bigredhockey55

Global International Corp. (GIC) has three subsidiaries: GIC Europe whose local currency is the euro and whose functional currency is the euro; GIC China whose local currency is the yuan and whose functional currency is the Hong Kong dollar; and GIC Bahamas whose local currency is the Bahamian dollar and whose functional currency is the U.S. dollar. GIC’s reporting currency is the U.S. dollar. Which conversion methods should be used by GIC for each of its subsidiaries?

A) GIC Europe’s data should be remeasured under the temporal method; GIC China’s data should be remeasured under the temporal method into Hong Kong dollars, and then translated under the current rate method into U.S. dollars; and GIC Bahamas’ data should be translated under the current rate method into U.S. dollars.

B) The financial data for all three subsidiaries should be remeasured under the temporal method.

C) GIC Europe’s data should be translated under the current rate method; GIC China’s data should be remeasured under the temporal method into Hong Kong dollars, and then translated under the current rate method into U.S. dollars; and GIC Bahamas’ data should be remeasured under the temporal method into U.S. dollars.

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The basis for using the current rate 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.

GIC Europe’s data should be translated under the current rate method; GIC China’s data should be remeasured under the temporal method into Hong Kong dollars, and then translated under the current rate method into U.S. dollars; and GIC Bahamas’ data should be remeasured under the temporal method into U.S. dollars.

bigredhockey55

An important distinction between the temporal method and the current rate method is that:

A) monetary assets and liabilities are remeasured (temporal method) at historical rates but translated (current rate method) at current rates.

B) depreciation and cost of goods sold (COGS) are a function of the current rate under translation (current rate method), but a function of the average rate under remeasurement (temporal method).

C) the current rate method results in an adjustment to the equity account on the balance sheet. The temporal method results in a gain or loss appearing on the income statement.

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The current rate method results in an adjustment to the equity account on the balance sheet. The temporal method results in a gain or loss appearing on the income statement. Depreciation and COGS are a function of the average rate under the current rate method, but a function of the historical rate under the temporal method. Monetary assets and liabilities are use the current rates under both methods.

bigredhockey55

Which of the following statements regarding foreign currency translation are least accurate? Under the:

A) temporal method, sales are remeasured using the average rate.

B) temporal method, COGS and depreciation are remeasured using the historical rate.

C) current rate method, the foreign currency translation gain or loss appears on the parent firm's income statement.

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Under the current rate method, the foreign currency translation gain or loss appears on the parent firm's balance sheet in the equity accounts

bigredhockey55

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

A) translated at the average rate.

B) translated at the current 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.

bigredhockey55

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.

bigredhockey55

Under the temporal method, the inventory and cost of goods sold (COGS) accounts are both nonmonetary accounts. Which of the following statements is least accurate regarding these accounts?

A) The Inventory account is remeasured using the historical rate under both LIFO and FIFO.

B) If the firm accounts for inventory using last in, first out (LIFO), then the beginning-of-period rate is used to remeasure COGS.

C) If the firm accounts for inventory using first in, first out (FIFO), then a more current rate will be applied to the inventory account.

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Under LIFO, the last goods purchased are the first goods out to COGS. Hence, although technically the historical rate is used to remeasure COGS, a more recent rate is typically more appropriate for COGS under LIFO.

bigredhockey55

Which of the following situations does NOT require the use of the temporal method? The:

A) foreign subsidiary is operating in a highly inflationary economy.

B) functional currency is some currency other that the local currency or the U.S. dollar.

C) local currency is the functional currency.

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The basis for using the current rate 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 temporal method is not required in the situation when the local currency is the functional currency.

bigredhockey55

Which of the following statements regarding the foreign currency translation under US GAAP is least accurate? The functional currency is the:

A) parent firm's home currency for self-contained independent foreign subsidiaries.

B) parent firm's home currency if the foreign subsidiary operates in a country with high inflation.

C) subsidiary's local currency for self-contained, independent foreign subsidiaries.

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The basis for using the current rate 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.

This statement is incorrect, both remaining statements are correct regarding rules that govern the determination of the functional currency of subsidiaries

bigredhockey55

Each of the following items is considered a monetary asset or liability account under the temporal method for foreign currency translation EXCEPT:

A) accounts payable.

B) inventory.

C) long-term debt.

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The monetary asset and liability accounts under the temporal method are cash, accounts receivable, accounts payable, and long-term debt.

bigredhockey55

Which of the following statements regarding the functional currency under US GAAP is least accurate?

A) The functional currency is defined as the primary currency of the economic environment in which the parent firm operates.

B) Self-contained, independent subsidiaries whose operations are primarily located in the local market will use the local currency as the functional currency.

C) If a firm operates in a country or environment which is subject to cumulative inflation of 100% or more over a three year period, that firm will use the parent's currency as the functional currency.

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The basis for using the current rate 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 functional currency is defined as the primary currency of the economic environment in which the foreign subsidiary operates.