Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
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Question
Chapter 10, Problem 19P
To determine
Identify the appropriate answer for the given statement from the given choices.
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A sale of goods by a U.S. company was denominated in a foreign currency. The sale resulted in a receivable
that was fixed in terms of the amount of foreign currency that would be received. Exchange rates between
the dollar and the foreign currency changed so that a loss was incurred. This loss should be included as a
a.
Extraordinary item in the income statement
b.
Separate component of stockholders' equity
O c.
Deferred item in the balance sheet
O d. Component of income from continuing operations
The functional currency of Bertrand, Inc.’s Irish subsidiary is the euro. Bertrand borrowed euros as a partial hedge of its investment in the subsidiary. Since then, the euro has decreased in value. Bertrand’s negative translation adjustment on its investment in the subsidiary exceeded its foreign exchange gain on its euro borrowing. How should Bertrand report the effects of the negative translation adjustment and foreign exchange gain in its consolidated financial statements? Choose the correct.a. Report the translation adjustment in accumulated other comprehensive income on the balance sheet and the foreign exchange gain as a gain on the income statement.b. Report the translation adjustment in the income statement and defer the foreign exchange gain in accumulated other comprehensive income on the balance sheet.c. Report the translation adjustment less the foreign exchange gain in accumulated other comprehensive income on the balance sheet.d. Report the translation adjustment less…
Which is the most simple way that is able to protect a U.S firm's earnings of its consolidated income statement in the depreciation of euro relative to U.S. dollar?
A.
Selling euros forward in the foreign exchange market.
B.
Partner with the local firm of the oversea market.
C.
Purchasing euros forward in the foreign exchange market.
D.
Establish a subsidiary in the oversea economy.
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- When preparing an income statement, which of the following items would most likely be classified as other comprehensive income? A. A foreign currency translation adjustment B. An unrealized gain on a security held for trading purposes C. A realized gain on a derivative contract not accounted for as a hedge D. None of the abovearrow_forwardThe foreign subsidiary of a U.S. firm is profitable when profits are measured in the foreign currency but those profits become losses when measured in U.S. dollars. This is an example of which one of the following? A. Interest rate disparities B. Short-run exposure to exchange rate risk C. Long-run exposure to exchange rate risk D. Political risk associated with the foreign operations E. Translation exposure to exchange rate riskarrow_forwardAssume that a subsidiary operated in a foreign country, keeps its accounting records in a foreign currency that captures the underlying economics of the subsidiary, and operates independently of the parent company. Which if the following is true? Translation adjustments have an immediate effect on cash flows Translation adjustments should be reflected in earnings a. No No b. No Yes c. Yes No d. Yes Yesarrow_forward
- As used in international accounting, a “hedge” is: A)a business transaction made to reduce the exposure of foreign exchange risk. B)the legal barrier between the various divisions of a multinational company. C)the loss in US$ resulting from a decline in the value of the US$ relative to foreign currencies. D)one form of foreign direct investment.arrow_forwardAssume that a U.S. company has a foreign subsidiary whose functional currency is the U.S. dollar. Explain how exchange rates between the foreign currency and the dollar would have to change in order to result in a current-year remeasurement loss and how the company could use a foreign currency loan receivable or payable to hedge against its net investment in the foreign subsidiary.arrow_forward31. How should exchange gains or losses resulting from foreign currency transactions be accounted for?a. Included as component of income from continuing operations for the period in which the ratechanges.b. Included as component of other comprehensive income for the period in which the rate changes.c. Included in the statement of financial position as a deferred item.d. Included in net earnings for gains, but deferred for losses. 32. When the information about two entities engaged in the same industry has been prepared and presented in similarmanner, the information exhibits the enhancing qualitative characteristics ofa. Relevanceb. Consistencyc. Faithful representationd. Comparability 33. What are the attributes that make the information provided in the financial statements useful to the readers?a. Qualitative characteristics of financial informationb. Quantitative characteristics of financial informationc. Elements of financial statementsd. Objectives of financial reporting 34.…arrow_forward
- Consider a US-based MNC with a wholly owned Italian subsidiary. Following a depreciation of the dollar against the euro, which of the following conclusions are correct? Group of answer choices a. The cash flow in euros could be altered due a change in the firm's competitive position in the marketplace. b. A given operating cash flow in euros will be converted to a higher US dollar cash flow. c. Both A and B d. None of the abovearrow_forwardAn example of transaction exposure is when Question 4 options: companies have obligations for the purchase of goods at previously agreed prices. companies borrow funds in domestic currency. there is an impact of currency exchange rate changes on the reported financial statements of a company. there is a long-term effect of changes in exchange rates. changing exchange rates persists on future prices, sales, and costsarrow_forwardIn accordance with U.S. generally accepted accounting principles, which translation combination is appropriate for a foreign operation whose functional currency is the U.S. dollar? Choose the correct option. Method Treatmemt of transition adjustment a. Current rate other comprehensive income b. Current rate Gain or loss in net income c. Temporal other comprehensive income d. Temporal Gain or loss in net incomearrow_forward
- Question What causes balance sheet (or translation) exposure to foreign exchange risk? How does balance sheet exposure compare with transaction exposure? In translating a foreign subsidiary's financial statements, what exchange rate should be used for the subsidiary's revenues and expenses? How can a parent corporation determine the functional currency for a foreign subsidiary that conducts business in more than one country? What concept underlies the temporal method of translation? What concept underlies the current rate method of translation? How does balance sheet exposure differ under these two methods? What are the major procedural differences in applying the current rate and temporal methods of translation?arrow_forward(b) Kenduri Co is considering whether or not to manage the foreign exchange exposure by using multilateral netting from the UK, with the Sterling Pound (£) as the base currency. Multilateral netting is undertaken in order to show the cash flow transaction. The following cash flows between Kenduri with three subsidiaries; Lakama from United States, Jaia from Canada and Gochiso in Japan. Below are the details of cash flow transactions: Owed by Kenduri Owed to Lakama Jaia Amount US$ 4.5 million CAD 1.1 million Kenduri Kenduri Gochiso JPY 180 million Gochiso Jaia CAD 3.2 million Gochiso Lakama US$ 1.4 million Gochiso Kenduri GBP 25 million Jaia Lakama US$ 1.5 million Jaia Kenduri GBP 40 million Jaia Gochiso JPY 115 million Lakama Gochiso JPY 320 million Lakama GBP 2.1 million Kenduri Jaia Lakama CAD 2.5 million Calculate the impact of undertaking multilateral netting by Kenduri Co and its three subsidiary companies for the cash flows due in three months if the exchange rate is $1.5938/£,…arrow_forward(b) Kenduri Co is considering whether or not to manage the foreign exchange exposure by using multilateral netting from the UK, with the Sterling Pound (£) as the base currency. Multilateral netting is undertaken in order to show the cash flow transaction. The following cash flows between Kenduri with three subsidiaries; Lakama from United States, Jaia from Canada and Gochiso in Japan. Below are the details of cash flow transactions: Owed by Kenduri Owed to Lakama Jaia Amount US$ 4.5 million CAD 1.1 million Kenduri Kenduri Gochiso JPY180 million Gochiso Jaia CAD 3.2 million Gochiso Lakama US$ 1.4 million Gochiso Kenduri GBP 25 million Jaia Lakama US$ 1.5 million Jaia Kenduri GBP 40 million Jaia Gochiso JPY 115 million Lakama Gochiso JPY 320 million Lakama GBP 2.1 million Kenduri Jaia Lakama CAD 2.5 million Calculate the impact of undertaking multilateral netting by Kenduri Co and its three subsidiary companies for the cash flows due in three months if the exchange rate is $1.5938/£,…arrow_forward
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