Q65. The U.S. dollar has been appreciating relative to the local currency over the past year. Using current-rate method

     to translate a foreign subsidiary's financial statements to U.S. dollars will most likely have which of the following

effects on the long-term debt to equity ratio (LTD/E) relative to what the ratio would have been without the effects

of translation?

A)   The ratio will not change.

B)   The ratio will fall.

C)   The ratio will rise.

Q66. The U.S. dollar has been depreciating relative to the local currency over the past year. The use of the current rate

     method to translate a foreign subsidiary's financial statements to U.S. dollars will most likely have which of the     

     following effects on the operating profit margin (EBIT/S) relative to what the ratio would have been without the

     effects of translation?

A)   The ratio will fall.

B)   There will be no affect on the ratio.

C)   The ratio will rise.

Q67. The U.S. dollar has been appreciating relative to the local currency over the past year. The use of the temporal

     method to translate a foreign subsidiary's financial statements to U.S. dollars will most likely have which of the

     following effects on the fixed-asset turnover ratio (S/FA) relative to what the ratio would have been without the

     effects of translation assuming no new fixed assets were purchased throughout the year?

A)   The ratio will fall.

B)   There will be no effect on the ratio.

C)   The ratio will rise.

答案和详解如下：

Q65. The U.S. dollar has been appreciating relative to the local currency over the past year. Using current-rate method

     to translate a foreign subsidiary's financial statements to U.S. dollars will most likely have which of the following

effects on the long-term debt to equity ratio (LTD/E) relative to what the ratio would have been without the effects

of translation?

A)   The ratio will not change.

B)   The ratio will fall.

C)   The ratio will rise.

Correct answer is A)

Under the current rate method, both LTD and equity are translated at the current rate of exchange. Hence, since the same rate is applied in both the numerator and denominator, the ratio will not change.

Note: When equity is broken out into separate accounts, common stock is taken at the historical rate. When taken as a whole, equity should be translated at the current rate. In this case we are not given any information on the common stock amount, so we translate equity at the current rate.

Q66. The U.S. dollar has been depreciating relative to the local currency over the past year. The use of the current rate

     method to translate a foreign subsidiary's financial statements to U.S. dollars will most likely have which of the     

     following effects on the operating profit margin (EBIT/S) relative to what the ratio would have been without the

     effects of translation?

A)   The ratio will fall.

B)   There will be no affect on the ratio.

C)   The ratio will rise.

Correct answer is B)

Under the current rate method, the average rate is applied to all income statement accounts. Hence, since the average rate is applied to both numerator and denominator of the equation and the ratio will not change.

Q67. The U.S. dollar has been appreciating relative to the local currency over the past year. The use of the temporal

     method to translate a foreign subsidiary's financial statements to U.S. dollars will most likely have which of the

     following effects on the fixed-asset turnover ratio (S/FA) relative to what the ratio would have been without the

     effects of translation assuming no new fixed assets were purchased throughout the year?

A)   The ratio will fall.

B)   There will be no effect on the ratio.

C)   The ratio will rise.

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 dollar is appreciating the local currency is depreciating thus each foreign currency unit is buying more dollars in the past relative to the present. Fixed assets are remeasured at the historical rate and sales are remeasured at the average rate under the temporal method. Since the historical rate is buying more dollars relative to the average rate, the denominator is staying the same whereas the numerator is getting smaller thus the ratio is falling.