土豆妮

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

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

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

C) current rate method since the translation gain or loss is shown on the income statement.

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The temporal rate method is most appropriate because the value of non-monetary assets and liabilities is translated at the historical rate. Under IFRS, the firm restates the financials using an inflation index, and then translates using the current rate method.

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) 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.

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

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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 functional currency is largely left to management’s discretion.

土豆妮

At what exchange rate are revenues and accounts receivable translated under the current rate method?

Revenues

Accounts receivable

A) Average rate Historical rate

B) Average rate Current rate

C) Current rate Current rate

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Under the current rate method, revenues are translated at the average rate; accounts receivable are translated at the current rate.