Chap 10 - back of the chapter

# Chap 10 - back of the chapter - Chapter 10 Translation of...

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Chapter 10 - Translation of Foreign Currency Financial Statements Learning Objectives Having completed Chapter 10 of this textbook, "Translation of Foreign Currency Financial Statements," students should be able to fulfill each of the following learning objectives: 1. Explain the theoretical underpinnings and limitations of the current rate and temporal methods. 2. Describe guidelines as to when foreign currency financial statements are to be "translated" using the current rate method and when they are to be "remeasured" using the temporal method. 3. Translate a foreign subsidiary's financial statements into its parent's reporting currency using the current rate method and calculate the related translation adjustment. 4. Remeasure a foreign subsidiary's financial statements using the temporal method and calculate the associated remeasurement gain or loss. 5. Understand the rationale for hedging a net investment in a foreign operation and describe the treatment of gains and losses on forward contracts used for this purpose. 6. Prepare a consolidation worksheet for a parent and its foreign subsidiary. 10-1

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Chapter 10 - Translation of Foreign Currency Financial Statements Answers to Problems 1. C Definition of Functional Currency (LO2) 2. C Comparison of Current Rate and Temporal Methods (LO3, LO4) 3. C Translation Process (Current Rate Method) (LO3) 4. B Determine Appropriate Translation Method and Resulting Translation Adjustment (LO2, LO3) Because the peso is the functional currency, the financial statements must be translated using the current rate method. Therefore, answers a and d can be eliminated. Because the subsidiary has a net asset position and the peso has appreciated from \$.16 to \$.19, a positive translation adjustment will result. 5. A Translation Process (Current Rate Method) – Asset and Related Expense (LO3) All asset accounts are translated at current rates. 6. A Translation Process (Current Rate Method) – Assets (LO2, LO3) Because the foreign currency is the functional currency, a translation is required. All assets accounts are translated at current rates. 7. C Remeasurement Process (Temporal Method) – Assets (LO2, LO4) Because the U.S. dollar is the functional currency, a remeasurement is required. All receivables are remeasured at current rates. Assets carried at historical cost, such as prepaid insurance and goodwill, are remeasured at historical rates. 8. B Translation Process (Current Rate Method) – Inventory (LO2, LO3) The foreign currency is the functional currency, so a translation is appropriate. All assets (including inventory) are translated at the current exchange rate [100,000 x \$.17]. 9. C Translation Process (Current Rate Method) – Cost of Goods Sold (LO2, LO3) Cost of goods sold is translated at the exchange rate in effect at the date of accounting recognition, which is the date the goods were sold [100,000 x \$.18]. 10. D Translation Process (Current Rate Method) – Marketable Securities and
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## This note was uploaded on 09/28/2011 for the course ACC 431 taught by Professor Talbert during the Spring '08 term at National.

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Chap 10 - back of the chapter - Chapter 10 Translation of...

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