chapter 11...chapter 11 student: _____ 1. under the functional currency translation (fct) method,...

Chapter 11

Student: ___________________________________________________________________________

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. 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.

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.

AniketHighlight

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 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.

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:




D. business risk.

8. The risk exposure that occurs between the time of entering into a transaction and the time of

settling it is referred to as:




D. business risk.

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


average rates.

C. If an organization is self-sustaining (i.e., the functional currency of the foreign operation is


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.



different than the parent), monetary items must be translated using closing rates.


different than the parent), monetary items must be translated using average rates.


different than the parent), shareholders' equity must be translated using closing rates.


the foreign operation is the same as the parent), non-monetary items recorded at cost must be

translated using average rates.



different than the parent), non-monetary items recorded at closing values must be translated

using closing rates.



using average rates.



using historical rates.


the foreign operation is the same as the parent), non-monetary items recorded at closing

values must be translated using average rates.



different than the parent), contributed capital must be translated using closing rates.


different than the parent), contributed capital must be translated using average rates.


different than the parent), contributed capital must be translated using historical rates.


the foreign operation is the same as the parent), contributed capital must be translated using

average rates.



different than the parent), dividends must be translated using closing rates.


different than the parent), dividends must be translated using average rates.


different than the parent), dividends must be translated using historical rates.


the foreign operation is the same as the parent), dividends must be translated using average

rates.



different than the parent), depreciation and amortization must be translated using closing rates.


different than the parent), depreciation and amortization must be translated using average

rates.

C. If an organization is considered an integrated foreign subsidiary (i.e., the functional currency of

the foreign operation is different than the parent), depreciation and amortization must be

translated using historical rates.


the foreign operation is the same as the parent), depreciation and amortization must be


AniketHighlight

15. Which of the following statements is correct with respect to the translation of cost of sales in an

integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as

the parent)?

A. Opening inventory is translated using an average rate.

B. Opening inventory is translated using closing rates.

C. Ending inventory is translated using an average rate.

D. Ending inventory is translated using the rate in effect when the inventory was acquired.

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles,

California, which was acquired January 1, 2017. US1 submitted its financial statements for 2017 to

ABC. Selected exchange rates in effect throughout 2017 are shown below:

January 1, 2017: US $1 = CDN $0.815 December 31, 2017: US $1 = CDN $0.8175 Average for 2017: US $1 = CDN $0.825 Date of Purchase of Inventory on Hand: US $1 = CDN $0.83 Date Dividends were declared: US $1 = CDN $0.8125

US1 financial results for 2017 were as follows:

US1 Financial Statements

at December 31, 2017

(in U.S. dollars)

Income Statement:

Sales $5,000,000

Cost of Sales $3,500,000 Depreciation Expense $150,000 Bond Interest Expense $100,000 Other Expense $750,000 Net Income $500,000

Statement of Retained Earnings:

January 1, 2017: $400,000 Net Income $500,000 Dividends ($100,000) December 31, 2017: $800,000

Balance Sheet

Cash $1,200,000 Accounts Receivable $1,900,000 Inventory $700,000 ($500,000 January 1, 2017) Plant and Equipment (net) $400,000

$4,200,000

Current Liabilities $400,000 Bonds Payable $2,000,000 Common Shares $1,000,000 Retained Earnings $800,000

$4,200,000

US1 is considered to be a self-sustaining subsidiary (i.e., the functional currency of the foreign

operation is different than the parent).

16. Which of the following rates would be used to translate the company's income statement items?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

17. Which of the following rates would be used to translate the company's Retained Earnings at the

start of the year?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

18. Which of the following rates would be used to translate the company's Dividends paid during the

year?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8125

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

19. Which of the following rates would be used to translate the company's Assets and Liabilities?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

20. Which of the following rates would be used to translate the company's Common Shares?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

21. What is the amount of the gain or loss arising from translation?

A. A CDN$5,000 loss.

B. A CDN$750 loss.

C. A CDN$307 loss.

D. A CDN$3,750 gain.





US1 Financial Results for 2017 were as follows:

US1 Financial Statements,

December 31, 2017

(in U.S. dollars)

Income Statement:

Sales $5,000,000




Balance Sheet


$4,200,000


$4,200,000

US1 is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign

operation is the same as the parent).

22. Which of the following rates would be used to translate the company's sales?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = $0.83 CDN

23. If the company had no capital asset additions or disposals in 2017, which of the following rates

would be used to translate the company's depreciation expense for the year?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

24. If the bonds were outstanding throughout the year, which of the following rates would be used to

translate the company's bond interest expense for the year?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

25. Which of the following rates would be used to translate the company's other expenses?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

AniketHighlight

26. Which of the following rates would be used to translate the company's beginning retained

earnings?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

27. Which of the following rates would be used to translate the company's dividends?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8125

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

28. Which of the following rates would be used to translate the company's cash?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

29. Which of the following rates would be used to translate the company's accounts receivable?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

30. Which of the following rates would be used to translate the company's inventory?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

31. If there were no additions or disposals of plant and equipment in 2017, which of the following

rates would be used to translate the company's plant and equipment?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

32. Which of the following rates would be used to translate the company's current liabilities?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

33. Which of the following rates would be used to translate the company's bonds payable?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

34. Which of the following rates would be used to translate the company's common shares?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

35. For the sake of simplicity, assume once again that US1's cost of sales was calculated to be

CDN$3,000,000. What is the amount (in Canadian dollars) of US1's net income?

A. $300,000.

B. $301,500.

C. $302,500.

D. $412,500.


CDN$3,000,000. What is the amount (in Canadian dollars) of US1's retained earnings at

December 31, 2017?

A. $545,000.

B. $546,250.

C. $547,250.

D. $660,000.


A. If a foreign currency weakens with respect to the Canadian dollar, both self-sustaining and

integrated foreign subsidiaries will show a foreign exchange gain.

B. If a foreign currency weakens with respect to the Canadian dollar, both self-sustaining and

integrated foreign subsidiaries will show a foreign exchange loss.

C. If a foreign currency weakens with respect to the Canadian dollar, a self-sustaining subsidiary

will show a foreign exchange gain while an integrated foreign subsidiary will show a foreign

exchange loss.

D. If a foreign currency weakens with respect to the Canadian dollar, a self-sustaining subsidiary

will show a foreign exchange loss while an integrated foreign subsidiary will show a foreign

exchange gain.

38. Which of the following statements is FALSE?

A. If a subsidiary is self-sustaining, the method of valuation of assets and liabilities is of no

consequence in the translation because all of the assets are translated at the closing rate.

B. If a subsidiary is an integrated foreign subsidiary, the method of valuation of assets and

liabilities is of no consequence in the translation because all of the assets are translated at the

closing rate.

C. If a subsidiary is an integrated foreign subsidiary, a write-down to market may be required in

the translated financial statements.

D. If a subsidiary is an integrated foreign subsidiary, no write-down is required in the foreign

currency financial statements.

39. According to IAS 29 Financial Reporting in Hyperinflationary Economies, the term "hyper-

inflationary" means:

A. an annual inflation rate of 50%.

B. an annual inflation rate of 100%.

C. a cumulative inflation rate of 100% over a 3-5 year period.

D. it does not establish an absolute rate which is deemed to be hyper-inflation.

40. Which of the following is an indication that the functional currency of a foreign subsidiary is not

the Canadian dollar?

A. Only goods imported from the parent are sold by the subsidiary.

B. The parent dictates the subsidiary's operating procedures.

C. Cash to pay obligations is generated by local operations or borrowed from local lenders.

D. Intercompany transactions account for a high proportion of the subsidiary's overall activities.

Maker Ltd., an American company, acquired US$200,000 of capital assets on January 1, 2015, when

the company was established. These assets were being amortized over 10 years on a straight-line

basis, with no significant residual value expected. On January 1, 2016, Holdings Inc., a Canadian

company with no capital assets of its own, acquired 100% of the outstanding shares of Maker.

US$40,000 of the acquisition differential was allocated to the capital assets, which had eight years

remaining economic life on the acquisition date.

On March 1, 2017, Maker acquired a further $80,000 of capital assets, which had an estimated useful

life of eight years from that date.

Exchange rates for the period from January 1, 2015 to December 31, 2017 were:

January 1, 2015 US $1.00 = CDN $1.05 January 1, 2016 US $1.00 = CDN $1.06 Average for 2016 US $1.00 = CDN $1.0625 December 31, 2016 US $1.00 = CDN $1.065 March 1, 2017 US $1.00 = CDN $1.068 Average for 2017 US $1.00 = CDN $1.07 December 31, 2017 US $1.00 = CDN $1.075

41. If Maker is considered to be a self-sustaining foreign subsidiary (i.e., the functional currency of

the foreign operation is different than the parent), what amount will be shown for capital assets

(net) on its translated Canadian dollar financial statements as at December 31, 2016?

A. $168,000.

B. $169,600.

C. $170,000.

D. $170,400.




A. $212,500.

B. $224,430.

C. $225,830.

D. $228,438.


the foreign operation is different than the parent), what amount will be shown for amortization

expense on its translated Canadian dollar financial statements as at December 31, 2016?

A. $20,000.

B. $21,000.

C. $21,200.

D. $21,250.




A. $27,500.

B. $29,010.

C. $29,210.

D. $29,425.

45. If Maker is considered to be an integrated foreign subsidiary (i.e., the functional currency of the

foreign operation is the same as the parent), what amount will be shown for capital assets (net)

on its translated Canadian dollar financial statements as at December 31, 2016?

A. $168,000.

B. $169,600.

C. $170,000.

D. $170,400.


foreign operation is the same as the parent), what amount will be shown for capital assets (net)


A. $212,500.

B. $224,430.

C. $225,830.

D. $228,438.


foreign operation is the same as the parent), what amount will be shown for amortization expense


A. $20,000.

B. $21,000.

C. $21,200.

D. $21,250.


foreign operation is the same as the parent), what amount will be shown for amortization expense

on Holdings consolidated income statements for the year ended on December 31, 2017?

A. $27,500.

B. $29,010.

C. $29,210.

D. $29,425.




A. $32,500.

B. $34,510.

C. $34,775.

D. $34,938.

50. A foreign subsidiary is considered to be an integrated foreign operation (i.e., the functional

currency of the foreign operation is the same as the parent), and its income is earned evenly over

the year. It paid its income taxes for the year in two instalments, half on June 30 and half on

December 31. What rate(s) should be used to translate the company's income tax expense into

Canadian dollars when preparing translated financial statements for the year?

A. Half at the rate at June 30 and half at the rate at December 31.

B. All at the average rate for the year.

C. All at the closing rate for the year.

D. All at the opening rate for the year.

On December 31, 2016, Hilman Enterprises of Montreal paid $12,000,000 for 100% of the

outstanding shares of Wilsen Corp of the United States. Wilsen's fair values approximated its

book values on that date.

Wilsen's comparative balance sheets for 2016 and 2017 are shown below:

Balance Sheet as at

December 31 (in U.S. Dollars)

2017 2016

Current Monetary Assets $8,000,000 $7,500,000 Inventory $2,000,000 $3,000,000 Plant and Equipment (Net) $1,500,000 $1,800,000 Total Assets $11,500,000 $12,300,000

Current Liabilities $1,100,000 $2,300,000 Bonds Payable (due Dec 31, 2022) $5,000,000 $5,000,000 Common Shares $4,000,000 $4,000,000 Retained Earnings $1,400,000 $1,000,000 Total Liabilities and Equity $11,500,000 $12,300,000

Income Statement for

the Year ended

December 31, 2017

Sales $5,200,000

Inventory, January 1, 2017 $3,000,000 Purchases $3,000,000 Inventory, December 31, 2017 ($2,000,000) Depreciation Expense $300,000 Other Expenses $400,000

$4,700,000

Net Income $500,000

Other Information:

Exchange Rates:

December 31, 2016: US $1 = CDN $1.1850 September 30, 2017: US $1 = CDN $1.1975 December 31, 2017: US $1 = CDN $1.20 Average for 2017: US $1 = CDN $1.19

Wilsen paid US$100,000 in dividends on September 30, 2017.The inventories on hand at the end

of 2017 were purchased when the exchange rate was US$1 = CDN$1.195.

51. Compute Wilsen's exchange gain or loss for 2017 if Wilson is considered to be an integrated

subsidiary (i.e., the functional currency of the foreign operation is the same as the parent).

52. Translate Wilsen's 2014 Income Statement if Wilsen is considered to be an integrated subsidiary

(i.e., the functional currency of the foreign operation is the same as the parent).

53. Translate Wilsen's December 31, 2017 Statement of Retained Earnings if Wilsen is considered to

be an integrated subsidiary (i.e., the functional currency of the foreign operation is the same as

the parent).

54. Translate Wilsen's December 31, 2017 Balance Sheet if Wilsen is considered to be an integrated

foreign operation (i.e., the functional currency of the foreign operation is the same as the parent).

55. Calculate the exchange gain or loss that would result from the translation of Wilsen's Financial

Statements if Wilsen was considered to be a self-sustaining foreign operation (i.e., the functional

currency of the foreign operation is different than the parent).

56. Translate Wilsen's 2017 Income Statement if Wilsen was considered to be a self-sustaining

foreign operation (i.e., the functional currency of the foreign operation is different than the

parent).

57. Translate Wilsen's December 31, 2017 Statement of Retained Earnings if Wilsen was considered

to be a self-sustaining foreign operation (i.e., the functional currency of the foreign operation is

different than the parent).

58. Translate Wilsen's December 31, 2017 Balance Sheet if Wilsen was considered to be a self-

sustaining foreign operation (i.e., the functional currency of the foreign operation is different than

the parent).

On January 1, 2017, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an

American company, for US$50,000.

Martin's book values approximated its fair values on that date except for plant and equipment,

which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill

impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is

shown below (in U.S. dollars):

Current Monetary Assets $50,000 Inventory $40,000 Plant and Equipment $25,000 Total Assets $115,000

Current Liabilities $45,000 Bonds Payable (maturity: January 1, 2022) $20,000 Common Shares $30,000 Retained Earnings $20,000 Total Liabilities and Equity $115,000

The following exchange rates were in effect during 2017:

January 1, 2017: US $1 = CDN $1.3250 Average for 2017: US $1 = CDN $1.3350 Date when Inventory Purchased: US $1 = CDN $1.34 December 31, 2017: US $1 = CDN $1.35

Dividends declared and paid December 31, 2017.

The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown

below:

Balance Sheets

Larmer Martin

Current Monetary Assets $42,050 $65,000 Inventory $60,000 $50,000 Plant and Equipment $23,500 $20,000 Investment in Martin (at Cost) $66,250 - Assets $191,800 $135,000

Current Liabilities $50,000 $48,000 Bonds Payable (maturity: January 1, 2022) $35,000 $20,000 Common Shares $60,000 $30,000 Retained Earnings $30,000 $20,000 Net Income $28,800 $27,000 Dividends ($12,000) ($10,000) Liabilities and Equity $191,800 $135,000

Income Statements Larmer Martin Sales $80,000 $50,000 Dividend Income $10,800 - Cost of Sales ($40,000) ($15,000) Depreciation ($10,000) ($5,000) Other expenses ($12,000) ($3,000) Net Income $28,800 $27,000

59. Compute Martin's exchange gain or loss for 2017 if Martin is considered to be an integrated

foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the

parent).

60. Translate Martin's 2017 Income Statement into Canadian dollars if Martin is considered to be an

integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as

the parent).

61. Translate Martin's December 31, 2017 Balance Sheet into Canadian dollars if Martin is

considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign


62. Prepare Larmer's December 31, 2017 Consolidated Balance Sheet if Martin is considered to be

an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same

as the parent).

63. Compute Martin's exchange gain or loss for 2017 if Martin is considered to be a self-sustaining

foreign subsidiary (i.e., the functional currency of the foreign operation is different than the

parent).

64. Translate Martin's 2017 Income Statement into Canadian dollars if Martin is considered to be a

self-sustaining foreign subsidiary (i.e., the functional currency of the foreign operation is different

than the parent).

65. Calculate Larmer's Consolidated Net Income for 2017 if Martin is considered to be a self-

sustaining foreign subsidiary (i.e., the functional currency of the foreign operation is different than

the parent).

Chapter 11 Key

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

Blooms: 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.


Blooms: Knowledge

Difficulty: Easy

Gradable: automatic


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.


Blooms: Knowledge

Difficulty: Easy

Gradable: automatic




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.


Blooms: Knowledge

Difficulty: Easy

Gradable: automatic


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.


Blooms: Knowledge

Difficulty: Easy

Gradable: automatic


Learning Objective: 11-01 Contrast an enterprises 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:




D. business risk.


Blooms: Knowledge

Difficulty: Easy

Gradable: automatic




Topic: 11-01 Accounting Exposure Versus Economic Exposure

Topic: 11-02 Translation (Accounting) Exposure

Topic: 11-03 Transaction 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:




D. business risk.


Blooms: Knowledge

Difficulty: Easy

Gradable: automatic








8. The risk exposure that occurs between the time of entering into a transaction and the time of

settling it is referred to as:




D. business risk.


Blooms: Knowledge

Difficulty: Easy

Gradable: automatic











historical rates.



average rates.



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.


Blooms: Knowledge

Difficulty: Easy

Gradable: automatic




Topic: 11-13 Example

Topic: 11-14 Comparative Observations of the Two Translation Methods



different than the parent), monetary items must be translated using closing rates.


different than the parent), monetary items must be translated using average rates.


different than the parent), shareholders' equity must be translated using closing rates.



at cost must be translated using average rates.


Blooms: Knowledge

Difficulty: Easy

Gradable: automatic








different than the parent), non-monetary items recorded at closing values must be







translated using historical rates.



at closing values must be translated using average rates.


Blooms: Knowledge

Difficulty: Easy

Gradable: automatic








different than the parent), contributed capital must be translated using closing rates.


different than the parent), contributed capital must be translated using average rates.


different than the parent), contributed capital must be translated using historical rates.


currency of the foreign operation is the same as the parent), contributed capital must be



Blooms: Knowledge

Difficulty: Easy

Gradable: automatic








different than the parent), dividends must be translated using closing rates.


different than the parent), dividends must be translated using average rates.


different than the parent), dividends must be translated using historical rates.


currency of the foreign operation is the same as the parent), dividends must be translated

using average rates.


Blooms: Knowledge

Difficulty: Easy

Gradable: automatic








different than the parent), depreciation and amortization must be translated using closing

rates.


different than the parent), depreciation and amortization must be translated using average

rates.

C. If an organization is considered an integrated foreign subsidiary (i.e., the functional

currency of the foreign operation is different than the parent), depreciation and amortization

must be translated using historical rates.


currency of the foreign operation is the same as the parent), depreciation and amortization

must be translated using closing rates.


Blooms: Knowledge

Difficulty: Easy

Gradable: automatic






15. Which of the following statements is correct with respect to the translation of cost of sales in

an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the

same as the parent)?

A. Opening inventory is translated using an average rate.

B. Opening inventory is translated using closing rates.

C. Ending inventory is translated using an average rate.

D. Ending inventory is translated using the rate in effect when the inventory was acquired.


Blooms: Knowledge

Difficulty: Easy

Gradable: automatic




Topic: 11-10 Example D





US1 financial results for 2017 were as follows:

US1 Financial Statements

at December 31, 2017

(in U.S. dollars)

Income Statement:

Sales $5,000,000




Balance Sheet


$4,200,000


$4,200,000

US1 is considered to be a self-sustaining subsidiary (i.e., the functional currency of the foreign


Hilton - Chapter 11

16. Which of the following rates would be used to translate the company's income statement

items?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

Translate income statement items at the average exchange rate for the year (US$1 =

CDN$0.825).

Blooms: Comprehension

Difficulty: Easy

Gradable: automatic






AniketHighlight

17. Which of the following rates would be used to translate the company's Retained Earnings at

the start of the year?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

Translate opening Retained Earnings at the spot exchange rate at the beginning of the year

(US$1 = CDN$0.815).


Difficulty: Easy

Gradable: automatic






18. Which of the following rates would be used to translate the company's Dividends paid during

the year?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8125

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83


Difficulty: Easy

Gradable: automatic






19. Which of the following rates would be used to translate the company's Assets and Liabilities?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83


Difficulty: Easy

Gradable: automatic






20. Which of the following rates would be used to translate the company's Common Shares?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83


Difficulty: Easy

Gradable: automatic






21. What is the amount of the gain or loss arising from translation?

A. A CDN$5,000 loss.

B. A CDN$750 loss.

C. A CDN$307 loss.

D. A CDN$3,750 gain.

Blooms: Application

Difficulty: Moderate

Gradable: automatic






AniketHighlight





US1 Financial Results for 2017 were as follows:

US1 Financial Statements,

December 31, 2017

(in U.S. dollars)

Income Statement:

Sales $5,000,000




Balance Sheet


$4,200,000


$4,200,000

US1 is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign


Hilton - Chapter 11

22. Which of the following rates would be used to translate the company's sales?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = $0.83 CDN

Translate sales at the average exchange rate for the year (US$1 = CDN$0.825).



Gradable: automatic






23. If the company had no capital asset additions or disposals in 2017, which of the following rates

would be used to translate the company's depreciation expense for the year?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

Translate depreciation expense (assuming no capital asset additions during current year) at

the historical acquisition date exchange rate (US$1 = CDN$0.815).

Blooms: Application


Gradable: automatic






24. If the bonds were outstanding throughout the year, which of the following rates would be used

to translate the company's bond interest expense for the year?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

Translate bond interest expense at the average exchange rate for the year (US$1 =

CDN$0.825).

Blooms: Application


Gradable: automatic






25. Which of the following rates would be used to translate the company's other expenses?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

Translate other expenses at the average exchange rate for the year (US$1 = CDN$0.825).



Gradable: automatic






26. Which of the following rates would be used to translate the company's beginning retained

earnings?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

Translate beginning retained earnings at the opening exchange rate for the year (US$1 =

CDN$0.815).

Blooms: Application


Gradable: automatic






27. Which of the following rates would be used to translate the company's dividends?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8125

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

Translate the dividends at the declaration date exchange rate (US$1 = CDN$0.8125).

Blooms: Application


Gradable: automatic






28. Which of the following rates would be used to translate the company's cash?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

Translate the cash at the closing exchange rate (US$1 = CDN$0.8175).



Gradable: automatic






29. Which of the following rates would be used to translate the company's accounts receivable?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

Translate the accounts receivable at the closing exchange rate (US$1 = CDN$0.8175).



Gradable: automatic




30. Which of the following rates would be used to translate the company's inventory?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

Translate the inventory at the historical acquisition date exchange rate in effect when the

inventory was purchased (US$1 = CDN$0.83).

Blooms: Application


Gradable: automatic






31. If there were no additions or disposals of plant and equipment in 2017, which of the following

rates would be used to translate the company's plant and equipment?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

Translate the plant and equipment asset (assuming no capital asset additions during current

year) at the historical acquisition date exchange rate (US$1 = CDN$0.815).

Blooms: Application


Gradable: automatic




32. Which of the following rates would be used to translate the company's current liabilities?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

Translate the current liabilities at the closing exchange rate (US$1 = CDN$0.8175).



Gradable: automatic






33. Which of the following rates would be used to translate the company's bonds payable?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

Translate the bonds payable at the closing exchange rate (US$1 = CDN$0.8175).



Gradable: automatic






34. Which of the following rates would be used to translate the company's common shares?

A. US$1 = CDN$0.815

B. US$1 = CDN$0.8175

C. US$1 = CDN$0.825

D. US$1 = CDN$0.83

Translate the common shares at the historical acquisition date exchange rate (US$1 =

CDN$0.815).



Gradable: automatic







CDN$3,000,000. What is the amount (in Canadian dollars) of US1's net income?

A. $300,000.

B. $301,500.

C. $302,500.

D. $412,500.

Blooms: Application


Gradable: automatic







CDN$3,000,000. What is the amount (in Canadian dollars) of US1's retained earnings at

December 31, 2017?

A. $545,000.

B. $546,250.

C. $547,250.

D. $660,000.

Blooms: Application


Gradable: automatic







A. If a foreign currency weakens with respect to the Canadian dollar, both self-sustaining and

integrated foreign subsidiaries will show a foreign exchange gain.

B. If a foreign currency weakens with respect to the Canadian dollar, both self-sustaining and

integrated foreign subsidiaries will show a foreign exchange loss.

C. If a foreign currency weakens with respect to the Canadian dollar, a self-sustaining

subsidiary will show a foreign exchange gain while an integrated foreign subsidiary will

show a foreign exchange loss.

D. If a foreign currency weakens with respect to the Canadian dollar, a self-sustaining

subsidiary will show a foreign exchange loss while an integrated foreign subsidiary will

show a foreign exchange gain.




Gradable: automatic




38. Which of the following statements is FALSE?

A. If a subsidiary is self-sustaining, the method of valuation of assets and liabilities is of no

consequence in the translation because all of the assets are translated at the closing rate.

B. If a subsidiary is an integrated foreign subsidiary, the method of valuation of assets and

liabilities is of no consequence in the translation because all of the assets are translated at

the closing rate.

C. If a subsidiary is an integrated foreign subsidiary, a write-down to market may be required

in the translated financial statements.

D. If a subsidiary is an integrated foreign subsidiary, no write-down is required in the foreign

currency financial statements.




Gradable: automatic




39. According to IAS 29 Financial Reporting in Hyperinflationary Economies, the term "hyper-

inflationary" means:

A. an annual inflation rate of 50%.

B. an annual inflation rate of 100%.

C. a cumulative inflation rate of 100% over a 3-5 year period.

D. it does not establish an absolute rate which is deemed to be hyper-inflation.


Blooms: Knowledge


Gradable: automatic


Learning Objective: 11-07 (Appendix 11A) Prepare translated financial statements for foreign operations in a highly inflationary environment.

Topic: 11-29 Translation in Highly Inflationary Economies

40. Which of the following is an indication that the functional currency of a foreign subsidiary is not

the Canadian dollar?

A. Only goods imported from the parent are sold by the subsidiary.

B. The parent dictates the subsidiary's operating procedures.

C. Cash to pay obligations is generated by local operations or borrowed from local lenders.

D. Intercompany transactions account for a high proportion of the subsidiary's overall

activities.


Blooms: Knowledge

Difficulty: Easy

Gradable: automatic


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

Maker Ltd., an American company, acquired US$200,000 of capital assets on January 1, 2015, when

the company was established. These assets were being amortized over 10 years on a straight-line

basis, with no significant residual value expected. On January 1, 2016, Holdings Inc., a Canadian

company with no capital assets of its own, acquired 100% of the outstanding shares of Maker.

US$40,000 of the acquisition differential was allocated to the capital assets, which had eight years

remaining economic life on the acquisition date.

On March 1, 2017, Maker acquired a further $80,000 of capital assets, which had an estimated useful

life of eight years from that date.

Exchange rates for the period from January 1, 2015 to December 31, 2017 were:

January 1, 2015 US $1.00 = CDN $1.05 January 1, 2016 US $1.00 = CDN $1.06 Average for 2016 US $1.00 = CDN $1.0625 December 31, 2016 US $1.00 = CDN $1.065 March 1, 2017 US $1.00 = CDN $1.068 Average for 2017 US $1.00 = CDN $1.07 December 31, 2017 US $1.00 = CDN $1.075

Hilton - Chapter 11




A. $168,000.

B. $169,600.

C. $170,000.

D. $170,400.

calculation of translated capital assets (net) on Dec.31,2016:(self-sustaining operations use

the presentation currency translation (PCT) method)

Blooms: Application


Gradable: automatic









A. $212,500.

B. $224,430.

C. $225,830.

D. $228,438.

Blooms: Application


Gradable: automatic









A. $20,000.

B. $21,000.

C. $21,200.

D. $21,250.

calculation of translated amortization expense on capital assets (net) for year ended

Dec.31,2016:(self-sustaining operations use the presentation currency translation (PCT)

method; revenues/expenses translated at average exchange rate for year assuming incurred

evenly throughout the year)

Blooms: Application


Gradable: automatic









A. $27,500.

B. $29,010.

C. $29,210.

D. $29,425.

Blooms: Application


Gradable: automatic






45. If Maker is considered to be an integrated foreign subsidiary (i.e., the functional currency of

the foreign operation is the same as the parent), what amount will be shown for capital assets


A. $168,000.

B. $169,600.

C. $170,000.

D. $170,400.

Blooms: Application


Gradable: automatic





the foreign operation is the same as the parent), what amount will be shown for capital assets


A. $212,500.

B. $224,430.

C. $225,830.

D. $228,438.

Blooms: Application


Gradable: automatic





the foreign operation is the same as the parent), what amount will be shown for amortization


A. $20,000.

B. $21,000.

C. $21,200.

D. $21,250.

Blooms: Application


Gradable: automatic





the foreign operation is the same as the parent), what amount will be shown for amortization

expense on Holdings consolidated income statements for the year ended on December 31,

2017?

A. $27,500.

B. $29,010.

C. $29,210.

D. $29,425.

Blooms: Application


Gradable: automatic







A. $32,500.

B. $34,510.

C. $34,775.

D. $34,938.

Blooms: Application


Gradable: automatic






50. A foreign subsidiary is considered to be an integrated foreign operation (i.e., the functional

currency of the foreign operation is the same as the parent), and its income is earned evenly

over the year. It paid its income taxes for the year in two instalments, half on June 30 and half

on December 31. What rate(s) should be used to translate the company's income tax expense

into Canadian dollars when preparing translated financial statements for the year?

A. Half at the rate at June 30 and half at the rate at December 31.

B. All at the average rate for the year.

C. All at the closing rate for the year.

D. All at the opening rate for the year.



Gradable: automatic




On December 31, 2016, Hilman Enterprises of Montreal paid $12,000,000 for 100% of the

outstanding shares of Wilsen Corp of the United States. Wilsen's fair values approximated its

book values on that date.

Wilsen's comparative balance sheets for 2016 and 2017 are shown below:

Balance Sheet as at

December 31 (in U.S. Dollars)

2017 2016

Current Monetary Assets $8,000,000 $7,500,000 Inventory $2,000,000 $3,000,000 Plant and Equipment (Net) $1,500,000 $1,800,000 Total Assets $11,500,000 $12,300,000

Current Liabilities $1,100,000 $2,300,000 Bonds Payable (due Dec 31, 2022) $5,000,000 $5,000,000 Common Shares $4,000,000 $4,000,000 Retained Earnings $1,400,000 $1,000,000 Total Liabilities and Equity $11,500,000 $12,300,000

Income Statement for

the Year ended

December 31, 2017

Sales $5,200,000

Inventory, January 1, 2017 $3,000,000 Purchases $3,000,000 Inventory, December 31, 2017 ($2,000,000) Depreciation Expense $300,000 Other Expenses $400,000

$4,700,000

Net Income $500,000

Other Information:

Exchange Rates:

December 31, 2016: US $1 = CDN $1.1850 September 30, 2017: US $1 = CDN $1.1975 December 31, 2017: US $1 = CDN $1.20 Average for 2017: US $1 = CDN $1.19

Wilsen paid US$100,000 in dividends on September 30, 2017.The inventories on hand at the

end of 2017 were purchased when the exchange rate was US$1 = CDN$1.195.

Hilton - Chapter 11

51. Compute Wilsen's exchange gain or loss for 2017 if Wilson is considered to be an integrated


U.S. Dollars

CDN Dollars

Balance, Jan 1, 2016

($7,500 - $2,300 - $5,000) $200,000 x 1.185 $237,000

Changes - 2017

Sales $5,200,000 x 1.19 $6,188,000 Purchases ($3,000,000) x 1.19 ($3,570,000) Other Expenses ($400,000) x 1.19 ($476,000) Dividends ($100,000) x 1.1975 ($119,750)

Calculated Monetary Position:

$2,259,250

Actual Position, Dec 31, 2017

($8,000 - $1,100 - $5,000) $1,900,000 x 1.20 $2,280,000

Exchange Gain - 2017

$20,750


Gradable: manual




52. Translate Wilsen's 2014 Income Statement if Wilsen is considered to be an integrated


U.S. Dollars

CDN Dollars Sales $5,200,000 x 1.19 $6,188,000

Inventory, January 1, 2017 $3,000,000 x 1.185 $3,555,000 Purchases $3,000,000 x 1.19 $3,570,000 Inventory, December 31, 2017 ($2,000,000) x 1.195 ($2,390,000) Depreciation Expense $300,000 x 1.185 $355,500 Exchange Gain

($20,750) Other Expenses $400,000 x 1.19 $476,000

$4,700,000

$5,545,750

Net Income $500,000

$642,250


Gradable: manual




53. Translate Wilsen's December 31, 2017 Statement of Retained Earnings if Wilsen is

considered to be an integrated subsidiary (i.e., the functional currency of the foreign operation

is the same as the parent).

U.S. Dollars

CDN Dollars

Balance, January 1, 2017 $1,000,000 x 1.185 $1,185,000 Add: Net Income $500,000

$642,250 Less: Dividends ($100,000) x 1.1975 ($119,750)

Retained Earnings $1,400,000

$1,707,500


Gradable: manual




54. Translate Wilsen's December 31, 2017 Balance Sheet if Wilsen is considered to be an

integrated foreign operation (i.e., the functional currency of the foreign operation is the same

as the parent).

Balance Sheet as at

December 31, 2017

U.S Dollars

CDN Dollars Current Monetary Assets $8,000,000 x 1.20 $9,600,000 Inventory $2,000,000 x 1.195 $2,390,000 Plant and Equipment (Net) $1,500,000 x 1.1850 $1,777,500 Total Assets $11,500,000 $13,767,500

Current Liabilities $1,100,000 x 1.20 $1,320,000 Bonds Payable (due Dec 31, 2022) $5,000,000 x 1.20 $6,000,000 Common Shares $4,000,000 x 1.185 $4,740,000 Retained Earnings $1,400,000

$1,707,500 Total Liabilities and Equity $11,500,000 $13,767,500


Gradable: manual




55. Calculate the exchange gain or loss that would result from the translation of Wilsen's Financial

Statements if Wilsen was considered to be a self-sustaining foreign operation (i.e., the

functional currency of the foreign operation is different than the parent).

U.S. Dollars

CDN Dollars Net Assets, Dec 31, 2016 $5,000,000 x 1.185 $5,925,000 Net Income - 2017 $500,000 x 1.19 $595,000 Dividends - 2017 ($100,000) x 1.1975 ($119,750) Calculated Net Assets, Dec 31, 2017

$6,400,250 Actual Net Assets $5,400,000 x 1.20 $6,480,000

Exchange Gain: (Other Comprehensive Income)

$79,750


Gradable: manual






56. Translate Wilsen's 2017 Income Statement if Wilsen was considered to be a self-sustaining

foreign operation (i.e., the functional currency of the foreign operation is different than the

parent).

U.S. Dollars

CDN Dollars

Sales $5,200,000 x 1.19 $6,188,000

Inventory, January 1, 2017 $3,000,000 x 1.19 $3,570,000 Purchases $3,000,000 x 1.19 $3,570,000 Inventory, December 31, 2017 ($2,000,000) x 1.19 ($2,380,000) Depreciation Expense $300,000 x 1.19 $357,000 Other Expenses $400,000 x 1.19 $476,000

$4,700,000

$5,593,000

Net Income $500,000 x 1.19 $595,000


Gradable: manual






57. Translate Wilsen's December 31, 2017 Statement of Retained Earnings if Wilsen was

considered to be a self-sustaining foreign operation (i.e., the functional currency of the foreign


U.S. Dollars

CDN Dollars

Balance, January 1, 2017 $1,000,000 x 1.185 $1,185,000

Add: Net Income $500,000

$595,000 Less: Dividends ($100,000) x 1.1975 ($119,750)

Retained Earnings $1,400,000

$1,660,250


Gradable: manual





Topic: 11-14 Comparative O

chapter 11...chapter 11 student: _____ 1. under the functional currency translation (fct) method,...

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