Price Levels-Foreign Exchange

Question 1

Hedge of a Net Investment in a foreign entity. (L)

Answer 1

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

Question 2

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

Answer 2

Nominal dollars or Constant dollars

Question 3

Main IFRS difference in Foreign Exchange (L)

Answer 3

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

Question 4

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

Answer 4

Nominal Dollars

Question 5

ASC 255 (L)

Answer 5

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

Question 6

An Asset or Liability is “denominated” in foreign currency (L)

Answer 6

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

Question 7

Functional Currency is Neither Local Currency nor Reporting Currency (L)

Answer 7

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 U.S. dollars using the current rate method.

Question 8

_________is the only relevant measure for derivative instruments. (L)

Answer 8

Fair value

Question 9

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

Answer 9

Gains and losses are recognized in comprehensive income

Question 10

Attributes of assets that accountants might measure are? (L)

Answer 10

Historical cost or Current cost

Question 11

Functional Currency is the Reporting Currency. (L)

Answer 11

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 12

The cost that would be incurred at the present time. (L)

Answer 12

Current cost

Question 13

Monetary items (L)

Answer 13

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

Question 14

An Asset or Liability is “measured” in foreign currency (L)

Answer 14

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

Question 15

Functional Currency (L)

Answer 15

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

Question 16

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

Answer 16

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

Question 17

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

Answer 17

Gains and losses are recognized currently.

Question 18

ASC 815 requires U.S. companies with foreign subsidiaries whose functional currency is the local currency to translate the subsidiary’s financial statements into U.S. dollars using the current-rate method. (L)

Answer 18

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

Question 19

Historical exchange price experienced in an actual transaction. (L)

Answer 19

Historical cost

Question 20

Historical Cost/Constant Dollars (L)

Answer 20

Current period CPI-U/
= conversion factor
Base period CPI-U

Consumer Price Index-Urban (CPI-U)
The period whose nominal dollars are being restated is called the base period

The period into whose dollars’ purchasing power the nominal dollars are being restated is the current period.

Question 21

Accounting For Foreign Currency—ASC 815 (L)

Answer 21

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 22

Speculation of foreign Currency (L)

Answer 22

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

Question 23

Foreign Currency Transactions (L)

Answer 23

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 24

Dollars that are restated to reflect changes in purchasing power. (L)

Answer 24

Constant Dollars

Question 25

Fair Value Hedge of an exposed asset or liability. (ASC 815) (L)

Answer 25

Gains and losses are recognized currently.