Can you check if the following answers are correct:

1. A foreign subsidiarys functional currency is its local currency. The weighted-average exchange

rate for the current year would be the appropriate exchange rate for translating:

a. Neither salaries expense nor sales to external customers

b. Salaries expense, but not sales to external customers

c. Sales to external customers, but not salaries expense

d. Both salaries expense and sales to external customers

Answer: C

2. A 100% owned British subsidiary of a US parent company reports its financial statements in local

currency, the British pound. A local news paper published the following US exchange rates to

the British pound at the end of the year:

Current Rate $1.70

Historical rate (acquisition) $1.50

Average Rate for the year $1.60

Which of these rates would be used to translate the British Subs assets and liabilities at year

end for the purposes of consolidation?

a. $1.50

b. $1.60

c. $1.70

d. None of these rates

Answer: B

3. The functional currency is the currency:

a. Of the country in which the parent is located

b. Of the environment in which a subsidiary primarily generates and expends cash

c. Of the country in which the subsidiary maintains its accounting records

d. Of the country in which the parent primarily generates and expends cash

Answer: B

4. Assume a subsidiary operates in a foreign country, keeps its accounting records in a foreign

currency that is the functional currency, and operates independently of the parent company.

Which of the following is true?

a. The translation adjustments have an immediate effect on cash flows

b. The translation adjustments should be reflected in net income

c. The translation adjustments both have an immediate effect on cash flows and should be

reflected in net income

d. The translation adjustments neither have an immediate effect on cash flows nor should

be reflected in net income

Answer: D

5. If a subsidiarys financial statements are translated, the translation gain (loss) is reported as a

change in:

a. The subsidiarys net monetary assets

b. The subsidiary's working capital

c. The subsidiary's stockholders equity

d. The subsidiary's operating profit

Answer: C