土豆妮

Under the temporal method, the inventory and cost of goods sold (COGS) accounts are both nonmonetary accounts. Which of the following statements is least accurate regarding these accounts?

A) The Inventory account is remeasured using the historical rate under both LIFO and FIFO.

B) If the firm accounts for inventory using last in, first out (LIFO), then the beginning-of-period rate is used to remeasure COGS.

C) If the firm accounts for inventory using first in, first out (FIFO), then a more current rate will be applied to the inventory account.

---

Under LIFO, the last goods purchased are the first goods out to COGS. Hence, although technically the historical rate is used to remeasure COGS, a more recent rate is typically more appropriate for COGS under LIFO.

土豆妮

Which of the following statements is least accurate regarding accounting for foreign currency translations? The:

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

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

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

---

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

土豆妮

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

A) translated at the average rate.

B) translated at the current rate.

C) not translated.

---

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

土豆妮

Which of the following general statements is most accurate 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.

---

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

土豆妮

Which of the following statements is least accurate regarding the use of the temporal method for foreign exchange accounting?

A) All nonmonetary assets and liabilities are translated at the historical 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 monetary assets are translated at the current rate of exchange.

---

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

土豆妮

Which of the following statements is NOT a characteristic of the current rate method of accounting for foreign currency translation?

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

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

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

---

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

土豆妮

Which of the following general statements is most accurate with respect to the current rate method? Revenues:

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

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

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

---

As a general rule for the current rate method, all revenues and operating expenses are translated using the average rate.

土豆妮

Which of the following general statements is CORRECT with respect to the temporal method? Revenues and operating expenses (excluding COGS) are translated at the:

A) average rate.

B) historical rate.

C) current rate.

---

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

土豆妮

Under the current rate method, common stock is translated by using the:

A) exchange rate as of the balance sheet date.

B) present value of weighted average rate.

C) rate that existed when the equity was issued.

---

The historical rate is used.

土豆妮

Dave Iverson, CFA, is analyzing the recently released financial statement of Global Corp., a large multinational manufacturing company with production facilities across Europe and Southeast Asia. The company’s choice of functional currency is not disclosed, but Iverson does notice that Global Corp. does not have any cumulative translation adjustments (CTA) on its balance sheet. Which of the following statements is most accurate based upon Iverson’s observation?

A) The current rate method of foreign currency translation is used exclusively.

B) The temporal method of foreign currency translation is used exclusively.

C) The temporal method of foreign currency translation is used for at least some of its subsidiaries.

---

The choice of functional currency is the determining factor as to which method of foreign currency translation is utilized. If no CTA appears on the balance sheet, then the parent currency must be the functional currency for all of the company’s subsidiaries and only the temporal method is used.