Section 3...Foreign Currency

Question 1

Exchange rates

Answer 1

Accounted for in ‘Income from continuing operations’

Gain/Loss is computed by taking the amount x’s the spot rate on date of transaction, and needs to be written up/down at B.S. date, and one more time at date payment is made.

Question 2

Speculative Purposes

Answer 2

Use forward rates for these transactions, reported on IS

Question 3

Restatement

Answer 3

Happens when a foreign subsidiary reports financials on a basis that isn’t GAAP.

*Note: nothing to do with translating dollar amount.

Question 4

Remeasurement

Answer 4

Required to get financials from currency of record into the functional currency

Question 5

Translation

Answer 5

Required to get financials from functional currency to USD

Question 6

REMEASUREMENT table

Answer 6

MONETARY assets and liabilities - Current rate at B.S. date

NONMONETARY items (Inv and F.A., rev and expenses related to these items, warranty liability) - Historical rate when trans occured

Stockholder’s Equity - Historical rate when trans occured

Other rev and expenses, and assets that OCCUR EVENLY - weighted-avg rate

Question 7

TRANSLATION table

Answer 7

All B.S. other than equity - current exchange rate
Equity - historical rate
Rev and Expenses - weighted-avg rate.

Question 8

Future’s rate

Answer 8

Used with forwards contracts

Question 9

Relationships

Answer 9

Receivables: As exchange rates INCREASE, you have a GAIN
Payables: As exchange rates INCREASE, you have a LOSS