11) Accounts representing an allowance for uncollectible accounts are converted into U.S. dollars at
A) historical rates when the U.S. dollar is the functional currency.
B) current rates only when the U.S. dollar is the functional currency.
C) historical rates regardless of the functional currency.
D) current rates regardless of the functional currency.
12) Palk Corporation has a foreign subsidiary located in a country experiencing high rates of inflation. Information concerning this country's inflation rate experience is given below.
DateIndexin indexof Inflation
January 1, 200990
January 1, 20101203030/100 = 30.00%
January 1, 20111503030/130 = 23.08%
January 1, 20122106060/160 = 37.50%
The inflation rate that is used in determining if the subsidiary is operating in a highly inflationary economy is
13) At the time of a business acquisition,
A) identifiable assets and liabilities are allocated the portion of the translation or remeasurement adjustment that existed on the date of acquisition.
B) a foreign entity's assets and liabilities are translated into U.S. dollars using the current exchange rate in effect on that date.
C) the difference between investment fair value and translated net assets acquired is treated as a remeasurement gain or loss on the income statement.
D) the difference between investment fair value and translated net assets acquired is recorded as a cumulative translation adjustment on the balance sheet.
14) When translating foreign subsidiary income statements using the current rate method, why are some accounts translated at an average rate?
A) This approach improves matching.
B) This approach accentuates the conservatism principle.
C) This approach smoothes out highly volatile exchange rate fluctuations.
D) This approach approximates the effect of transactions which occur continuously during the period.
15) The following assets of Poole Corporation's Romanian subsidiary have been converted into U.S. dollars at the following exchange rates:
Property plant and equipment1,200,000900,000
Assume the functional currency of the subsidiary is the U.S. dollar and the books are kept in a different currency. The assets should be reported in the consolidated financial statements of Poole Corporation and Subsidiary in the total amount of
16) Which of the following foreign subsidiary accounts will have the same value on consolidated financial statements, regardless of whether the statements are remeasured or translated?
B) Deferred Income
C) Accounts Receivable
17) Exchange gains or losses from remeasurement appear
A) in the continuing operations section of the consolidated income statement.
B) as an extraordinary item on the consolidated income statement.
C) as other comprehensive income typically reported in a statement of stockholders' equity.
D) as an adjustment to the beginning balance of retained earnings on the consolidated Statement of retained earnings.
18) A U.S. parent corporation loans funds to a foreign subsidiary to be used to purchase equipment. The loan is denominated in U.S. dollars and the functional currency of the subsidiary is the euro. This intercompany transaction is a foreign currency transaction of
A) neither the subsidiary nor the parent, as it is eliminated as part of the consolidation procedure.
B) the subsidiary but not the parent.
C) both the subsidiary and the parent.
D) the parent but not the subsidiary.
19) A foreign subsidiary's accounts receivable balance should be translated for the consolidated financial statements at
A) the appropriate historical rate.
B) the prior year's forecast rate.
C) the future rate for the next year.
D) the spot rate at year-end.
20) If a U.S. company wants to hedge a prospective loss on its investment in a foreign entity that may result from a foreign currency fluctuation, the U.S. company should
A) purchase a forward to swap currency of the foreign entity's local country for U.S. currency.
B) purchase a call option to buy currency of the foreign entity's local country.
C) issue a loan in the foreign entity's local country.