Question 1

Under the foreign currency unit of measure approach, the current rate method is used to translate all assets and liabilities.

Accepted Answer

The current rate method translates all assets and liabilities at the current exchange rate as of the balance sheet date under the foreign currency unit of measure approach.

Question 2

Under the foreign currency unit of measure approach, the current rate method is used to translate all assets, liabilities, and equity accounts.

Accepted Answer

Under the foreign currency unit of measure approach, also known as the functional currency approach, the current rate method is typically used to translate assets and liabilities, while equity accounts are translated using historical exchange rates.

Question 3

Under the foreign currency unit of measure approach, the temporal method is used to translate all assets and liabilities.

Accepted Answer

Under the foreign currency unit of measure approach, the current rate method is typically used to translate all assets and liabilities, not the temporal method. The temporal method is used under the temporal rate method, which is a different approach.

Question 4

Under the current rate method, all current assets and current liabilities are translated at the current exchange rate, and all noncurrent assets and noncurrent liabilities are translated at historical exchange rates.

Accepted Answer

Under the current rate method, all assets and liabilities, whether current or noncurrent, are translated at the current exchange rate. Historical exchange rates are not used for noncurrent assets and liabilities in this method.

Question 5

When the current rate method is used, a lower-of-cost-or-market test of the subsidiary's assets in U.S. dollars is not necessary.

Accepted Answer

Under the current rate method, all assets and liabilities of a foreign subsidiary are translated into U.S. dollars at the current exchange rate at the balance sheet date, which inherently reflects the market value of foreign currency denominated assets and liabilities. Therefore, a separate lower-of-cost-or-market test in U.S. dollars is not necessary.

Question 6

When the current rate method is used, the effect of an exchange rate change is reported in Other Comprehensive Income-not in earnings.

Accepted Answer

Under the current rate method, the effect of exchange rate changes on foreign currency translations is reported in Other Comprehensive Income (OCI) and not in the earnings (income statement), to separate these effects from the operational results of the company.

Question 7

When the current rate method is used, the effect of an exchange rate change is reported currently in earnings.

Accepted Answer

Under the current rate method, the effect of exchange rate changes is reported in other comprehensive income (OCI) and accumulates in a separate component of equity, not in current earnings.

Question 8

When the current rate method is used, the effect of an exchange rate change is reported as a deferred gain or loss in the balance sheet.

Accepted Answer

Under the current rate method, the effect of exchange rate changes is reported in other comprehensive income (OCI) and accumulates in a separate component of equity, not as a deferred gain or loss in the balance sheet.

Question 9

When the current rate method is used, the effect of an exchange rate change must be reported formally in a "Statement of Comprehensive Income."

Accepted Answer

The answer of When the current rate method is used,...

Question 10

Under FAS 52, the AOCI-Cumulative Translation Adjustment account is closed out directly to retained earnings when the foreign unit is sold or liquidated.

Accepted Answer

The answer of Under FAS 52, the AOCI-Cumulative Translation Adjustment...

Question 11

Under FAS 52, the AOCI-Cumulative Translation Adjustment account is closed out and reported in earnings when the foreign unit is sold or liquidated.

Accepted Answer

Under FAS 52 (ASC 830, Foreign Currency Matters), the Accumulated Other Comprehensive Income (AOCI) related to Cumulative Translation Adjustments (CTA) is required to be reclassified from equity to earnings at the time a foreign entity is sold, substantially liquidated, or upon loss of a controlling financial interest in that foreign entity. This process ensures that the cumulative currency translation effects are recognized in the income statement upon the derecognition of the foreign operation.

Question 12

When the current rate method is used, any exchange rate change adjustment to a parent's long-term intercompany receivable from (or payable to) its foreign subsidiary is reported currently in earnings-regardless of whether the amount is expected to be paid in the foreseeable future.

Accepted Answer

Under the current rate method, exchange rate changes affecting long-term intercompany receivables or payables are not reported in current earnings but are instead recorded in other comprehensive income (OCI) as part of the cumulative translation adjustment (CTA), because these items are considered part of the parent's net investment in the foreign subsidiary.

Question 13

When the current rate method is used, any exchange rate change adjustment to a parent's long-term intercompany receivable from (or payable to) its foreign subsidiary is reported as an adjustment to the OCI-Translation Adjustment account (bypassing the current income statement)-regardless of whether the amount is expected to be paid in the foreseeable future.

Accepted Answer

The answer of When the current rate method is used,...

Question 14

When the current rate method is used, any exchange rate change adjustment to a parent's long-term intercompany receivable from (or payable to) its foreign subsidiary is reported currently in earnings-only if the amount is not expected to be paid in the foreseeable future.

Accepted Answer

Under the current rate method, exchange rate changes affecting long-term intercompany receivables or payables, where settlement is not planned or anticipated in the foreseeable future, are recognized in other comprehensive income (OCI), not in current earnings.

Question 15

When the current rate method is used, any exchange rate change adjustment to a parent's long-term intercompany receivable from (or payable to) its foreign subsidiary is reported as an adjustment to the OCI-Translation Adjustment account (bypassing earnings)-only if the amount is not expected to be paid in the foreseeable future.

Accepted Answer

Under the current rate method, adjustments due to exchange rate changes for long-term intercompany receivables or payables that are not expected to be settled in the foreseeable future are reported in Other Comprehensive Income (OCI) under the Translation Adjustment account, bypassing the earnings statement. This treatment reflects the intention to not recognize such gains or losses in net income until they are realized, acknowledging the long-term and potentially fluctuating nature of these balances.

Question 16

When the current rate method is used, any exchange rate change adjustment to a parent's Dividend Receivable from its foreign subsidiary is reported currently in earnings.

Accepted Answer

When the current rate method is used, any exchange rate change adjustment to a parent's Dividend Receivable from its foreign subsidiary is reported currently in earnings. This is because the current rate method translates all assets and liabilities at the current exchange rate at the end of each period, and any resulting exchange rate gains or losses are recognized in the current period's income statement.

Question 17

When the current rate method is used, any exchange rate change adjustment to a parent's Dividend Receivable from its foreign subsidiary is reported as an adjustment to the OCI-Translation Adjustment account (bypassing earnings).

Accepted Answer

The answer of When the current rate method is used,...

Question 18

When the current rate method is used, the calculation of any unrealized intercompany profit on intercompany inventory transfers is made using the current exchange rate.

Accepted Answer

When using the current rate method, the calculation of any unrealized intercompany profit on intercompany inventory transfers is typically made using the historical exchange rate at which the goods were originally transferred, not the current exchange rate.

Question 19

When the current rate method is used and a net investment in a foreign subsidiary is hedged, there may not be an offsetting effect to the translation adjustment resulting from the translation process.

Accepted Answer

The answer of When the current rate method is used...

Question 20

When the current rate method is used, FX gains and losses on hedges of net investments must be reported in Other Comprehensive Income.

Accepted Answer

Under the current rate method, foreign exchange (FX) gains and losses on hedges of net investments in foreign operations are reported in Other Comprehensive Income (OCI) to offset the translation effects of the net investments being hedged, thus providing a more accurate reflection of the economic reality.

Quiz 15: Translating Foreign Currency Statements: The Current Rate Method

Under the foreign currency unit of measure approach, the current rate method is used to translate all assets and liabilities.

Under the foreign currency unit of measure approach, the current rate method is used to translate all assets, liabilities, and equity accounts.

Under the foreign currency unit of measure approach, the temporal method is used to translate all assets and liabilities.

Under the current rate method, all current assets and current liabilities are translated at the current exchange rate, and all noncurrent assets and noncurrent liabilities are translated at historical exchange rates.

When the current rate method is used, a lower-of-cost-or-market test of the subsidiary's assets in U.S. dollars is not necessary.

When the current rate method is used, the effect of an exchange rate change is reported in Other Comprehensive Income-not in earnings.

When the current rate method is used, the effect of an exchange rate change is reported currently in earnings.

When the current rate method is used, the effect of an exchange rate change is reported as a deferred gain or loss in the balance sheet.

When the current rate method is used, the effect of an exchange rate change must be reported formally in a "Statement of Comprehensive Income."

Under FAS 52, the AOCI-Cumulative Translation Adjustment account is closed out directly to retained earnings when the foreign unit is sold or liquidated.

Under FAS 52, the AOCI-Cumulative Translation Adjustment account is closed out and reported in earnings when the foreign unit is sold or liquidated.

When the current rate method is used, any exchange rate change adjustment to a parent's long-term intercompany receivable from (or payable to) its foreign subsidiary is reported currently in earnings-regardless of whether the amount is expected to be paid in the foreseeable future.

When the current rate method is used, any exchange rate change adjustment to a parent's long-term intercompany receivable from (or payable to) its foreign subsidiary is reported currently in earnings-only if the amount is not expected to be paid in the foreseeable future.

When the current rate method is used, any exchange rate change adjustment to a parent's Dividend Receivable from its foreign subsidiary is reported currently in earnings.

When the current rate method is used, any exchange rate change adjustment to a parent's Dividend Receivable from its foreign subsidiary is reported as an adjustment to the OCI-Translation Adjustment account (bypassing earnings).

When the current rate method is used, the calculation of any unrealized intercompany profit on intercompany inventory transfers is made using the current exchange rate.

When the current rate method is used and a net investment in a foreign subsidiary is hedged, there may not be an offsetting effect to the translation adjustment resulting from the translation process.

When the current rate method is used, FX gains and losses on hedges of net investments must be reported in Other Comprehensive Income.