ch09 - CHAPTER 9 Measuring and Managing Translation and...

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CHAPTER 9 Measuring and Managing Translation and Transaction Exposure EASY 9.1 Under FASB 52, foreign exchange gains and losses a. flow into a special reserve account b. are usually determined according to the current rate method c. both a and b d. flow directly into the income statement ANSWER: c: alternative measures of foreign exchange exposure 9.2 Translation exposure reflects the exposure of a company's a. foreign operations to currency movements b. foreign sales to currency movements c. financial statements to currency movements d. cash flows to currency movements ANSWER: c: alternative currency translation methods 9.3 The current standard for measuring translation exposure is a. the current/noncurrent method b. the monetary/nonmonetary method c. FASB 8 d. FASB 52 ANSWER: d: statement of financial accounting standards No. 52 9.4 Under FASB 52, most financial statements must be translated using the a. monetary/nonmonetary method b. current/noncurrent method c. current rate method d. temporal method ANSWER: c: statement of financial accounting standards No. 52
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MODERATE 9.5 The major difference between the temporal method and the monetary/nonmonetary method is that a. under the monetary/nonmonetary method, long-term debt is translated at the historical rate, whereas under the temporal method, long-term debt is translated at the current rate b. under the monetary/nonmonetary method, inventory is always translated at the historical rate, whereas under the temporal method, inventory may be translated at the current rate if the inventory is shown on the balance sheet at market values c. under the monetary/nonmonetary method, fixed assets are translated at the historical rate, whereas under the temporal method, fixed assets may be translated at the current rate d. under the monetary/nonmonetary method, accounts receivable are always translated at the historical rate, whereas under the temporal method, receivables may be translated at the current rate ANSWER: b: alternative currency translation methods 9.6 Under a historical cost accounting system, as the United States now has, most accounting theoreticians would probably argue that the appropriate method for translation is the a. monetary/nonmonetary method b. current/noncurrent method c. current rate method d. temporal method ANSWER: d: statement of financial accounting standards No. 52 9.7 The most important aspect of the FASB-52 is that a. it is consistent with generally accepted accounting practice that requires balance-sheet items to be valued according to their underlying measurement basis b. it disallows all reserves for currency losses c. it mandates a uniform translation standard for all firms d. most translation gains and losses bypass the income statement and are accumulated in a separate equity account on the parent's balance sheet ANSWER: d: statement of financial accounting standards No. 52 9.8 The functional currency of a Colombian manufacturing subsidiary selling exclusively to the U.S.
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