Price Level-Foreign Exchange

Question 1

Functional Currency is Neither Local Currency nor Reporting Currency

Answer 1

If the functional currency is a foreign currency other than the local currency, then the foreign currency statements are first remeasured in the functional currency before they are translated to US dollars using the current rate method.

Question 2

Fair Value Hedge of an exposed asset and liability (ASC 815)

Answer 2

Gains and losses are recognized currently

Question 3

The measuring units that can be used to measure either attribute are?

Answer 3

Nominal dollars or Constant dollars

Question 4

ASC 815 requires US companies with foreign subsidiaries whose functional currency is the local currency to translate the subsidiary’s financial statement into US dollars using the current-rate method.

Answer 4

This method produced a translation adjustment for the period that is reported as other comprehensive income

Question 5

Monetary items

Answer 5

Sums of money whose amount is fixed or determinable without reference to future prices of specific goods or services

Question 6

Foreign Currency Transactions

Answer 6

A change in the exchange rate between the foreign currency and the dollar results in a gain or loss that is recognized in determining the dollar net income for the period in which the rate changes.

Question 7

Cash Flow Hedge of a forecasted transaction denominated in foreign currency (ASC 815)

Answer 7

Gains and losses are recognized in comprehensive income

Question 8

Main IFRS difference in Foreign Exchange

Answer 8

Foreign currency and derivatives IFRS require that an entity reports its measurement currency. This US does not have this rule.

Question 9

The cost that would be incurred at the present time.

Answer 9

Current cost

Question 10

Accounting for Foreign Currency — ASC 815

Answer 10

Encompasses both expressing in dollars transactions denominated in a foreign currency, and expressing in dollars the foreign-currency-based financial statements of a subsidiary.

Question 11

_________ is the only relevant measure for derivative instruments.

Answer 11

Fair value

Question 12

Attributes of assets that accountants might measure are?

Answer 12

Historical cost or Current cost

Question 13

Speculation of foreign currency

Answer 13

Gain and losses are recognized currently based on foreign exchange rates.

Question 14

Historical Cost / Constant Dollar

Answer 14

(Current period CPI-U) / (Base period CPI-U) = Conversion factorConsumer Price Index-Urban (CPI-U)The period whose nominal dollars are being restated is called the base periodThe period into whose dollars’ purchasing power the nominal dollars are being restated is the current period

Question 15

An asset or liability is “denominated” in foreign currency

Answer 15

When asset and liability amounts are fixed in terms of a foreign currency regardless of exchange rate changes.

Question 16

Dollars that are restated to reflect changed in purchasing power.

Answer 16

Constant Dollars

Question 17

Fair Value Hedge of a firm commitment. (ASC 815)

Answer 17

Gains and losses are recognized currently.

Question 18

Functional Currency is the Reporting Currency.

Answer 18

Entity whose operations are integrated with those of the parent, whose buying and selling activities are primarily in the parent’s country and/or the parent’s currency, and whose cash flows are available for remittance to the parent.

Question 19

Historical exchange price experienced in an actual transaction.

Answer 19

Historical cost

Question 20

Functional Currency

Answer 20

Currency of the primary economic environment in which the entity operates.

Question 21

ASC 255

Answer 21

Entails disclosing certain amounts which would appear in current cost/constant dollar financial statements.

Question 22

True or False? In ASC 815 Derivative instruments that meet the definition of assets and liabilities should be reported in the financial statements.

Answer 22

True. Derivative instruments that meet the definition of assets and liabilities should be reported in the financial statements.

Question 23

Hedge of a Net Investment in a foreign entity.

Answer 23

Gains or losses are reported in comprehensive income as part of the translation adjustment.

Question 24

Dollars that are not adjusted to reflect changes in purchasing power.

Answer 24

Nominal Dollars

Question 25

An Asset or Liability is “measured” in foreign currency

Answer 25

To quantify an attribute of an item in a unit of measure other than the reporting currency.