Foreign currency accounting

Question 1

The foreign subsidiary’s functional currency

Answer 1

is the currency of the environment in which the subsidiary primarily generates and expends cash.

Question 2

forward exchange rate

Answer 2

bet for a future date

Question 3

historical exchange rate

Answer 3

used for equity accounts

Question 4

weighted average

Answer 4

income statement

Question 5

reporting currency

Answer 5

reporting financial results of the foreign entity

Question 6

Gains and losses resulting from foreign exchange transactions that are an “extension” of the parent’s domestic operations are

Answer 6

included as a component of “income from continuing operations” in the period in which they occur.

Question 7

Cumulative foreign exchange translation loss is reported as

Answer 7

component of accumulated other comprehensive income

cumulative foreign exchange translation loss would be a debit to accumulated other comprehensive income; therefore, contra to shareholders’ equity

Question 8

When the translation method is used, all assets and liabilities are translated to the reporting currency using the current (year-end) exchange rate, while what type GL accounts are reported at historical rate ?

Answer 8

C. Stock and APIC

Question 9

Capital accounts are translated into the functional currency using the

Answer 9

historical exchange rates

Question 10

The functional currency is the currency of the primary economic environment in which the entity operates, usually the local currency or the reporting currency. The foreign subsidiary itself should measure its assets, liabilities, and operations using the

Answer 10

currency of its primary economic environment.