Advanced Class Notes

Advanced Class Notes - Chapter 10 Foreign currency...

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Unformatted text preview: Chapter 10: Foreign currency translation US corporations with subsidiaries in other countries must include these subsidiaries in their consolidated financial statements. In order to accomplish this, the financial statements of the foreign subsidiaries must be stated in terms of US dollars. If it is a normal practice of the foreign subsidiaries to prepare their financial statements in terms of a foreign currency, such statements must be converted into US dollars. The process of converting foreign currency financial statements into US dollar financial statements is commonly referred to as foreign currency translation. I. Foreign Currency Translation Methods From a practical standpoint, the process of converting foreign-currency financial statements into US-currency financial statements depends upon the business environment in which the foreign subsidiary operates. If the foreign subsidiary operates in a business environment in which most transactions are based on a foreign currency and the subsidiary maintains its accounting records in the foreign currency, which translation method must be used, the current method, the temporal method, or neither method? Select one. If the foreign subsidiary operates in a business environment in which most transactions are based on a foreign currency, the translation method to be used in the conversion is the current method. If the foreign subsidiary operates in a business environment in which the vast majority of transactions are based on US dollars but the subsidiary maintains its accounting records in the foreign currency, which translation method must be used, the current method, the temporal method, or neither method? Select one. If the foreign subsidiary operates in a business environment in which the vast majority of transactions are based on US dollars, the translation method to be used in the conversion is the temporal method. If the foreign subsidiary maintains its accounting records in US dollars, which translation method must be used, the current method, the temporal method, or neither method? Select one. If the foreign subsidiary maintains its accounting records in US dollars, no translation is needed because the resulting financial statements will already be in US dollars. Complete the following table to summarize the translation options. Business Environment (Functional Currency) Subsidiary’s Accounting Records in Foreign Currency Subsidiary’s Accounting Records in US Dollars Foreign currency Current method US Dollars No translation needed Business Environment (Functional Currency) Subsidiary’s Accounting Records in Foreign Currency Subsidiary’s Accounting Records in US Dollars Foreign currency Current method No translation needed US Dollars Temporal method No translation needed A. Briefly describe the “current” method....
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Advanced Class Notes - Chapter 10 Foreign currency...

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