6.01- Foreign Currency Transactions

Question 1

What is a foreign currency transaction?

Answer 1

A foreign operation with an entity in a foreign county that involves a receipt or payment in a foreign currency

Question 2

What happens when an entity has a receivable or payable that is dominated in a foreign currency?

Answer 2

the amt must be converted into US dollars for the financial statements

Question 3

What is a foreign currency exchange transaction?

Answer 3

like a forward exchange contract which results in a net amount being paid/received to settle the contract

Question 4

What is a foreign division or subsidiary?

Answer 4

A part of the company that maintains books and records in a foreign currency- the statements will have to be converted into US dollars

Question 5

What is functional currency?

Answer 5

the currency that has the greatest economic impact on the entities financial performance

Question 6

When an entity enters into a contract that will be settled with payment of foreign currency what it is initially recognized at?

Answer 6

Functional currency

Question 7

What is a spot rate?

Answer 7

the exchange rate that is effective on a particular date

Question 8

What are 4 factors that currency may have the greatest influence on?

Answer 8

• cash flows
• sales prices
• expense
• financing and financing costs

Question 9

What happens when a transaction occurs in some currency other than the functional currency?

Answer 9

it is remeasured as if the transaction had originally occurred at the functional currency

Question 10

What is transactional currency?

Answer 10

the currency of a particular country

Question 11

What is reporting currency?

Answer 11

the currency in which the company prepares their financial statements

Question 12

What is it called when you go from transactional currency to functional? Where does it get written down?

Answer 12

remeasurement

Income statement

Question 13

What is it called when you go from functional to reporting? Where does it get written down?

Answer 13

Translation

Balance Sheet

Question 14

When an entity has any AR that are in a foreign currency how do they adjust for changes on the balance sheet date?

Answer 14

• carrying value of financial instrument will be remeasured based on the spot rate at BS date
• any increase/decrease is recognized in income/loss as foreign currency transaction gain/loss