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BSA 26C > Chapter 7 and 8 > Flashcards

Chapter 7 and 8 Flashcards

1
Q

A foreign currency purchase transaction requires the recognition of gains and losses at the balance sheet date because one or more of the accounts on the financial records is a monetary account.

A

TRUE

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2
Q

The Philippine peso is strengthening, as a result, the direct exchange rate increases.

A

FALSE.

If the Philippine peso is strengthening, the direct exchange rate decreases.

PHP 55.35 = $1

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3
Q

To determine the Philippine peso equivalent of an amount stated in a foreign currency, the process is to divide the foreign currency by the direct exchange rate.

A

FALSE

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4
Q

A foreign currency is weakening, as a result, the indirect exchange rate will increase.

A

TRUE

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5
Q

The number of units of the foreign currency needed to acquire one unit of the domestic currency is referred to as the indirect quotation of the exchange rate.

A

TRUE

Indirect quotation:
$0.018 = PHP 1

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6
Q

The IASB views the purchase or sale denominated in foreign currency as separate from any change in value of the receivable or payable that may occur between the transaction date and the settlement date.

A

TRUE

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7
Q

The amount recorded at the date of a foreign currency purchase transaction is an estimated amount because the value of the currency to be exchanged is unknown at the date of the initial transaction

A

FALSE

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8
Q

There is no journal entry required for the initiation of a foreign currency forward contract created as a hedge of a forecasted transaction.

A

TRUE

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9
Q

The gain or loss resulting from the hedge of a forecasted foreign currency transaction is placed in other comprehensive income and it never becomes part of net income.

A

FALSE

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10
Q

A speculative foreign currency contract exists when an entity enters into an agreement to buy or sell foreign currency in the future at a known price when there is no underlying transaction or commitment to a future transaction, or forecasted future transaction

A

TRUE

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11
Q

A foreign currency forward contract can only be acquired in a predetermined number of foreign currency units.

A

FALSE

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12
Q

Foreign currency forward contracts are recognized on the balance sheet at their fair value while foreign currency option contracts are recognized at the amount paid for the contract.

A

FALSE

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13
Q

The foreign currency forward exchange rate and the spot rate become the same at the date the forward contract matures.

A

TRUE

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14
Q

FC transaction gains and losses recognized at intervening financial reporting dates as a result of adjusting foreign currency receivables and payables are always realized, therefore, taxable.

A

FALSE

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15
Q

Gains or losses that incur in conjunction with the hedge of a forecasted foreign currency transaction impact the income statement in the period of exchange rate fluctuation.

A

TRUE

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16
Q

It is possible to hedge a foreign currency transaction that is forecasted to occur even though there is no transaction or even an agreement to a transaction.

A

FALSE

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17
Q

When recording the creation of a foreign currency commitment established with a forward contract, the hedge is recorded using the forward exchange rate that exists on that date.

A

FALSE

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18
Q

The foreign currency forward exchange rate will always be greater than spot rate.

A

FALSE

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19
Q

The amount recorded at the date of a foreign currency purchase transaction is an estimated amount because the value of the currency to be exchanged is unknown at the date of the initial transaction.

A

FALSE

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20
Q

The gain or loss or a foreign currency commitment is offset by a loss or gain on a purchase or sales commitment.

A

TRUE

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21
Q

It is possible to have a negative fair value for a foreign currency forward contract used to hedge a forecasted transaction

A

TRUE

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22
Q

A foreign currency commitment exists when an entity enters into an agreement to buy or sell goods denominated in a fixed number of foreign currency units at a future date.

A

TRUE

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23
Q

In a foreign exchange forward involving selling a foreign currency, the buyer is said to be “short” in that currency.

A

FALSE.

Seller is “short” in a selling transaction.

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24
Q

In a foreign exchange forward involving buying a foreign currency, the buyer is said to be “short” in that currency.

A

TRUE

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25
Q

_______________means making an investment or acquiring some derivative or non-derivative instruments in order to offset potential losses (or gains) that may be incurred on some items as a result of particular risk.

A

HEDGING

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26
Q

The number of units of the domestic currency needed to acquire one unit of the foreign currency is referred to as _____________________.

A

DIRECT QUOTATION

PHP 55.35 = $1

27
Q

The process of expressing amounts stated in one currency in terms of another currency by using appropriate currency exchange rates is called _______________.

A

TRANSLATION

28
Q

Actual changing one currency into another currency is called ___________________.

A

CONVERSION

29
Q

_________________________are transactions that are expected to occur in the future but for which no asset or liability has been recognized.

A

FORECASTED TRANSACTION

30
Q

The exchange rate quoted for future delivery of foreign currency is called ______________________.

A

FORWARD EXCHANGE RATE

31
Q

A financial instrument that provides the holder or writer with the right (or obligation) to participate in some or all of the price changes of another underlying value of measure.

A

DERIVATIVE MEASUREMENTS

32
Q

________________________________ refers to a designated derivative or a designated non-derivative financial asset or liability whose fair value or cash flows are expected to offset changes in the fair value or cash flows of a designated hedged item.

A

HEDGING INSTRUMENTS

33
Q

In the context of foreign exchange forwards, this pertains to accounting for premiums and discounts separately from changes in the intrinsic value.

A

SPLIT ACCOUNTING

34
Q

An asset, liability, firm commitment, highly probable forecast transaction or net investment in a foreign operation that exposes the entity to risk of changes in fair value or future cash flows

A

HEDGED ITEM

35
Q

A contract between two parties that gives the buyer the right, but not the obligation, to purchase or sell something to the option seller at a date in the future at a price agreed to.

A

OPTION CONTRACTS

36
Q

The total face amount of the asset or liability that underlies the derivative contract.

A

NOTIONAL AMOUNT

37
Q

____________________________ means designating one or more hedging instruments so that their change in fair value offsets the change in fair value or the change in cash flows of a hedged item.

A

HEDGE ACCOUNTING

38
Q

A binding agreement for the exchange of resources where the quantity, price, and dates are specified.

A

FIRM COMMITMENT

39
Q

______________________________ refers to translation differences taken as other comprehensive income or taken to income statements depending on the method used.

A

TRANSLATION ADJUSTMENTS or FOREIGN CURRENCY TRANSACTION RESERVES

40
Q

Goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation shall be treated as ______.

A

ASSETS AND LIABILITIES OF THE FOREIGN OPERATION

41
Q

The exchange rate usually used for items whose transactions are numerous and occur evenly throughout the year.

A

AVERAGE RATE or WEIGHTED AVERAGE

42
Q

An economy where the inflation rate is 100% or more over a period of time (three years) and interest rates, wages and prices are linked to a price index.

A

HYPERINFLATIONARY ECONOMY

43
Q

Marketable securities or inventory carried at replacement cost are translated at _____.

A

CURRENT or CLOSING RATE

44
Q

The method whereby the financial statements are translated from the functional currency into the presentation currency is known as _____.

A

CURRENT/CLOSING RATE/TRANSLATED/NET INVESTMENT METHOD

45
Q

The method whereby the financial statements prepared in a currency other than its functional currency are translated into the functional currency.

A

REMEASUREMENT or TEMPORAL METHOD

46
Q

__________________ pertains to assets or liabilities which represent a claim to a fixed amount of pesos.

A

MONETARY ASSETS or LIABILITIES

47
Q

The process of exchanging amounts of one foreign currency for another.

A

CONVERSION

48
Q

Accrued Expenses

A

monetary

CURRENT METHOD: current exchange rate
TEMPORAL METHOD: current exchange rate

49
Q

Notes Receivable

A

monetary

CURRENT METHOD: current exchange rate
TEMPORAL METHOD: current exchange rate

50
Q

Sales

A

monetary

CURRENT METHOD: weighted average
TEMPORAL METHOD: weighted average

51
Q

PPE

A

NON-MONETARY

CURRENT METHOD: current exchange rate
TEMPORAL METHOD: historical rate

52
Q

Ending Inventory (at cost)

A

non-monetary

CURRENT METHOD: current exchange rate
TEMPORAL METHOD: historical rate

53
Q

Depreciation Expense

A

non-monetary

CURRENT METHOD: weighted average
TEMPORAL METHOD: historical cost

54
Q

Ending inventory (at cost)

A

non-monetary

CURRENT METHOD: current exchange rate
TEMPORAL METHOD: historical rate

55
Q

Marketable securities (at cost)

A

non-monetary

CURRENT METHOD: current exchange rate
TEMPORAL METHOD: historical rate

56
Q

COGS

A

NON-MONETARY

CURRENT METHOD: weighted average
TEMPORAL METHOD: historical cost

57
Q

Prepaid Interest

A

MONETARY

CURRENT METHOD: current exchange rate
TEMPORAL METHOD: current exchange rate

58
Q

Marketable securities (at FV)

A

non-monetary

CURRENT METHOD: current exchange rate
TEMPORAL METHOD: current exchange rate

59
Q

Unearned Revenue

A

non-monetary

CURRENT METHOD: current exchange rate
TEMPORAL METHOD: historical rate

60
Q

Amortization of deferred income taxes

A

NON-MONETARY

CURRENT METHOD: weighted average
TEMPORAL METHOD: current exchange rate

61
Q

Retained Earnings

A

not classified

CURRENT METHOD: not translated
TEMPORAL METHOD: not remeasured

62
Q

Prepaid Insurance

A

non-monetary

CURRENT METHOD: current exchange rate
TEMPORAL METHOD: historical exchange rate

63
Q

Common Stock

A

non-monetary

CURRENT METHOD: historical rate
TEMPORAL METHOD: historical rate

BSA 26C (14 decks)

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