29 Jun Question 10. Which of the following
Question
10. Which of the following defines a foreign-based entity that uses a functional currency different from the local currency?
I. A U.S. subsidiary in Britain maintains its accounting records in pounds sterling, with the majority of its transactions denominated in pounds sterling.
II. A U.S. subsidiary in Peru conducts virtually all of its business in Latin America, and uses the U.S. dollar as its major currency.
A. I.
B. II.
C. Both I and II.
D. Neither I nor II.
11. When the local currency of the foreign subsidiary is the functional currency, a foreign subsidiary’s inventory carried at cost would be converted to U.S. dollars by:
A. translation using historical exchange rates.
B. remeasurement using historical exchange rates.
C. remeasurement using the current exchange rate.
D. translation using the current exchange rate.
12. When the local currency of the foreign subsidiary is the functional currency, a foreign subsidiary’s income statement accounts would be converted to U.S. dollars by:
A. translation using historical exchange rates.
B. remeasurement using current exchange rates at the time of statement preparation.
C. translation using average exchange rate for the period.
D. remeasurement using the current exchange rate at the time of statement preparation.
13. If the restatement method for a foreign subsidiary involves remeasuring from the local currency into the functional currency, then translating from functional currency to U.S. dollars, the functional currency of the subsidiary is:
I. U.S. dollar.
II. Local currency unit.
III. A third country’s currency.
A. I
B. III
C. II
D. Either I or II
14. If the U.S. dollar is the currency in which the foreign affiliate’s books and records are maintained, and the U.S. dollar is also the functional currency,
A. the translation method should be used for restatement.
B. the remeasurement method should be used for restatement.
C. either translation or remeasurement could be used for restatement.
D. no restatement is required.
15. All of the following stockholders’ equity accounts of a foreign subsidiary are translated at historical exchange rates except:
A. retained earnings.
B. common stock.
C. additional paid-in capital.
D. preferred stock.
16. Dividends of a foreign subsidiary are translated at:
A. the average exchange rate for the year.
B. the exchange rate on the date of declaration.
C. the current exchange rate on the date of preparation of the financial statement.
D. the exchange rate on the record date.
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