Modern Advanced Accounting in Canada 9th Edition By Darrel -Test Bank

Chapter 11

Translation and Consolidation of Foreign Operations

Multiple Choice Questions

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.

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.

3. If the functional currency of a foreign operation is different than the parent’s, functional currency, how are exchange gains and losses to be reported?
   A.As part of other comprehensive income.
   B. In an exchange account.
   C. As part of the non-controlling interest.
   D. As part of the acquisition differential amortization.

4. If the functional currency of the foreign operation is the same as the parent’s functional currency, which of the following statements is correct?
   A.The foreign operation’s financial statements are translated using the functional currency translation (FCT) method.
   B. The foreign operation’s financial statements are translated using the presentation currency translation (PCT) method.
   C. The foreign operation is classified as a foreign affiliate.
   D. The investment in the foreign operation is classified as a non-monetary asset.

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.

6. The exposure resulting from the translation of foreign-currency-denominated financial statements into Canadian dollars is referred to as:
   A.translation (accounting) exposure.
   B. transaction exposure.
   C. economic exposure.
   D. business risk exposure.

7. What exposure exists when the present value of future cash flows change as a result of changes in exchange rates?
   A.Translation (accounting) exposure
   B. Transaction exposure
   C. Economic exposure
   D. Business risk 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.

9. Which of the following statements is correct?
   A.If the functional currency of the foreign operation is different than the parent’s functional currency, the non-monetary items recorded at cost must be translated using historical rates.
   B. If the functional currency of the foreign operation is different than the parent’s functional currency, the non-monetary items recorded at cost must be translated using average rates.
   C. If the functional currency of the foreign operation is different than the parent’s functional currency, the non-monetary items recorded at cost must be translated using closing rates.
   D. If the functional currency of the foreign operation is the same as the parent’s functional currency, the non-monetary items recorded at cost must be translated using closing rates.

10. Which of the following statements is correct?
    A.If the functional currency of the foreign operation is different than the parent’s functional currency, the monetary items must be translated using closing rates.
    B. If the functional currency of the foreign operation is different than the parent’s functional currency, the monetary items must be translated using average rates.
    C. If the functional currency of the foreign operation is different than the parent’s functional currency, the shareholders’ equity must be translated using closing rates.
    D. If the functional currency of the foreign operation is the same as the parent’s functional currency, the non-monetary items recorded at cost must be translated using average rates.