Q6. Jameson must also determine how the fluctuation in the yen vs. the dollar has affected Kasamatsu's earnings in the reporting

currency. Which of the following best describes the effect of changes in the yen/dollar rate has had on earnings in the reporting

currency? Earnings have:

A)   decreased because the yen is depreciating versus the USD.

B)   increased because the yen is depreciating versus the USD.

C)   increased because the yen is appreciating versus the USD.

Q7. If the functional currency has been determined to be the local currency, then:

A)   use remeasurement to translate the foreign subsidiary's results.

B)   use the temporal method to translate the foreign subsidiary's results.

C)   use the current rate method to translate the foreign subsidiary's results.

Q8. Which of the following statements regarding the functional currency under SFAS 52 is FALSE?

A)   The functional currency is defined as the primary currency of the economic environment in which the parent firm operates.

B)   Self-contained, independent subsidiaries whose operations are primarily located in the local market will use the local currency as the functional currency.

C)   If a firm operates in a country or environment which is subject to cumulative inflation of 100% or more over a three year period, that firm will use the parent's currency as the functional currency.

Q9. Each of the following items is considered a monetary asset or liability account under the temporal method for

    foreign currency translation EXCEPT:

A)   accounts payable.

B)   long-term debt.

C)   inventory.

Q10. Which of the following statements regarding the foreign currency translation under SFAS 52 is FALSE? The

     functional currency is the:

A)   parent firm's home currency for self-contained independent foreign subsidiaries.

B)   parent firm's home currency if the foreign subsidiary operates in a country with high inflation.

C)   subsidiary's local currency for self-contained, independent foreign subsidiaries.

答案和详解如下：

Q6. Jameson must also determine how the fluctuation in the yen vs. the dollar has affected Kasamatsu's earnings in the reporting

currency. Which of the following best describes the effect of changes in the yen/dollar rate has had on earnings in the reporting

currency? Earnings have:

A)   decreased because the yen is depreciating versus the USD.

B)   increased because the yen is depreciating versus the USD.

C)   increased because the yen is appreciating versus the USD.

Correct answer is A)

Examination of the history of the exchange rate shows that both the year-end and average exchange rates are lower in 2005 than in 2004 (lower in that the yen has weakened vs. the USD). Therefore, Kasamatsu has to earn more yen than it did in the previous year for WB to be able to report the same dollar amount of net income. This means that the true economic performance of Kasamatsu is understated when viewed as a component of WB's net income.

Q7. If the functional currency has been determined to be the local currency, then:

A)   use remeasurement to translate the foreign subsidiary's results.

B)   use the temporal method to translate the foreign subsidiary's results.

C)   use the current rate method to translate the foreign subsidiary's results.

Correct answer is C)

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.
If the functional currency is the local currency, then use the current rate method. Remeasurement is the same thing as the temporal method.

Q8. Which of the following statements regarding the functional currency under SFAS 52 is FALSE?

A)   The functional currency is defined as the primary currency of the economic environment in which the parent firm operates.

B)   Self-contained, independent subsidiaries whose operations are primarily located in the local market will use the local currency as the functional currency.

C)   If a firm operates in a country or environment which is subject to cumulative inflation of 100% or more over a three year period, that firm will use the parent's currency as the functional currency.

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.
The functional currency is defined as the primary currency of the economic environment in which the foreign subsidiary operates.

Q9. Each of the following items is considered a monetary asset or liability account under the temporal method for

    foreign currency translation EXCEPT:

A)   accounts payable.

B)   long-term debt.

C)   inventory.

Correct answer is C)

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.
The monetary asset and liability accounts under the temporal method are cash, accounts recievable, accounts payable, and long-term debt.

Q10. Which of the following statements regarding the foreign currency translation under SFAS 52 is FALSE? The

     functional currency is the:

A)   parent firm's home currency for self-contained independent foreign subsidiaries.

B)   parent firm's home currency if the foreign subsidiary operates in a country with high inflation.

C)   subsidiary's local currency for self-contained, independent foreign subsidiaries.

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.
This statement is incorrect, both remaining statements are correct regarding rules that govern the determination of the functional currency of subsidiaries.