Concepts CH 16

Question 1

If ratio is < 1 an equal increase to both numerator and denominator will

Answer 1

increase the ratio

Question 2

If ratio is < 1 an equal decrease in both numerator and denominator will

Answer 2

decrease the ratio

Question 3

If ratio is > 1 an equal increase to both numerator and denominator will

Answer 3

decrease the ratio

Question 4

If ratio is > 1 an equal decrease in both numerator and denominator will

Answer 4

increase the ratio

Question 5

Current ratio

Answer 5

current assets/current liabilities

Question 6

Foreign Financial statements denoted in a foreign currency must be

Answer 6

Remeasured into function currency using temporal method and then translated into reporting currency using current rate method

Question 7

Foreign Currency remeasurement gains or losses on monetary assets and liabilities are reported in

Answer 7

Current earnings as a part of continuing operations

Question 8

Nonmonetary balance sheet items and related revenues and expenses should be remeasured using

Answer 8

Historical Rates

Question 9

Cumulative foreign currency translation loss

Answer 9

debited to OCI

Question 10

Current Rate

Answer 10

Rate in effect at the balance sheet date

Question 11

The method used to convert foreign currency amounts into units of reporting currency

Answer 11

Functional Currency Translation Approach

Question 12

Function Currency Translation Approach

Answer 12

1) Identifies functional currency of the entity
2) Measures all elements of f/s in functional currency
3) uses current exchange rate for translation from functional currency to reporting currency

Question 13

Functional Currency

Answer 13

Currency of the primary economic enverionment

Question 14

Temporal Method

Answer 14

Nonmonetary assets are remeasured at historical exchange rate

Question 15

A firm commitment is

Answer 15

An agreement between two unrelated parties, binding on both and usually legally enforceable, that specifies all significant terms and includes disincentive for non-performance

Question 16

A forecasted transaction is

Answer 16

A transaction expected to occur for which there is no firm commitment

Question 17

GAAP requires derivative instruments be

Answer 17

Recorded as assets and liabilities and measured at fair value

Question 18

An exchange gain occurs when

Answer 18

The exchange rate increases between date a receivable is recorded and the date of cash receipt

Question 19

A derivative is

Answer 19

A financial instrument or other contract that

1) has a) one or more underlying b) one or more notional amounts or both
2) requires either no initial investment or immaterial net investment
3) requires or permits net settlement

Question 20

Fair Value Hedge

Answer 20

Recognized in income

Question 21

Cash flow hedge

Answer 21

Recognized in OCI

Question 22

Call

Answer 22

Right buy

Question 23

Put

Answer 23

Right to sell

Question 24

Intrinsic Value - Call

Answer 24

Market Price - Exercise Price

Question 25

Intrinsic Value - Put

Answer 25

Strike Price - Market Price

Question 26

Common-size F/s

Answer 26

used to compare entities of different sizes help ID strengths and weakness

Question 27

Horizontal

Answer 27

useful in evaluating trends stated as percentage of base year amount

Question 28

Vertical

Answer 28

presents amounts for single year as percentages of based amount

Question 29

When a foreign transaction results in a payable or receivable, fixed in terms of foreign currency,

Answer 29

a change in the exchange rate between the functional currency and currency in which the transaction is denominated is a gain or loss that is ordinarily reported as component of of income from continue ops

Question 30

A gain on receivable denominated in a foreign currency results when

Answer 30

Fixed amount of For Curr can be exchanged for a greater number of dollars at date of collection. That is the when the number of foreign currency units exchangeable for a dollar decreases

Question 31

A loss on a payable denominated in a foreign currency results when

Answer 31

the number of dollars needed to purchase the fixed amount in For Curr increases. The number of foreign curr units exchangeable for a dollar decreases

Question 32

If books of record of a foreign entity are maintained in a currency other than the functional currency

Answer 32

Amounts must first be remeasured into functional currency using temporal method and the translated in to reporting currency
Remeasurement current earings
translation - OCI

Question 33

Foreign Currency Transactions

Answer 33

are transactions with a foreign entity [e.g., buying from and selling to] denominated in [to be settled in] a foreign currency.

Question 34

Foreign Currency Translation (Functional)

Answer 34

Foreign currency translation is the conversion of financial statements of a foreign entity into financial statements expressed in the domestic currency (the dollar).

Question 35

The exchange rate may be expressed as

Answer 35

1. Direct method

2. Indirect method

Question 36

Forward Exchange Contract (used for income statement)

Answer 36

is an agreement to exchange at a future specified date and rate a fixed amount of currencies of different countries.

Question 37

Historical Exchange Rate (used for equity)

Answer 37

is the rate in effect at the date of issuance of stock or acquisition of assets.

Question 38

A foreign subsidiary of a U.S. parent company should measure its assets, liabilities, and operations using:

Answer 38

The subsidiary’s functional currency.