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Unformatted text preview: Chapter 08 - Translation of Foreign Currency Financial Statements Chapter 08 Translation of Foreign Currency Financial Statements Multiple Choice Questions 1. In accounting, the term translation refers to A. the calculation of gains or losses from hedging transactions. B. the calculation of exchange rate gains or losses on individual transactions in foreign currencies. C. the procedure required to identify a company's functional currency. D. the calculation of gains or losses from all transactions for the year. E. a procedure to prepare a foreign subsidiary's financial statements for consolidation. 2. What is a company's functional currency ? A. The currency of the primary economic environment in which it operates. B. The currency of the country where it has its headquarters. C. The currency in which it prepares its financial statements. D. The reporting currency of its parent for a subsidiary. E. The currency it chooses to designate as such. 3. According to U.S. GAAP for a local currency perspective, which method is usually required for translating a foreign subsidiary's financial statements into the parent's reporting currency? A. The temporal method. B. The current rate method. C. The current/noncurrent method. D. The monetary/nonmonetary method. E. The noncurrent rate method. 4. In translating a foreign subsidiary's financial statements, which exchange rate does the current method require for the subsidiary's assets and liabilities? A. The exchange rate in effect when each asset or liability was acquired. B. The average exchange rate for the current year. C. A calculated exchange rate based on market value. D. The exchange rate in effect as of the balance sheet date. E. The exchange rate in effect at the start of the current year. 8-1 Chapter 08 - Translation of Foreign Currency Financial Statements 5. The translation adjustment from translating a foreign subsidiary's financial statements should be shown as A. an asset or liability (depending on the balance) in the consolidated balance sheet. B. a revenue or expense (depending on the balance) in the consolidated income statement. C. a component of stockholders' equity in the consolidated balance sheet. D. a component of cash flows from financing activities in the consolidated statement of cash flows. E. an element of the notes which accompany the consolidated financial statements. Westmore, Ltd. is a British subsidiary of a U.S. company. Westmore's functional currency is the pound sterling. The following exchange rates were in effect during 2011: 6. Westmore reported sales of £1,500,000 during 2011. What amount (rounded) would have been included for this subsidiary in calculating consolidated sales?...
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