chapter 2 financial reporting and foreign currency accounting

Question 1

historical cost and current cost

Answer 1

appreciation

Question 2

nominal dollars and constant dollars

Answer 2

inflation

Question 3

monetary item

Answer 3

are fixed

Question 4

non monetary item

Answer 4

fluctuate in value with inflation and deflation

Question 5

marketable common stock

Answer 5

non monetary

Question 6

bonds

Answer 6

monetary

Question 7

investment in subsidiary

Answer 7

non monetary

Question 8

depreciation

Answer 8

non monetary

Question 9

deferred charges and credits

Answer 9

non monetary

Question 10

allowance for doubtful accounts

Answer 10

monetary contra account are stay with their mama.

Question 11

direct method of exchange rate

Answer 11

1 euro=1.47$

Question 12

indirect

Answer 12

1$=0.68euros

Question 13

current exchange rate=year end/spot rate

Answer 13

=year end/spot rate

Question 14

forward exchange rate

Answer 14

bet

Question 15

historical exchange rate

Answer 15

used for equity

Question 16

weighted average rate

Answer 16

used for income statement

Question 17

reporting currency

Answer 17

us $

Question 18

functional currency

Answer 18

currency of primary economic environment

Question 19

local currency = functional currency if

Answer 19

1. foreign operations are self-contained and integrated within the country
2. day-to-day operations not depend on parent’s money
3. local economy not highly inflationary

Question 20

remeasurement method

Answer 20

dysfunction. when local currency not functional currency

Question 21

remeasurement gains or loss

Answer 21

income statement

Question 22

how to do remeasurement

Answer 22

do B/S first plug RE to get balance then re-do I/S with pre-determined RE

Question 23

Translation method

Answer 23

normal. when local currency=functional currency

Question 24

translation gain or loss

Answer 24

OCI

Question 25

how to do translation

Answer 25

first I/S then B/S

Question 26

remeasurement rate use

Answer 26

B/S monetary=current
non monetary=fixed
I/S weighted average
depreciation cost of sold amortization=historical

Question 27

translation rate use

Answer 27

I/S all income statement item=weighted
B/S asset and Liability=current
common stock=historical

Question 28

transaction not settled at balance sheet date

Answer 28

mark to market use spot rate and unrealized gain or loss on I dea

Question 29

foreign exchange transaction loss or gain

Answer 29

on I/S