Question 1

If the functional currency is the U.S. dollar, the net result under FASB?52 would be a

Accepted Answer

Under FASB 52, if the functional currency is the U.S. dollar, translation adjustments are reported in other comprehensive income, not as transaction gains or losses.

Question 2

Under the current rate method, what is Ajax's translation gain (loss).?

Accepted Answer

Under the current rate method, all assets and liabilities are translated at the current exchange rate. The translation gain or loss is reported in the equity section of the balance sheet as part of accumulated other comprehensive income. The specific gain or loss amount (e.g., $294,000) would depend on the changes in exchange rates and the specific amounts of assets and liabilities being translated. Without specific numbers regarding exchange rates and the values of assets and liabilities, the correct answer cannot be determined through calculation here, but the concept is that translation gains or losses reflect the impact of exchange rate changes on the company's financial statements.

Question 3

Under the temporal method, what is Ajax's translation gain (loss).?

Accepted Answer

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Question 4

The major difference between the temporal method and the monetary/nonmonetary method is that

Accepted Answer

The major difference between the two methods is how inventory is translated. 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. The other choices listed are not accurate descriptions of the differences between the two methods.

Question 5

The functional currency of a Colombian manufacturing subsidiary selling exclusively to the U.S.

Accepted Answer

The functional currency of a Colombian manufacturing subsidiary selling exclusively to the U.S. would be the U.S. dollar because the subsidiary is earning revenue in U.S. dollars and dealing exclusively in a foreign currency.

Question 6

Under FASB 52, most financial statements must be translated using the

Accepted Answer

Under FASB 52, the most common method for translating financial statements is the current rate method. This method uses the current exchange rate at the balance sheet date to translate all balance sheet items, while income statement items are translated at the average exchange rate for the period. This method is suitable for companies with a large amount of monetary assets and liabilities.

Question 7

Suppose the English subsidiary of a U.S. firm had current assets of £1 million, fixed assets of £2 million and current liabilities of 1 million pounds both at the start and at the end of the year. There are no long?term liabilities. If the pound depreciated during that year from $1.50 to $1.30, the translation gain (loss) to be included in the parent company's equity account according to FASB #52 is

Accepted Answer

The answer of Suppose the English subsidiary of a U.S....

Question 8

Transaction gains and losses that result from adjusting assets and liabilities denominated in a currency other than the functional currency must appear on the foreign unit's income statement unless the gains or losses are attributable to

Accepted Answer

The gains and losses from foreign currency transactions designated as an economic hedge of a net investment in a foreign entity are not required to appear on the foreign unit's income statement.

Question 9

The functional currency of a German subsidiary that both manufactures and sells in Germany and competes primarily against Japanese firms

Accepted Answer

The answer of The functional currency of a German subsidiary...

Question 10

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

Accepted Answer

Under historical cost accounting system, the appropriate method for translation is the temporal method. This method translates monetary assets and liabilities using the exchange rate at which they were originally acquired, while non-monetary assets and liabilities are translated at the current exchange rate. This method ensures consistency with the historical cost principle, which states that assets and liabilities should be recorded at their original cost.

Question 11

The most important aspect of the FASB?52 is that

Accepted Answer

The most important aspect of FASB 52 is that most translation gains and losses bypass the income statement and are accumulated in a separate equity account on the parent's balance sheet. This means that foreign currency fluctuations do not directly affect a company's income statement and instead, are reflected in a separate account on the balance sheet. This allows for a more accurate depiction of a company's operational performance, without the interference of currency fluctuations.

Question 12

The functional currency of a Mexican subsidiary that both manufactures and sells most of its output in Mexico will

Accepted Answer

The answer of The functional currency of a Mexican subsidiary...

Question 13

Suppose the German subsidiary of a U.S. firm had current assets of DM3 million, fixed assets of DM6 million and current liabilities of DM3 million both at the start and at the end of the year. There are no long?term liabilities. If the DM depreciated during that year from $.48 to $.38, the FASB?52 translation gain (loss. to be included in the parent company's equity account is

Accepted Answer

The translation loss is calculated by translating the net asset position at the beginning and end of the year. The net assets are DM6 million (DM3 million current assets + DM6 million fixed assets - DM3 million current liabilities). The depreciation from $.48 to $.38 results in a loss of $0.10 per DM on DM6 million, totaling a loss of $600,000.

Question 14

The functional currency of a Malaysian subsidiary that assembles computers using U.S.?made parts, which it then sells in the United States, would most likely be the

Accepted Answer

The functional currency of a subsidiary is the currency of the primary economic environment in which it operates. In this case, since the subsidiary sells its products in the United States using U.S.-made parts, the primary economic environment is the United States, and therefore the functional currency would be the U.S. dollar.

Question 15

Under the current/noncurrent method, what is Ajax's translation gain (loss).?

Accepted Answer

The answer of Under the current/noncurrent method, what is Ajax's...

Question 16

Under FASB 52, foreign exchange gains and losses

Accepted Answer

Under FASB 52, foreign exchange gains and losses are usually determined according to the current rate method and flow into a special reserve account.

Question 17

Under the monetary/non-monetary method, what is Ajax's translation gain (loss).?

Accepted Answer

The answer of Under the monetary/non-monetary method, what is Ajax's...

Question 18

If the functional currency is the Swiss franc, the net result under FASB?52 would be a

Accepted Answer

Since the functional currency is the Swiss franc, the transaction needs to be re-measured using the exchange rate on the transaction date. The transaction amount of CHF 220,000 is equivalent to USD $171,617 (220,000/1.2825). The payment amount of CHF 200,000 is equivalent to USD $155,234 (200,000/1.285). Thus, the net result is a transaction gain of $56,383 for the U.S. parent.

Question 19

The current standard for measuring translation exposure is

Accepted Answer

FASB 52 is the standard for measuring translation exposure. It establishes the accounting treatment for foreign currency transactions, translation of financial statements of foreign operations, and the accounting treatment for hedging activities involving foreign currencies.

Question 20

Translation exposure reflects the exposure of a company's

Accepted Answer

Translation exposure refers to the impact of currency movements on a company's consolidated financial statements, especially when foreign operations' financials are converted to the parent company's reporting currency.

Quiz 9: Measuring and Managing Translation and Transaction Exposure