1．ve 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 all-current method of foreign currency translation is used for at least some of its subsidiaries. D) The temporal method of foreign currency translation is used exclusively. The correct answer was D) 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. 2．ich of the following statements regarding foreign currency disclosures in the footnotes to financial statements is most accurate? A) 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. B) If the parent currency is the functional currency, the temporal method is applied and exposure is equal to net monetary assets. C) The all-current method is “universal” and can by applied when either the parent currency or the local currency is the functional currency. D) A multinational firm with small liability balances generally has minimal foreign currency exposure on its balance sheet. The correct answer was B) 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. 3．e effect of changes in exchange rates on a multinational firm’s income statement is a result of which of the following two components? A) Holding effect and operational effect. B) Exchange rate effect and operational effect. C) Exchange rate effect and flow effect. D) Holding effect and flow effect. The correct answer was B) The exchange rate effect measures the impact of changes in the exchange rate on a subsidiary’s translated income statement. The operational effect reflects the impact of changes in the subsidiary’s operating results. 4．e temporal method (remeasurement) is preferred to the all-current method (translation) in hyperinflationary economies because remeasurement: A) results in non-monetary asset values that are a better proxy for the economic values of those assets (vs. the all-current method). B) is easier than translation to perform under hyperinflation. C) provides better conversions of subsidiary revenues. D) provides better conversions of SG&A expenses. The correct answer was A) Remeasurement results in non-monetary asset values that are a better proxy for the economic values of those assets than those obtained under the all-current method. Both remeasurement and translation convert revenues and SG&A at the average rate so there could be no clear preference when considering these measures. | 
发表于 2008-5-13 12:10
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