Modern Advanced Accounting in Canada 8th Edition By Murray Hilton – Test Bank

1. Under the functional currency translation (FCT) method, which of the following statements is correct?

A. The relationship of balance sheet items is best preserved.

B. A single historic rate is used to translate all income statement items.

C. A net asset exposure is most likely.

D. Historic rates are used to translate most non-monetary items.

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Gradable: automatic
Hilton – Chapter 11 #1
Learning Objective: 11-03 Prepare translated financial statements for foreign operations using the functional currency translation method.
Topic: 11-06 The Functional Currency Translation Method

2. Under the presentation currency translation (PCT) method, which of the following statements is correct?

A. Transaction exposure is greatest.

B. The relationship of balance sheet items is best preserved.

C. Income statement items are translated using a mix of rates.

D. Income statement items are translated using average rates.

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Gradable: automatic
Hilton – Chapter 11 #2
Learning Objective: 11-04 Prepare translated financial statements for foreign operations using the presentation currency translation method.
Topic: 11-12 The Presentation Currency Translation Method

3. For a self-sustaining foreign operation (i.e., the functional currency of the foreign operation is different than the parent), exchange gains and losses are to be included in or along with:

A. other comprehensive income.

B. an exchange account.

C. non-controlling interest.

D. the acquisition differential amortization.

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Gradable: automatic
Hilton – Chapter 11 #3
Learning Objective: 11-04 Prepare translated financial statements for foreign operations using the presentation currency translation method.
Topic: 11-12 The Presentation Currency Translation Method

4. If the functional currency of the foreign entity is the same as the parent’s functional currency, which of the following statements is correct?

A. The foreign entity is classified as integrated.

B. The foreign entity is classified as self-sustaining.

C. The foreign entity is classified as a foreign affiliate.

D. The investment in the foreign entity is classified as a non-monetary asset.

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Gradable: automatic
Hilton – Chapter 11 #4
Learning Objective: 11-02 Differentiate between the functional currency and the presentation currency for a foreign operation, and describe the translation method that is used in the translation to each type.
Topic: 11-05 Translation of Foreign Operations

5. Under the presentation currency translation (PCT) method, which of the following statements is correct?

A. All balance sheet items excluding shareholders equity are translated using the closing rate in effect at the balance sheet date.

B. All balance sheet items are translated using the closing rate in effect at the balance sheet date.

C. All balance sheet items are translated using the average rate in effect throughout the year.

D. Only non-current balance sheet items are translated using the closing rate in effect at the balance sheet date.

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Gradable: automatic
Hilton – Chapter 11 #5
Learning Objective: 11-01 Contrast an enterprise’s foreign currency accounting exposure with its economic exposure and evaluate how effectively the translation methods capture the economic effects of exchange rate changes.
Topic: 11-04 Economic Exposure

6. The risk exposure resulting from the translation of foreign-currency-denominated financial risks is referred to as:

A. translation (accounting) exposure.

B. transaction exposure.

C. economic exposure.

D. business risk.

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Gradable: automatic
Hilton – Chapter 11 #6
Learning Objective: 11-01 Contrast an enterprise’s foreign currency accounting exposure with its economic exposure and evaluate how effectively the translation methods capture the economic effects of exchange rate changes.
Topic: 11-01 Accounting Exposure Versus Economic Exposure
Topic: 11-02 Translation (Accounting) Exposure
Topic: 11-03 Transaction Exposure
Topic: 11-04 Economic Exposure

7. The risk exposure resulting from the possible reduction in terms of the domestic reporting foreign currency, of the discounted future cash flows generated from foreign investments or operations due to real changes in exchange rates is referred to as:

A. translation (accounting) exposure.

B. transaction exposure.

C. economic exposure.

D. business risk.

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Gradable: automatic
Hilton – Chapter 11 #7
Learning Objective: 11-01 Contrast an enterprise’s foreign currency accounting exposure with its economic exposure and evaluate how effectively the translation methods capture the economic effects of exchange rate changes.
Topic: 11-01 Accounting Exposure Versus Economic Exposure
Topic: 11-02 Translation (Accounting) Exposure
Topic: 11-03 Transaction Exposure
Topic: 11-04 Economic Exposure

8. The risk exposure that occurs between the time of entering into a transaction and the time of settling it is referred to as:

A. translation (accounting) exposure.

B. transaction exposure.

C. economic exposure.

D. business risk.

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Gradable: automatic
Hilton – Chapter 11 #8
Learning Objective: 11-01 Contrast an enterprise’s foreign currency accounting exposure with its economic exposure and evaluate how effectively the translation methods capture the economic effects of exchange rate changes.
Topic: 11-01 Accounting Exposure Versus Economic Exposure
Topic: 11-02 Translation (Accounting) Exposure
Topic: 11-03 Transaction Exposure
Topic: 11-04 Economic Exposure

9. Which of the following statements is correct?

A. If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), non-monetary items recorded at cost must be translated using historical rates.

B. If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), non-monetary items recorded at cost must be translated using average rates.

C. If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), non-monetary items recorded at cost must be translated using closing rates.

D. If an organization is considered an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent), non-monetary items recorded at cost must be translated using closing rates.

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Gradable: automatic
Hilton – Chapter 11 #9
Learning Objective: 11-04 Prepare translated financial statements for foreign operations using the presentation currency translation method.
Topic: 11-12 The Presentation Currency Translation Method
Topic: 11-13 Example
Topic: 11-14 Comparative Observations of the Two Translation Methods

10. Which of the following statements is correct?

A. If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), monetary items must be translated using closing rates.

B. If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), monetary items must be translated using average rates.

C. If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different than the parent), shareholders’ equity must be translated using closing rates.

D. If an organization is considered an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the parent), non-monetary items recorded at cost must be translated using average rates.