Q3. Winter stated that foreign currency flow effects were the cause of the decline in sales for International Condor’s Norwegian

    subsidiary. Which of the following would least likely be considered a flow effect?

A)   Goodwill reported upon purchase of the Norwegian subsidiary.

B)   Revenue received from Norwegian operations during the reporting period.

C)   Translation of EBITDA into the reporting currency.

Q4. Law made a forecast about International Condor’s sales for its Japanese region. If Law’s forecast is correct, what will be the

    percentage increase in revenue once translated into the reporting currency?

A)   18.3%.

B)   20.0%.

C)   22.1%.

Q5. Regarding the answers to Greenley’s questions about holding effects:

A)   Singleton’s answer was incorrect; Robinson’s answer was correct.

B)   Singleton’s answer was correct; Robinson’s answer was correct.

C)   Singleton’s answer was correct; Robinson’s answer was incorrect.

Q6. Greenley is considering the effects of a change in exchange rates between the Canadian and U.S. dollar, and the resulting

impact from incorporating the Canadian division’s results into International Condor’s consolidated financials. If the Canadian

dollar appreciates by 10% relative to the U.S. dollar from its 2003 level, what would be the exchange rate and the affect of

translating $1,000 in sales from Canadian to U.S. dollars?

A)   1.345 CAD/$US 1, $1,000 would increase from $675.68 to $743.49.

B)   1.332 CAD/$US 1, $1,000 would decrease from $1,480 to $1,332.

C)   1.628 CAD/$US 1, $1,000 would decrease from $675.68 to $614.25.

Q7. Regarding Greenley’s question about the high rate of inflation in Russia:

A)   Rozko’s statement is incorrect; Law’s suggestion is incorrect.

B)   Rozko’s statement is correct; Law’s suggestion is incorrect.

C)   Rozko’s statement is incorrect; Law’s suggestion is correct.

答案和详解如下：

Q3. Winter stated that foreign currency flow effects were the cause of the decline in sales for International Condor’s Norwegian

    subsidiary. Which of the following would least likely be considered a flow effect?

A)   Goodwill reported upon purchase of the Norwegian subsidiary.

B)   Revenue received from Norwegian operations during the reporting period.

C)   Translation of EBITDA into the reporting currency.

Correct answer is A)

Flow effects refer to the impact of changes in the exchange rates on flow variables such as revenue, or expense items on the income statement. Goodwill from the purchase of the Norwegian subsidiary would be recorded on International Condor’s balance sheet.

Q4. Law made a forecast about International Condor’s sales for its Japanese region. If Law’s forecast is correct, what will be the

    percentage increase in revenue once translated into the reporting currency?

A)   18.3%.

B)   20.0%.

C)   22.1%.

Correct answer is C)

The impact of a decrease in yen means that once translated back into U.S. dollars, it will take fewer yen to buy a U.S. dollar. The translation will have the effect of increasing sales. (250,000,000 / 115) = $US 2,173,913, (300,000,000 / 113) = $US 2,654,867, a 22.1% increase.

Q5. Regarding the answers to Greenley’s questions about holding effects:

A)   Singleton’s answer was incorrect; Robinson’s answer was correct.

B)   Singleton’s answer was correct; Robinson’s answer was correct.

C)   Singleton’s answer was correct; Robinson’s answer was incorrect.

Correct answer is C)

Holding effects refer to the impact of exchange rates on assets and liabilities, such as inventories and cash balances. Singleton’s answer was correct because the change in the value of fixed assets due to exchange rate fluctuations is a holding effect. Robinson’s answer was incorrect because she identified interest payments being denominated in the local currency as her concern. The effect of interest payments would be reflected on the income statement and would be considered a flow effect. As a general rule, holding effects impact the balance sheet and flow effects impact the income statement.

Q6. Greenley is considering the effects of a change in exchange rates between the Canadian and U.S. dollar, and the resulting

impact from incorporating the Canadian division’s results into International Condor’s consolidated financials. If the Canadian

dollar appreciates by 10% relative to the U.S. dollar from its 2003 level, what would be the exchange rate and the affect of

translating $1,000 in sales from Canadian to U.S. dollars?

A)   1.345 CAD/$US 1, $1,000 would increase from $675.68 to $743.49.

B)   1.332 CAD/$US 1, $1,000 would decrease from $1,480 to $1,332.

C)   1.628 CAD/$US 1, $1,000 would decrease from $675.68 to $614.25.

Correct answer is A)

One Canadian dollar currently purchases 1 / 1.48 = 0.6757 $US. If the CAD appreciates by 10%, it will purchase 0.7432 $US. The resulting exchange rate is 1 / 0.7432 = 1.345. The result would be that $1,000 CAD revenue would increase to $743.49.

Q7. Regarding Greenley’s question about the high rate of inflation in Russia:

A)   Rozko’s statement is incorrect; Law’s suggestion is incorrect.

B)   Rozko’s statement is correct; Law’s suggestion is incorrect.

C)   Rozko’s statement is incorrect; Law’s suggestion is correct.

Correct answer is A)

SFAS 52 defines a hyperinflationary economy as one that experiences a cumulative 3-year inflation rate of more than 100%. On an annual basis, this means inflation would need to exceed 26% to reach a cumulative 3-year rate of more than 100%. (1.263 – 1) ≈ 1.00, or 100%. Although the inflation rates of 21% and 22% are high, they are not to the point where they would be considered hyperinflationary. Law’s suggestion is also incorrect. In an economy with high inflation, the foreign currency will be rapidly depreciating against the reporting currency. If the current rate were used to translate the balance sheet, it would result in very low values for all assets and liabilities. In a situation where inflation is extremely high, the real value of nonmonetary assets and liabilities is typically not affected by the high inflation because their local currency denominated values increase. As a result, the temporal method is more appropriate because nonmonetary accounts are remeasured at the historical rate.

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