ACCT 370: Chapter 18 Test Questions
and Answers 2026-2027 Update.
A controlled subsidiary which has financial statements expressed in a foreign currency
complicates the consolidation process because - Answer its financial statements have to be
transformed into the parent's currency before consolidation can begin.
Foreign subsidiaries that have self-contained foreign operations and are freestanding units must
be ______ using the ______. - Answer translated; current rate method
Which of the following are true of a subsidiary's functional currency? - Answer - The functional
currency determination is a management judgment.
- The functional currency is the currency that the subsidiary effectively operates.
- The functional currency is used to determine which method is used to transform a subsidiary's
financial statements.
Which of the following are accurate regarding the recognition and de-recognition of assets and
liabilities with the current rate method? - Answer - New assets and liabilities are recognized
using the current rate at the time of the transaction.
- Existing assets and liabilities are de-recognized using the current rate at the time of de-
recognition.
Under the current rate method, the exchange rate used to convert the revenue or expense
amount in the income statement - Answer - is the exchange rate in effect when the
transaction occurred.
- is the same as the exchange rate used in the corresponding change in net assets.
Which of the following are methods used to transform a subsidiary's foreign currency financial
statements into the parent's currency? - Answer - Temporal method
- Current rate method
Under the current rate method, all assets and liabilities are revalued in U.S. dollar terms -
Answer when exchange rates change.
Foreign subsidiaries that are not self-sufficient and are simply extensions of the parent must be
______ using the ______. - Answer remeasured; temporal method
, True or false: Translating stockholders' equity using the current rate method consists of
translating each component of stockholder's equity at the current exchange rate. - Answer
False
Reasoning: Each component of stockholders' equity is not simply the local currency amount
times the current exchange rate.
The functional currency of a freestanding foreign subsidiary is - Answer the local currency.
Which of the following would make it permissible to use the average exchange rate to translate
income statement accounts rather than translating each transaction separately? - Answer -
When the income statement is comprised of many similar transactions spread over a period.
- When using the average exchange rate would not differ materially from translating each
transaction separately.
All of the foreign subsidiary's assets and liabilities are revalued in U.S. dollars over time and the
resulting gain or loss is - Answer recognized in other comprehensive income.
Translation exposure - Answer is equal to net assets in the local currency under the current
rate method.
Under the current rate method, when inventory is sold, the exchange rate used to determine
the amount of the de-recognition of inventory is ______ the exchange rate used to recognize
the cost of goods sold expense. - Answer the same as
The amount of gain or loss that arises over a period relates to the - Answer - level of
translation exposure.
- exchange rate changes.
Under the current rate method, which accounts are revalued in U.S. dollar terms when the
exchange rate changes? - Answer All assets and liabilities
Bater Industries had a translation exposure of 550,000 pesos on December 1, 20X1. The
exchange rate on that date was $0.052. At the end of the month, the exchange rate was $0.055.
The average exchange rate for the month was $0.054. What was the amount of the translation
adjustment for the month? - Answer $1,650
Which of the following are true of translating stockholders' equity? - Answer - Paid-in capital
amounts are not revalued.
- Accumulated other comprehensive income will balance the translated balance sheet.
and Answers 2026-2027 Update.
A controlled subsidiary which has financial statements expressed in a foreign currency
complicates the consolidation process because - Answer its financial statements have to be
transformed into the parent's currency before consolidation can begin.
Foreign subsidiaries that have self-contained foreign operations and are freestanding units must
be ______ using the ______. - Answer translated; current rate method
Which of the following are true of a subsidiary's functional currency? - Answer - The functional
currency determination is a management judgment.
- The functional currency is the currency that the subsidiary effectively operates.
- The functional currency is used to determine which method is used to transform a subsidiary's
financial statements.
Which of the following are accurate regarding the recognition and de-recognition of assets and
liabilities with the current rate method? - Answer - New assets and liabilities are recognized
using the current rate at the time of the transaction.
- Existing assets and liabilities are de-recognized using the current rate at the time of de-
recognition.
Under the current rate method, the exchange rate used to convert the revenue or expense
amount in the income statement - Answer - is the exchange rate in effect when the
transaction occurred.
- is the same as the exchange rate used in the corresponding change in net assets.
Which of the following are methods used to transform a subsidiary's foreign currency financial
statements into the parent's currency? - Answer - Temporal method
- Current rate method
Under the current rate method, all assets and liabilities are revalued in U.S. dollar terms -
Answer when exchange rates change.
Foreign subsidiaries that are not self-sufficient and are simply extensions of the parent must be
______ using the ______. - Answer remeasured; temporal method
, True or false: Translating stockholders' equity using the current rate method consists of
translating each component of stockholder's equity at the current exchange rate. - Answer
False
Reasoning: Each component of stockholders' equity is not simply the local currency amount
times the current exchange rate.
The functional currency of a freestanding foreign subsidiary is - Answer the local currency.
Which of the following would make it permissible to use the average exchange rate to translate
income statement accounts rather than translating each transaction separately? - Answer -
When the income statement is comprised of many similar transactions spread over a period.
- When using the average exchange rate would not differ materially from translating each
transaction separately.
All of the foreign subsidiary's assets and liabilities are revalued in U.S. dollars over time and the
resulting gain or loss is - Answer recognized in other comprehensive income.
Translation exposure - Answer is equal to net assets in the local currency under the current
rate method.
Under the current rate method, when inventory is sold, the exchange rate used to determine
the amount of the de-recognition of inventory is ______ the exchange rate used to recognize
the cost of goods sold expense. - Answer the same as
The amount of gain or loss that arises over a period relates to the - Answer - level of
translation exposure.
- exchange rate changes.
Under the current rate method, which accounts are revalued in U.S. dollar terms when the
exchange rate changes? - Answer All assets and liabilities
Bater Industries had a translation exposure of 550,000 pesos on December 1, 20X1. The
exchange rate on that date was $0.052. At the end of the month, the exchange rate was $0.055.
The average exchange rate for the month was $0.054. What was the amount of the translation
adjustment for the month? - Answer $1,650
Which of the following are true of translating stockholders' equity? - Answer - Paid-in capital
amounts are not revalued.
- Accumulated other comprehensive income will balance the translated balance sheet.
