Reading 23: Multinational Operations-LOS c 习题精选 balance, 2010, current, company, contrast

土豆妮

Session 6: Financial Reporting and Analysis: Post-Employment and
Share-Based Compensation and Multinational Operations
Reading 23: Multinational Operations

LOS c: Compare and contrast the current rate method and the temporal method, analyze and evaluate the effects of each on the parent company’s balance sheet and income statement, and determine which method is appropriate in various scenarios.

 

 

 

Giant Company is a U.S. Company with a subsidiary, Grande, Inc., that operates in Mexico. Giant Company uses either the temporal or the all-current method of foreign currency translation for its subsidiaries.

• Grande, Inc., began operations January 1, 2001.

• Common Stock and Fixed Assets were acquired January 1, 2000.

• Inventory is accounted for under the last in, first out (LIFO) cost flow assumption, with a slow rate of turnover.

• The beginning U.S. dollar value of Giant's retained earnings was $2,600,000.

• The inventory in the January 1, 2001, Balance Sheet was acquired on January 1, 2001.

Exchange Rates were:	January 1, 2000	$0.14/M peso
	January 1, 2001	$0.12/M peso
	June 30, 2001	$0.11/M peso (this is the 2001 average rate)
	December 31, 2001	$0.10/M peso

	Grande, Inc.
	Balance Sheet (in M Pesos)
	Jan. 1, 2001	Dec. 31, 2001
Cash	5,000,000	20,000,000
Accounts Receivable (A/R)	20,000,000	35,000,000
Inventory	15,000,000	15,000,000
Fixed Assets (net)	90,000,000	60,000,000
Accounts Payable (A/P)	10,000,000	10,000,000
Long Term Debt	40,000,000	35,000,000
Common Stock	80,000,000	80,000,000
Retained Earnings		5,000,000
	2001 Income Statement
	(in M Pesos)
Sales	60,000,000
Cost of Goods Sold (COGS)	(45,000,000)
Depreciation	(10,000,000)
Net Income	5,000,000

Assume that Giant Company considers the Mexican peso to be the local currency and the functional currency of Grande, Inc.

Giant Company should use the following method to reflect the results of Grande, Inc., in its financial statements:

A) the all-current method.

B) the all-current method followed by the temporal method.

C) the temporal method.

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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 all-current method is used when the local currency and functional currency are the same.

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The Net Income of Grande, Inc., expressed in U.S. dollars for the year ended December 31, 2001, is:

A) $550,000.

B) $500,000.

C) $250,000.

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Using the all-current method, the income statement is translated using the average rate for all income statement accounts: Sales ? COGS ? Depreciation = Net Income. (60,000,000 × $0.11) ? (45,000,000 × $0.11) ? (10,000,000) × $0.11) = $550,000.

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What is the change in exposure for Grande, Inc., for the year ended December 31, 2001?

A) +$5,000,000.

B) +$85,000,000.

C) +$35,000,000.

---

 

Exposure under the all-current method is simply equity.

Beginning exposure = 80,000,000

Ending exposure = 85,000,000

Change in exposure = 85,000,000 ? 80,000,000 = +5,000,000

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The translation gain or loss from the activities of Grande, Inc., should be reported in:

A) the equity accounts.

B) the statement of cash flows.

C) the income statement.

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Under the all-current method, translation gains or losses are accumulated on the balance sheet in the equity section.

[此贴子已经被作者于2010-4-14 15:15:32编辑过]

luqian55

thanks

土豆妮

Which of the following statements regarding foreign currency disclosures in the footnotes to financial statements is most accurate?

A) A multinational firm with small liability balances generally has minimal foreign currency exposure on its balance sheet.

B) If the parent currency is the functional currency, the temporal method is applied and exposure is equal to net monetary assets.

C) All U.S.-based multinational firms must disclose the accounting method used for foreign currency translation in order to be in compliance with GAAP standards.

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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 choice of functional currency is the determining factor as to which method of foreign currency translation is utilized. Therefore, when the parent currency is the functional currency, the temporal method must be used. The choice of methods is up to management’s discretion.

土豆妮

Which of the following general statements is most accurate with respect to the all-current method? Revenues:

A) and operating expenses are translated at the current rate.

B) are translated at the average rate while operating expenses are translated at the current rate.

C) and operating expenses are translated at the average rate.

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As a general rule for the current method (also known as the all-current method), all revenues and operating expenses are translated using the average rate.

土豆妮

Which of the following general statements is CORRECT with respect to the temporal method? Revenues and operating expenses (excluding COGS) are translated at the:

A) historical rate.

B) current rate.

C) average rate.

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As a general rule for the temporal method, all revenues and operating expenses (excluding COGS) are translated using the average rate.

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土豆妮

Under the all-current method, common stock is translated by using the:

A) rate that existed when the equity was issued.

B) exchange rate as of the balance sheet date.

C) present value of weighted average rate.

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The historical rate is used.

土豆妮

Dave Iverson, CFA, is analyzing the recently released financial statement of Global Corp., a large multinational manufacturing company with production facilities across Europe and Southeast Asia. The company’s choice of functional currency is not disclosed, but Iverson does notice that Global Corp. does not have any cumulative translation adjustments (CTA) on its balance sheet. Which of the following statements is most accurate based upon Iverson’s observation?

A) The all-current method of foreign currency translation is used exclusively.

B) The temporal method of foreign currency translation is used for at least some of its subsidiaries.

C) The temporal method of foreign currency translation is used exclusively.

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The choice of functional currency is the determining factor as to which method of foreign currency translation is utilized. If no CTA appears on the balance sheet, then the parent currency must be the functional currency for all of the company’s subsidiaries and only the temporal method is used.

土豆妮

Which of the following currency translation methods is most appropriate in a hyperinflationary economy? The:

A) current/non-current method since current assets and liabilities are translated at the current exchange rate.

B) all-current method since the translation gain or loss is shown on the income statement.

C) temporal method because all non-monetary accounts are translated at the historical rate.

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Temporal is most appropriate because the value of non-monetary assets and liabilities is translated at the historical rate.

土豆妮

Which of the following statements is least accurate regarding accounting for foreign currency translations? The:

A) temporal method uses the historical exchange rate to translate non-monetary assets and liabilities into the currency of the country of the parent company.

B) current rate method applies the average exchange rate to all income statement accounts.

C) current rate method applies the current exchange rate to all balance sheet accounts.

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The current rate method applies the current exchange rate to all balance sheet accounts except for common stock, which is translated at a historical rate.

土豆妮

Which of the following general statements is CORRECT with respect to the temporal method? Monetary assets are:

A) translated at the current rate.

B) translated at the average rate.

C) not translated.

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As a general rule in using the temporal method, monetary assets are translated using the current rate.