,
2011, stated in local currency units (LCU) as follows:
LCU
Depreciation of
equipment (related assets
were purchased
January 1, 2009) 375,000
Provision for
doubtful accounts 250,000
Rent 625,000
The exchange rates at various dates are
as follows:
Dollar
equivalent
of
1 LCU
December 31,
2011 $0.50
Average for year
ended December 31, 2011 0.55
January 1, 2009 0.40
Assume that the LCU is the subsidiary's
functional currency and that the charges to the expense accounts occurred
approximately evenly during the year. What total dollar amount should be
included in the translated income statement to reflect these expenses?
a. $687,500
b. $625,000
c. $550,000
d. $500,000
14. If the functional currency is determined
to be the U.S. dollar and its financial statements are prepared in the local
currency, SFAS 52, requires which of the following procedures to be followed?
a. Translate the financial statements into U.S.
dollars using the current rate method.
b. Remeasure the financial statements into U.S.
dollars using the temporal method.
c. Translate the financial statements into U.S.
dollars using the temporal method.
d. Remeasure the financial statements into U.S.
dollars using the current rate method.
15. P Company acquired 90% of the outstanding
common stock of S Company which is a foreign company. The acquisition was
accounted for using the purchase method. In preparing consolidated statements,
the paid-in capital of S Company should be converted at the:
a. exchange rate effective when S Company was
organized.
b. exchange rate effective on the date of
purchase of the stock of S Company by P Company.
c. average exchange rate for the period S
Company stock has been upheld by P Company.
d. current exchange rate.
16. In preparing consolidated financial
statements of a U.S. parent company and a foreign subsidiary, the foreign
subsidiary’s functional currency is the currency:
a. of the country
the parent is located.
b. of the country
the subsidiary is located.
c. in which the
subsidiary primarily generates and spends cash.
in which the subsidiary maintains its accounting record
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