Changes in the functional currency of a subsidiary

Select one:

a. are not permitted.

b. are accounted for retroactively.

c. are accounted for prospectively.

d. are reported as extraordinary items.

If a subsidiarys functional currency is not the local currency in which it operates, but the parents reporting currency:

Select one:

a. the foreign subsidiarys translated financial statements are identical to the statements that would have resulted if the transactions had been recorded in dollars.

b. the translation adjustment is recorded as a component of other comprehensive income.

c. there is no indication that exchange rate changes will impact the subsidiarys or the parents cash flows or equity.

d. None of the above is correct.

The remeasurement adjustment reported in a translation when the functional currency is not the foreign currency is included

Select one:

a. as a separate component of other comprehensive income

b. in the current liability section of the balance sheet as deferred revenue

c. in the calculation of net income

d. none of the above

Assuming that the functional currency of a foreign subsidiary is the local currency, which of the following accounts would be translated at the current rate?

Select one:

a. Additional Paid-in Capital

b. Retained Earnings

c. Allowance for Doubtful Accounts

d. Cost of Goods Sold

Exchange gains and losses resulting from translating (not re-measuring) foreign currency financial statements into U.S. dollars should be included as a(an)

Select one:

a. a component of other comprehensive income.

b. extraordinary item in the income statement for the period in which the rate changes.

c. ordinary gain/loss item in the income statement.

d. component of operating income.

Patents are on the books of a British subsidiary of a U.S. firm at a value of 50,000 pounds. The patents were acquired in 2016 when the exchange rate was 1 pound = $1.50. The British subsidiary was acquired by the U.S. firm in 20X0 when the exchange rate was 1 pound = $1.40. The exchange rate on December 31, 2017, the date of the most current balance sheet, is 1 pound = $1.55. The average rate of exchange for 2017 is $1.53. Assuming the dollar is the functional currency of the subsidiary, what exchange rate will be used to re-measure patents for the consolidated statements dated December 31, 2017?

Select one:

a. $1.40

b. $1.50

c. $1.53

d. $1.55

Which of the following best describes the accounting for a foreign entity requiring translation or remeasurement if the local economy is classified as highly inflationary?

Select one:

a. The entity's financial statements are first adjusted for inflation and then translated into the domestic currency.

b. The entity's financial statements are first adjusted for inflation and then remeasured into the domestic currency.

c. The unadjusted trial balance is translated if the functional currency is the local currency.

d. The unadjusted trial balance is remeasured regardless of the functional currency.

In most cases, which of the following is not a component of translated retained earnings?

Select one:

a. Translated retained earnings at the end of the prior period

b. Income from the period translated at the historical rate

c. The value of dividends translated at the exchange rate on the date of declaration

d. All are components of translated retained earnings

The adjustment resulting from the remeasurement of an entity operating in a highly inflationary environment would appear

Select one:

a. in the stockholders' equity section of the balance sheet.

b. as a component of other comprehensive income.

c. as an ordinary income statement item.

d. as an extraordinary item on the income statement.