Q40. The Precision Screen Printers (PSP) Company has a foreign subsidiary, the Acer Tool & Die Company, located in the country

     of Rolivia. The currency of Rolivia is the Chad. The balance sheet and income statement of Acer Tool & Die Company for the

     year-ended December 31, 2005, is shown below. The balance sheet has been restated using the U.S. dollar as the functional

     currency.

The exchange rate at the beginning of 2005 was 0.3333 Chad/US$. The exchange rate at the end of 2005 was 0.25 Chad/US$. The average rate for 2005 is 0.3125 Chad/US$. Beginning inventory is 90 Chad. Acer Tool & Die uses FIFO inventory valuation and depreciates fixed assets using the straight-line method.

Using the current rate method for the Acer Tool & Die Company, what is the translation adjustment for this period?

A)   $556 gain.

B)   $0.

C)   $52 loss.

Q41. Wasson Brothers (WB) is a large U.S. based conglomerate with many subsidiaries in both the U.S. and abroad.

     One of WB's wholly-owned foreign subsidiaries, Kasamatsu Industries, is based in Japan and manufactures a

      hugely successful line of trading cards, toys, and other related products. All of Kasamatsu's operations and s

     ales take place in Japan, and the corresponding transactions are denominated in Japanese yen. Additionally, Kasamatsu's books and records are all maintained in yen. WB reports its earnings in U.S. dollars. The history of the exchange rate between the dollar and the yen over the last two years is presented in the following table. Figures are presented in yen/$.

Jameson would like to look at some of Kasamatsu's figures in U.S. dollars. However, she must use the appropriate rate to convert the numbers from yen into dollars. What is the appropriate exchange rate (yen/$) to use in converting Kasamatsu's assets?

A)   140.

B)   100.

C)   150.

答案和详解如下：

Q40. The Precision Screen Printers (PSP) Company has a foreign subsidiary, the Acer Tool & Die Company, located in the country

     of Rolivia. The currency of Rolivia is the Chad. The balance sheet and income statement of Acer Tool & Die Company for the

     year-ended December 31, 2005, is shown below. The balance sheet has been restated using the U.S. dollar as the functional

     currency.

The exchange rate at the beginning of 2005 was 0.3333 Chad/US$. The exchange rate at the end of 2005 was 0.25 Chad/US$. The average rate for 2005 is 0.3125 Chad/US$. Beginning inventory is 90 Chad. Acer Tool & Die uses FIFO inventory valuation and depreciates fixed assets using the straight-line method.

Using the current rate method for the Acer Tool & Die Company, what is the translation adjustment for this period?

A)   $556 gain.

B)   $0.

C)   $52 loss.

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.
When using the current rate method, all assets and liabilities are translated at the current rate, so the net exposure is assets minus liabilities, or total shareholder’s equity.

The currency translation adjustment (CTA) is calculated as the sum of the flow effect and holding effect.

Flow effect (in $) = change in exposure (in LC) × (ending rate – average rate)

Holding gain/loss effect (in $) = beginning exposure (in LC) × (ending rate – beginning rate)

Going back to our data in the example:

Beginning exposure = 380

Ending exposure = (380 + 220) = 600

Change in exposure = (600 – 380) = 220

Flow effect (in $) = 220 × [(1 / 0.25) – (1 / 0.3125)] = 220 × [4 – 3.2] = 176

Holding gain/loss effect (in $) = 380 × [(1 / 0.25) – (1 / 0.3333)] = 380 × [4 – 3] = 380

Translation gain (in $) = flow effect + holding gain/loss effect = $176 + $380 = $556

Q41. Wasson Brothers (WB) is a large U.S. based conglomerate with many subsidiaries in both the U.S. and abroad.

     One of WB's wholly-owned foreign subsidiaries, Kasamatsu Industries, is based in Japan and manufactures a

      hugely successful line of trading cards, toys, and other related products. All of Kasamatsu's operations and s

     ales take place in Japan, and the corresponding transactions are denominated in Japanese yen. Additionally, Kasamatsu's books and records are all maintained in yen. WB reports its earnings in U.S. dollars. The history of the exchange rate between the dollar and the yen over the last two years is presented in the following table. Figures are presented in yen/$.

Jameson would like to look at some of Kasamatsu's figures in U.S. dollars. However, she must use the appropriate rate to convert the numbers from yen into dollars. What is the appropriate exchange rate (yen/$) to use in converting Kasamatsu's assets?

A)   140.

B)   100.

C)   150.

Correct answer is C)

Because the current method of currency translation is being used all assets and liabilities are translated using the exchange rate in effect on the balance sheet date. In this particular case, the exchange rate prevailing on December 31, 2002, is the appropriate rate.

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