Chapter9ed13 - Chapter 13 Test Bank FOREIGN CURRENCY...

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Chapter 13 Test Bank FOREIGN CURRENCY FINANCIAL STATEMENTS Multiple Choice Questions LO1 1. A US firm has a Belgian subsidiary that uses the British pound as its functional currency. Under FASB statement No. 52, the US dollar from Belgian unit’s point of view will be: d. its reporting currency LO1 2. Selvey Inc. is a completely owned subsidiary of Parsfield Incorporated a US firm. The country where Selvey operates is deemed to have a highly inflationary economy under FASB statement No. 52. Therefore, the functional currency is: c. the US dollar LO1 3. All of the following factors would be used to define a functional currency, except: a. high volume of intercompany transactions b. expenses primarily driven by local factors c. financing denominated in local currency d. status as a local tax haven for transfer pricing purposes LO2 4. When the financial statements of a foreign subsidiary one year after acquisition are consolidated with the parent company, Retained Earnings is: a. translated at the current exchange rate. b. remeasured at the current exchange rate. c. remeasured at the historical exchange rate. d. None of the above answers is correct. 51
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LO2 5. Peachey has a foreign subsidiary, Schrivener Corporation of Germany, whose functional currency is the euro. At December 31, 19X2, Schrivener has an account receivable denominated in British pounds. Which one of the following statements is true? a. Because all accounts of the subsidiary are translated into US dollars at the current rate, the Account Receivable is not adjusted on the subsidiary’s books before translation. b. The Account Receivable is remeasured into the functional currency and remeasurement obviates translation. c. The Account Receivable is first adjusted to reflect the current exchange rates in euros and then translated at the current rate into dollars. d. The Account Receivable is adjusted to euros at the current exchange rate and any resulting gain or loss is included as a translation adjustment in the stockholders’ equity section of the subsidiary’s separate balance sheet. LO2 6. Paskin’s Corporation’s wholly-owned Canadian subsidiary has a Canadian dollar functional currency. In translating its account balances into US dollars for reporting purposes, which one of the following accounts would be translated at historical exchange rates? a. Accounts Receivable b. Notes Payable c. Capital Stock d. Retained Earnings LO2 7. A foreign entity is a subsidiary of a US parent company and has always used the current rate method to translate its foreign financial statements on behalf of its parent company. Which one of the following statements is incorrect? a. The US dollar will be the functional currency of this company. b. Changes in exchange rates between the subsidiary’s country
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This note was uploaded on 01/29/2009 for the course BA 459 taught by Professor Slattery during the Spring '09 term at Southern Oregon.

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Chapter9ed13 - Chapter 13 Test Bank FOREIGN CURRENCY...

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