Q1. The Deter Company operates a subsidiary in the UK, and the functional currency is the British pound. The

subsidiary’s 2001 income statement shows £500 of net income and a £50 dividend that was paid on December 31,

when the exchange rate was $1.50 per pound. The current exchange rate is $1.65 per pound, and the average

rate is $1.58 per pound. What is the change in retained earnings for the period in U.S. dollars under the provisions

of SFAS 52?

A)   $715.

B)   $725.

C)   $750.

Q2. Which of the following statements regarding foreign currency translation under SFAS 52 are FALSE? Under the:

A)   current rate method, the foreign currency translation gain or loss appears on the parent firm's income statement.

B)   temporal method, sales are remeasured using the average rate.

C)   temporal method, COGS and depreciation are remeasured using the historical rate.

Q3. An important distinction between remeasurement under the temporal method and translation under the all-current method is

    that:

A)   translation (all-current method) results in an adjustment to the equity account on the balance sheet, remeasurement (temporal method) results in a gain or loss appearing on the income statement.

B)   monetary assets and liabilities are remeasured (temporal method) at historical rates but translated (all-current method) at current rates.

C)   depreciation and cost of goods sold (COGS) are a function of the current rate under translation (all-current method), but a function of the average rate under remeasurement (temporal method).

Q4. Global International Corp. (GIC) has three subsidiaries: GIC Europe whose local currency is the euro and whose functional

currency is the euro; GIC China whose local currency is the yuan and whose functional currency is the Hong Kong dollar; and

GIC Bahamas whose local currency is the Bahamian dollar and whose functional currency is the U.S. dollar. GIC’s reporting

currency is the U.S. dollar. Which conversion methods should be used by GIC for each of its subsidiaries?

A)   GIC Europe’s data should be translated under the all-current method; GIC China’s data should be remeasured under the temporal method into Hong Kong dollars, and then translated under the all current method into U.S. dollars; and GIC Bahamas’ data should be remeasured under the temporal method into U.S. dollars.

B)   GIC Europe’s data should be remeasured under the temporal method; GIC China’s data should be remeasured under the temporal method into Hong Kong dollars, and then translated under the all current method into U.S. dollars; and GIC Bahamas’ data should be translated under the all-current method into U.S. dollars.

C)   The financial data for all three subsidiaries should be remeasured under the temporal method.

答案和详解如下：

Q1. The Deter Company operates a subsidiary in the UK, and the functional currency is the British pound. The

subsidiary’s 2001 income statement shows £500 of net income and a £50 dividend that was paid on December 31,

when the exchange rate was $1.50 per pound. The current exchange rate is $1.65 per pound, and the average

rate is $1.58 per pound. What is the change in retained earnings for the period in U.S. dollars under the provisions

of SFAS 52?

A)   $715.

B)   $725.

C)   $750.

Correct answer is A)

The basis for using the all current method is when Functional Currency is NOT the same as Parent's Presentation (reporting) Currency. The basis for using the temporal method is when Functional Currency = Parent's Presentation Currency.

Since the functional currency is the local currency, use the current rate method. The net income is translated at the average rate, and dividends are translated at the rate that applied when they were paid. Hence: 1.58(£500) − 1.50(£50) = $715.

Q2. Which of the following statements regarding foreign currency translation under SFAS 52 are FALSE? Under the:

A)   current rate method, the foreign currency translation gain or loss appears on the parent firm's income statement.

B)   temporal method, sales are remeasured using the average rate.

C)   temporal method, COGS and depreciation are remeasured using the historical rate.

Correct answer is A)

The basis for using the all current method is when Functional Currency is NOT the same as Parent's Presentation (reporting) Currency. The basis for using the temporal method is when Functional Currency = Parent's Presentation Currency.
Under the current rate method, the foreign currency translation gain or loss appears on the parent firm's balance sheet in the equity accounts.

Q3. An important distinction between remeasurement under the temporal method and translation under the all-current method is

    that:

A)   translation (all-current method) results in an adjustment to the equity account on the balance sheet, remeasurement (temporal method) results in a gain or loss appearing on the income statement.

B)   monetary assets and liabilities are remeasured (temporal method) at historical rates but translated (all-current method) at current rates.

C)   depreciation and cost of goods sold (COGS) are a function of the current rate under translation (all-current method), but a function of the average rate under remeasurement (temporal method).

Correct answer is A)

The basis for using the all current method is when Functional Currency is NOT the same as Parent's Presentation (reporting) Currency. The basis for using the temporal method is when Functional Currency = Parent's Presentation Currency.
Translation results in an adjustment to the equity account on the balance sheet, remeasurement results in a gain or loss appearing on the income statement. Depreciation and COGS are a function of the average rate under translation (all-current method), but a function of the historical rate under remeasurement (temporal method). Monetary assets and liabilities are remeasured and translated at current rates.

Q4. Global International Corp. (GIC) has three subsidiaries: GIC Europe whose local currency is the euro and whose functional

currency is the euro; GIC China whose local currency is the yuan and whose functional currency is the Hong Kong dollar; and

GIC Bahamas whose local currency is the Bahamian dollar and whose functional currency is the U.S. dollar. GIC’s reporting

currency is the U.S. dollar. Which conversion methods should be used by GIC for each of its subsidiaries?

A)   GIC Europe’s data should be translated under the all-current method; GIC China’s data should be remeasured under the temporal method into Hong Kong dollars, and then translated under the all current method into U.S. dollars; and GIC Bahamas’ data should be remeasured under the temporal method into U.S. dollars.

B)   GIC Europe’s data should be remeasured under the temporal method; GIC China’s data should be remeasured under the temporal method into Hong Kong dollars, and then translated under the all current method into U.S. dollars; and GIC Bahamas’ data should be translated under the all-current method into U.S. dollars.

C)   The financial data for all three subsidiaries should be remeasured under the temporal method.

Correct answer is A)

The basis for using the all current method is when Functional Currency is NOT the same as Parent's Presentation (reporting) Currency. The basis for using the temporal method is when Functional Currency = Parent's Presentation Currency.
GIC Europe’s data should be translated under the all-current method; GIC China’s data should be remeasured under the temporal method into Hong Kong dollars, and then translated under the all current method into U.S. dollars; and GIC Bahamas’ data should be remeasured under the temporal method into U.S. dollars.

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