ACC 501 Latest Questions with Complete Solutions
When translating foreign currency financial statements for a company whose functional
currency is the U.S. dollar, which of the following accounts is translated using historical
exchange rates?
Notes Payable - Yes or No?
Equipment - Yes or No?
Notes Payable - No
Equipment - Yes
If the functional currency is the currency of a third country (not the parent's and not the
local currency), the appropriate approach to converting the account balances into U.S.
dollars is:
a. The temporal approach
b. The current approach
c. Both approaches, with the accounts first converted into the functional currency using the
temporal approach and then into U.S. dollars using the current approach.
d. Both approaches, with the accounts first converted into the functional currency using the
current approach and then into U.S. dollars using the temporal approach.
c. Both approaches, with the accounts first converted into the functional currency using the
temporal approach and then into U.S. dollars using the current approach.
When the functional currency is identified as the U.S. dollar, land purchased by a foreign
subsidiary after the controlling interest was acquired by the parent company should be
translated using the:
,a. historical rate in effect when the land was purchased.
b. current rate in effect at the balance sheet date.
c. forward rate.
d. average exchange rate for the current period.
a. historical rate in effect when the land was purchased.
The appropriate exchange rate for translating a plant asset in the balance sheet of a foreign
subsidiary in which the functional currency is the U.S. dollar is the:
a. current exchange rate.
b. average exchange rate for the current year.
c. historical exchange rate in effect when the plant asset was acquired or the date of
acquisition, whichever is later.
d. forward rate
c. historical exchange rate in effect when the plant asset was acquired or the date of acquisition,
whichever is later.
Which of the following would be restated using the current exchange rate under the
temporal method?
a. Marketable securities carried at cost.
b. Inventory carried at market.
c. Common Stock
d. None of these
b. Inventory carried at market.
, The discount or premium on a forward contract entered into as a hedge of an exposed asset
or liability position should be:
a. included as a separate component of stockholders' equity.
b. amortized over the life of the forward contract.
c. deferred and included in the measurement of related foreign currency transaction
d. none of these
b. amortized over the life of the forward contract.
Which of the following statements is false regarding multiple acquisitions of a subsidiary's
existing common stock?
a. The parent recognizes a larger percent of subsidiary income.
b. A step acquisition resulting in control may result in a parent recognizing a gain on
revaluation.
c. The book value of the subsidiary will increase.
d. The parent's percent ownership in subsidiary will increase.
e. Noncontrolling interest in subsidiary's net income will decrease
c. The book value of the subsidiary will increase.
If a firm commitment denominated in a foreign currency is hedged with a forward
exchange contract, which of the following statements is/are correct?
I. Even though the firm commitment is hedged, a net gain or loss can be reported.
II. As a result of hedging the firm commitment, an otherwise unrecognized asset or liability
may have to be recognized.
a. I only
When translating foreign currency financial statements for a company whose functional
currency is the U.S. dollar, which of the following accounts is translated using historical
exchange rates?
Notes Payable - Yes or No?
Equipment - Yes or No?
Notes Payable - No
Equipment - Yes
If the functional currency is the currency of a third country (not the parent's and not the
local currency), the appropriate approach to converting the account balances into U.S.
dollars is:
a. The temporal approach
b. The current approach
c. Both approaches, with the accounts first converted into the functional currency using the
temporal approach and then into U.S. dollars using the current approach.
d. Both approaches, with the accounts first converted into the functional currency using the
current approach and then into U.S. dollars using the temporal approach.
c. Both approaches, with the accounts first converted into the functional currency using the
temporal approach and then into U.S. dollars using the current approach.
When the functional currency is identified as the U.S. dollar, land purchased by a foreign
subsidiary after the controlling interest was acquired by the parent company should be
translated using the:
,a. historical rate in effect when the land was purchased.
b. current rate in effect at the balance sheet date.
c. forward rate.
d. average exchange rate for the current period.
a. historical rate in effect when the land was purchased.
The appropriate exchange rate for translating a plant asset in the balance sheet of a foreign
subsidiary in which the functional currency is the U.S. dollar is the:
a. current exchange rate.
b. average exchange rate for the current year.
c. historical exchange rate in effect when the plant asset was acquired or the date of
acquisition, whichever is later.
d. forward rate
c. historical exchange rate in effect when the plant asset was acquired or the date of acquisition,
whichever is later.
Which of the following would be restated using the current exchange rate under the
temporal method?
a. Marketable securities carried at cost.
b. Inventory carried at market.
c. Common Stock
d. None of these
b. Inventory carried at market.
, The discount or premium on a forward contract entered into as a hedge of an exposed asset
or liability position should be:
a. included as a separate component of stockholders' equity.
b. amortized over the life of the forward contract.
c. deferred and included in the measurement of related foreign currency transaction
d. none of these
b. amortized over the life of the forward contract.
Which of the following statements is false regarding multiple acquisitions of a subsidiary's
existing common stock?
a. The parent recognizes a larger percent of subsidiary income.
b. A step acquisition resulting in control may result in a parent recognizing a gain on
revaluation.
c. The book value of the subsidiary will increase.
d. The parent's percent ownership in subsidiary will increase.
e. Noncontrolling interest in subsidiary's net income will decrease
c. The book value of the subsidiary will increase.
If a firm commitment denominated in a foreign currency is hedged with a forward
exchange contract, which of the following statements is/are correct?
I. Even though the firm commitment is hedged, a net gain or loss can be reported.
II. As a result of hedging the firm commitment, an otherwise unrecognized asset or liability
may have to be recognized.
a. I only
