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  1. The functional currency approach adopted by FASB 52 requires:
    D. A focus on whether the domestic reporting entity's cash flows will be indirectly or directly affected by changes in the exchange rates of the foreign entity's currency
  2. In which of the following circumstances surrounding a Mexican subsidiary of an U.S. parent is the peso most likely to be considered the functional currency?
    B. The Mexican subsidiary sells product only in Mexico and receives pesos. The materials and labor are also secured in Mexico and paid for with pesos
  3. A U.S. firm owns 100% of a Japanese automobile manufacturer. The cost of automobile parts is typically 75% of the firm's total product. In which of the following circumstances would neither the U.S. dollar nor the Japanese yen be considered the functional currency?
    C. The Japanese firm buys German automobile parts with marks to produce cars sold in Latin America for marks
  4. Which of the following best describes the normal required method of accounting for statements of foreign entities whose functional currency is the foreign entity's local currency, and in which a U.S. firm has an equity interest?
    A. The functional method
  5. When the functional currency is the foreign entity's currency:
    D. All of the above are correct
  6. The translation (remeasurement) adjusted reported in a translation when the functional currency is not the foreign currency is included
    C. in the calculation of net income
  7. Assuming that a foreign entity is deemed to be operating in an environment dominated by the local currency, the entity's assets are translated using
    A. The current rate
  8. Assuming that a foreign entity is deemed to be operating in an environment dominated by the local currency, the entity's capital stock is translated using
    D. A historical rate
  9. If the functional currency is determined to not be the foreign entity's local currency, translation is done using
    C. The remeasurement method
  10. In most cases, which of the following is NOT a component of translated retained earning?
    B. Income from the period translated at the historical rate
  11. Which of the following is NOT true regarding foreign statement translation using the current or temporal method?
    A. All assets and all liabilities are translated at the current exchange rate at the date of translation
  12. Which of the following is NOT considered when directly computing the translation adjustment for foreign financial statements?
    D. All are considered when directly computing the translation adjustment
  13. Exchange rates will not usually directly affect the cash flows of the parent entity in which of the following cases?
    B. The foreign entity operates in its local currency
  14. Which of the following suggests that the foreign entity's functional currency is the parent's currency?
    D. Sale prices are influenced by international factors
  15. Which of the following foreign currency transactions would be included in the equity section of a U.S. firm along with the cumulative translation adjustments?
    A. Those used to hedge a net investment in a foreign entity
  16. The eliminations and adjustment entries necessary to consolidate the parent and subsidiary financial statements are translated as follows:
    B. Intercompany balances translate at the rates used for other accounts, profits and losses translate at an average rate
  17. A U.S. parent purchased a foreign subsidiary last year at a price in excess of the subsidiary's book value. This excess is assumed to be traceable to undervalued equipment. When the parent company prepares its elimination entries for the excess, which of the following combinations of exchange rates should be used?
    • D. Equipment            Depreciation Expense
    •     Current                   Average
  18. Which of the following is true concerning the accounting for a foreign investment under the cost method?
    A. Investment income is translated at the exchange rate on the dividend declaration date
  19. A debit balance in a parent's cumulative translation adjustment after the first year of owning a foreign subsidiary suggests which of the following is true?
    A. The exchange rate has strengthen relative to the U.S. dollar
  20. Which of the following procedures would be necessary when a Swiss subsidiary maintains its books in euros and its functional currency is Japanese Yen and its parent is a U.S. company?
    B. Remeasurement from euros to Japanese Yen; translate from Yen to U.S. Dollars
  21. Assuming that the functional currency of a foreign subsidiary is the local currency, which of the following accounts would be translated at the current rate?
    C. Allowance for Doubtful Accounts
  22. Assuming that the functional currency of a foreign subsidiary is not the local currency, which of the following accounts would be remeasured at the historical rate?
    C. Land
  23. Which of the following best describes the measurement of a gain of loss from the sale of a depreciable asset by a foreign subsidiary whose functional currency is not the local currency?
    A. Reconstruct the journal entry on the date of the sale using the historical rate for cash and the depreciable asset and its accumulated depreciation
  24. Which of the following best describes the accounting for a foreign entity requiring translation or remeasurement if the local economy is classified as highly inflationary?
    D. The adjusted trial balance is remeasured regardless of the functional currency
  25. The adjustment resulting from the remeasurement of an entity operating in a highly inflationary environment would appear
    C. As an ordinary income statement item
  26. FASB Statement #52 requires which of the following disclosures from firms involved in foreign currency transactions?
    D. All are required disclosures
  27. In a company's disclosure of foreign currency transactions and hedges and translation adjustments, all of the following items should be disclosed except
    C. The amount transferred from cumulative translation adjustment due to changes in foreign exchange rates
  28. Sharp Company owns a Japanese subsidiary. On October 15, 20X5, when the rate of exchange was 121 yen to $1, the Japanese subsidiary declared and paid a dividend to Sharp of 24,000,000 yen. The dividend represented the net income of the foreign subsidiary for the six months ended June 30, 20X5, during which time the weighted average of exchange rates was 125 yen to $1.The rate of exchange in effect at December 31, 20X5, was 135 yen to $1. What rate of exchange should be used to translate the dividend for the December 31, 20X5 financial statements?
    A. 121 Yen to $1
  29. The reconciliation of the annual translation adjustment usually includes all of the following, EXCEPT
    C. Change in net assets (excluding capital transactions) multiplied by the difference between the historical rate and the average rate used to translate income.
  30. Exchange gains and losses resulting from translating (not remeasuring) foreign currency financial statements into U.S. dollars should be included as a(an)
    A. A component of other comprehensive income.
  31. Patents are on the books of a British subsidiary of a U.S. firm at a value of 50,000pounds. The patents were acquired in 20X3 when the exchange rate was 1 pound = $1.50. The British subsidiary was acquired by the U.S. firm in 20X0 when the exchange rate was 1 pound = $1.40. The exchange rate on December 31, 20X4, the date of the most current balance sheet, is 1 pound = $1.55.The average rate of exchange for 20X4 is $1.53. What exchange rate will be used to remeasure patents for the consolidated statements dated December 31, 20X4?
    B. $1.50
  32. When an U.S. investor entity acquires interest in a foreign entity with the payment of foreign currency, the determination of excess is calculated
    B. In the foreign currency
  33. As part of the consolidation process for a partially-held foreign subsidiary, the elimination entry to distribute the excess of cost over book value will include a credit to Cumulative Translation Adjustment-Parent
    C. For the Parent’s portion of the excess attributable to identifiable net assets times the difference between historical and current exchange rates
  34. Consider the consolidation process for a foreign subsidiary: When the excess of cost over book value is attributable to identifiable assets, those assets are adjusted in the “distribution”  elimination entry by an amount that is calculated as
    D. The difference between cost and fair value as measured in the foreign currency multiplied by the current exchange rate

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