FOREIGN CURRENCY TRANSLATION

Question 1

[TRUE or FALSE] Foreign currency translation is used to convert a parent company’s financial results into the reporting currency of its foreign subsidiaries.

Answer 1

Answer: FALSE

Foreign currency translation is used to convert the results of a parent company’s foreign subsidiaries into its reporting currency.

Question 2

[TRUE or FALSE] Foreign currency translation is an essential step in the financial statement consolidation process.

Answer 2

Answer: TRUE

Question 3

[TRUE or FALSE] Translation gains or losses must be recorded in the consolidated financial statements of the parent company.

Answer 3

Answer: TRUE

Question 4

[TRUE or FALSE] All translation adjustments from foreign currency translation are recorded in the income statement of the parent company.

Answer 4

Answer: FALSE

All translation adjustments from foreign currency translation are recorded in the shareholders’ equity section of the parent company’s consolidated balance sheet.

Question 5

[TRUE or FALSE] The financials of international subsidiaries are translated to meet financial reporting requirements in the functional or domestic currency.

Answer 5

Answer: TRUE, The financials of international subsidiaries are translated to meet financial reporting requirements in the presentation or functional currency.

Question 6

ASSETS AND LIABILITIES (including comparatives) are translated into a presentation currency using:

Answer 6

Closing rate at the date of the statement of financial position

Question 7

INCOME AND EXPENSES (including comparatives) are translated into a presentation currency using:

Answer 7

Exchange rates at the dates of the transactions

Question 8

For expediency reasons, an (???) rate for the period may be used, except when exchange rates (???) significantly.

Answer 8

Answer: average, fluctuate

Question 9

[TRUE or FALSE] The current rate method is used when the subsidiary and parent use the same functional currency.

Answer 9

Ans: FALSE, The current rate method is used when the subsidiary operates independently from the parent, and its local currency is the same as its functional currency.

Question 10

[TRUE or FALSE] The temporal method is also known as the historical method.

Answer 10

Ans: TRUE, The temporal method is referred to as the historical method.

Question 11

[TRUE or FALSE] Under the temporal method, all financial statement items are translated using the current exchange rate.

Answer 11

Ans: FALSE, Under the temporal method, differing exchange rates are used depending on the financial statement item being translated.

Question 12

[TRUE or FALSE] The current rate method is applied when the subsidiary operates in a local currency that is different from its functional currency.

Answer 12

Ans: FALSE, The current rate method is applied when the local currency where the subsidiary operates is the same as its functional currency.

Question 13

[TRUE or FALSE] The temporal method converts a subsidiary’s financial statements into the parent company’s currency.

Answer 13

Ans: TRUE, The temporal method converts a foreign subsidiary’s currency into the parent company’s currency.

Question 14

[TRUE or FALSE] The current rate method translates most financial statement items using historical exchange rates.

Answer 14

Ans: FALSE, The current rate method translates most financial statement items using the current exchange rate.

Question 15

For Current (Closing) Rate Method, what exchange rate is used for Assets & Liabilities?

Answer 15

Translate at current rate as of balance sheet date.

Question 16

For Current (Closing) Rate Method, what exchange rate is used for Income Statement Items?

Answer 16

Translate at actual rate when items are incurred.

Question 17

For Current (Closing) Rate Method, what exchange rate is used for Distributions?

Answer 17

Dividends are translated at the rate on the date of payment.

Question 18

For Current (Closing) Rate Method, what exchange rate is used for Common stock and paid-in capital?

Answer 18

translated at historical rates

Question 19

For Current (Closing) Rate Method, what exchange rate is used for Retained earnings?

Answer 19

adjusted by income/loss for the year

Question 20

For Current (Closing) Rate Method, what exchange rate is used for Translation Adjustments?

Answer 20

Not included in consolidated income but recorded in the equity reserve account.

Question 21

For Temporal Method, what exchange rate is used for Monetary items?

Answer 21

Translate at current rates

Question 22

For Temporal Method, what exchange rate is used for Non-monetary items (inventory & fixed assets)?

Answer 22

Translate at historical rates.

Question 23

For Temporal Method, what exchange rate is used for Income Statement Items?

Answer 23

Translated at average rates, except for depreciation and cost of goods sold, which are translated at historical rates.

Question 24

For Temporal Method, what exchange rate is used for Distributions?

Answer 24

Dividends are translated at the rate on the date of payment.

Question 25

For Temporal Method, what exchange rate is used for Common stock and paid-in capital?

Answer 25

translated at historical rates

Question 26

For Temporal Method, what exchange rate is used for Retained earnings?

Answer 26

adjusted for income/loss and imbalances from translation

Question 27

For Temporal Method, what exchange rate is used for Translation Adjustments?

Answer 27

Unrealized foreign exchange gains or losses are included in primary earnings.