Reading 26- LOS d ～ Q1－8

1.Under the all-current method, common stock is translated by using the:

A)   rate that existed when the equity was issued.

B)   present value of weighted average rate.

C)   exchange rate as of the balance sheet date.

D)   average exchange rate over the reporting period.

The correct answer was A)

The historical rate is used.

2.Which of the following general statements is CORRECT with respect to the temporal method? Revenues:

A)   and operating expenses (excluding COGS) are translated at the average rate.

B)   and operating expenses (excluding COGS) are translated at the current rate.

C)   and operating expenses (excluding COGS) are translated at the historical rate.

D)   are translated at the average rate while operating expenses, are translated at the current rate.

The correct answer was A)

As a general rule for the temporal method, all revenues and operating expenses (excluding COGS) are translated using the average rate.

3.Which of the following general statements is CORRECT with respect to the all-current method? Revenues:

A)   and operating expenses are translated at the current rate.

B)   and operating expenses are translated at the historical rate.

C)   and operating expenses are translated at the average rate.

D)   are translated at the average rate while operating expenses are translated at the current rate.

The correct answer was C)

As a general rule for the current method (also known as the all-current method), all revenues and operating expenses are translated using the average rate.

4.Which of the following statements is NOT a characteristic of the all-current method of accounting for foreign currency translation?

A)   The common stock account is translated at the rate of exchange that applied when the equity was issued.

B)   All asset accounts are translated at the current rate of exchange as of the balance sheet date.

C)   Nonmonetary liabilities are translated at the historical rate of exchange.

D)   All income statement accounts are translated at the average rate of exchange throughout the year.

The correct answer was C)

Under the current rate method, all liabilities are translated at the current rate of exchange.

5．Which of the following statements is FALSE regarding the use of the temporal method for foreign exchange accounting?

A)   All monetary assets are translated at the current rate of exchange.

B)   Under the temporal method, the foreign exchange gain or loss is placed on the balance sheet in the equity section.

C)   All nonmonetary assets and liabilities are translated at the historical rate of exchange.

D)   The historical rate of exchange is the rate that applied when the transaction was made.

The correct answer was B)

Under the temporal method, the foreign exchange gain or loss is placed on the income statement.

6．Which of the following general statements is CORRECT with respect to the temporal method? Nonmonetary assets are translated at:

A)   historical rates at the time of the transaction.

B)   the average rate during the year.

C)   the current rate.

D)   the average rate during the year.

The correct answer was A)

As a general rule in using the temporal method, nonmonetary assets are translated using the historical rate at the time of the transaction.

7．Which of the following general statements is CORRECT with respect to the temporal method? Monetary assets are:

A)   not translated.

B)   translated at the average rate.

C)   translated at the current rate.

D)   translated at the historical rate.

The correct answer was C)

As a general rule in using the temporal method, monetary assets are translated using the current rate.

8．Which of the following statements is INCORRECT regarding accounting for foreign currency translations? The:

A)   temporal method uses the historical exchange rate to translate non-monetary assets and liabilities into the currency of the country of the parent company.

B)   temporal method uses the current exchange rate to translate monetary assets and liabilities into the currency of the country of the parent company.

C)   current rate method applies the current exchange rate to all balance sheet accounts.

D)   current rate method applies the average exchange rate to all income statement accounts.

The correct answer was C)

The current rate method applies the current exchange rate to all balance sheet accounts except for equity, which is translated at a mixed rate.