advanced exam 3

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An exchange rate of $1.45:€1 ….

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1

An exchange rate of $1.45:€1 ….

can also be expressed as $1.00:€0.69

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2

Assume that our US based company purchases 1,000 units of inventory from a UK supplier at £3/unit. To record the purchase

our company will debit inventories and credit accounts payable for the US equivalent of £3,000

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3

Assume that the $US has weakened with respect to the Euro and that we have a Euro denominated payable

our company will report the loss on the payment date

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4

Which of the following best describes the accounting for foreign currency-denominated receivables and payables

companies are required to accrue gains and losses on foreign currency denominated receivables and payables on every financial statement date and when the receivable/payable is collected/discharged

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5

which of the following provides the best definition of a functional currency

the currency of the primary economic environment in which the subsidiary operates

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6

Assume that your company purchases inventory from a supplier on December 15. The invoice specifies the payment is to be made on March 15 in Euros in the amount of 10,000 euros. Your company operates on a calender year basis. Assume the following exchange rates:

December 15: $1.58:1 Euro

December 31: $1.60:1 Euro

March 15: $1.63: 1 euro

Assuming the entities use perpetual inventory accounting, the entry to record the purchase would include

a credit to accounts payable of $15,800

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7

Assume that your company purchases inventory from a supplier on December 15. The invoice specifies the payment is to be made on March 15 in Euros in the amount of 10,000 euros. Your company operates on a calender year basis. Assume the following exchange rates:

December 15: $1.58:1 Euro

December 31: $1.60:1 Euro

March 15: $1.63: 1 euro

Assuming the entities use perpetual inventory accounting, the entry at December 31 will include

foreign currency transaction loss, 200

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8

Assume that your company purchases inventory from a supplier on December 15. The invoice specifies the payment is to be made on March 15 in Euros in the amount of 10,000 euros. Your company operates on a calender year basis. Assume the following exchange rates:

December 15: $1.58:1 Euro

December 31: $1.60:1 Euro

March 15: $1.63: 1 euro

Assuming the entities use perpetual inventory accounting, the entry at March 15 will include

foreign currency transaction loss, 300

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9

If 1 Happyland laugho can be exchanged for 120 cents of US currency, 1/1.20 represents

the indirect exchange rate

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10
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d. a loss of $6,240 in the income statement

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12

when is a gain recognized in equity (OCI) incom

when it is not realized or cannot be included in the determination of net income. This includes gains from changes in the fair value of available-for-sale securities, gains from revaluation of property, plant, and equipment, and gains from foreign currency translation adjustments.

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13

when is the current rate method or temporal method applied

applied in foreign currency translation when a company's functional currency is different from its reporting currency. The current rate method is used when the functional currency is the same as the reporting currency, while the temporal method is used when the functional currency is different from the reporting currency.

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14

what is a monetary asset versus nonmonetary asset

A monetary asset refers to an asset that is held in the form of cash or can be readily converted into cash. Examples include cash in hand, bank deposits, and short-term investments. On the other hand, a nonmonetary asset is an asset that does not have a fixed or determinable value in terms of money. Examples include property, equipment, inventory, and intangible assets like patents or trademarks.

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15

what are the 3 reasons that trigger a need for reameasurement in foreign currency transactions

The three reasons that trigger a need for re-measurement in foreign currency transactions are:

  1. Initial recognition: When a foreign currency transaction is initially recognized, it is necessary to re-measure the transaction into the functional currency at the spot exchange rate on the transaction date.

  2. Settlement: If there is a time gap between the transaction date and the settlement date, the foreign currency amount needs to be re-measured at the spot exchange rate on the settlement date.

  3. Reporting: At each reporting date, any outstanding foreign currency balances need to be re-measured into the functional currency at the spot exchange rate on the reporting date.

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16

dividends

remeasured at the exchange rate in effect on the date of declaration

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monetary assets

remeasured at the EOY exchange rate

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nonmonetary assets

remeasured at the exchange rate in effect when those assets are purchased

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common stock and APIC

remeasured at the exchange rate in effect when the stock was purchased by the parent

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20

revenue and expense accounts

other than depreciation and cost of goods sold

remeasured at the average exchange rates in each of the years

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21
<p></p>

whose amounts are fixed in terms of units of currency by contract or otherwise

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22
<p>why does GAAP prefer the use of more conservative rates applied in remeasurement</p>

why does GAAP prefer the use of more conservative rates applied in remeasurement

to ensure a prudent approach to financial reporting. This conservative approach helps to mitigate the risk of overstating assets or income, and it provides a more accurate representation of a company's financial position. By using conservative rates, GAAP aims to provide users of financial statements with reliable and transparent information for decision-making purposes.

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23
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in current income

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24
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prepaid expenses

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25
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arrival $0.25

departure $0.30

arrival $4

departure $3.33

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<p></p>

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c (7,000)

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$100 loss, and $200 gain

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retained earnings

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<p></p>

c. the subsidiary’s stockholders equity

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b/ the cumulative translation adjustment account affects the amount of gain or loss reported upon the sale of a foreign subsidiary

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33

What is the definition of the “Current Exchange Rate”?

refers to the value at which one currency can be exchanged for another currency in the foreign exchange market. It represents the rate at which one currency is traded for another at a specific point in time.

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34
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transactions denominated in a foreign currency must be translated into a reporting currency

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35

A foreign subsidiary functional currency is its local currnecy, which has not experiences significant inflation. The weighted average exchange rate for the current year would be appropriate exchange rate for translating

a. salaries expense and sales to external customers

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36

Gordon Ltd, a 100% owned british subsidiary of a US parent company reports its financial statements in a local currency, the british pound. A local newspaper published the following US exchange rates to the british pount at year end

current $1.5

historical $1.7

average $1.55

inventory $1.80

Which currency rate should gordon use to convert its income statement to US dollars at year end

1.55

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37

the functional currency is the currency:

of the environment in which a subsidiary primarily generates and expends cash

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38

gains and losses from remeasuring a foreign subsidiaries financial statements should be reported

in current income

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39

assume that your subsidiary operated independently of the parent company. which of the following is true

translation adjustments do not have an immediate effect on cash flows and translation adjustments should NOT be reflected in earnings

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40

during the translation process, the current year change to the cumulative translation adjustment is a function of which of the following relationships of the subsidiary

its total assets minus total liabilities

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41

if a subsidiarys financial statements are translated using the current rate method, the translation gain (loss) is related to changes in

c. the subsidiaries stockholders equity

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42

which of the following statements is true regarding the cumulative translation adjustment

the cumulative translation adjustment account affects the amount fo gain or loss reported upon the sale of a foreign subsidiary

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