Question

1. Remeasurement exchange gains or losses appear:

a. in the continuing operations section of the consolidated income statement

b. as an extraordinary item on the consolidated income statement

c. as other comprehensive income typically reported in a statement of stockholder's equity

d. as an adjustment to the beginning balance of retained earnings on the consolidated statement of retained earnings

2. If a US company wants to hedge a prospective loss in a foreign entity from a foreign currency fluctuation, which of the following actions is recommended

a. The US company should purchase a forward to swap currency of the foreign entity's local country for US currency

b. The US company should purchase a call option to buy currency of the foreign entity's local country

c. The US company should issue a loan to the foreign entity's local country

d. The US company should borrow money in the foreign entity's local country

3. Which one of the following accounts would be translated at the historical exchange rate when the local currency is the functional currency

a. deferred income taxes

b. accumulated depreciation on equipment

c. prepaid insurance

d. additional paid-in-capital

4. Accounts for uncollectible accounts are covered into US dollars at

a. historical rates when the US dollar is the functional currency

b. current rates only when the US dollar is the functional currency

c. historical rates regardless of the functional currency

d. current rates regardless of the functional currency

5. The exchange rates between the Australian dollar and the US dollar were as follows:

Jun1 $1 AUS =  $.71 US

Jul1 $1 AUS = $.73 US

Aug1 $1 AUS = $.79 US

Sep1 $1 AUS = $.83 US

This chart shows a:

a. strengthening Australian dollar which makes it less expensive for Americans to buy Australian goods

b. weakening Australian dollar which makes it less expensive for Americans to buy Australian goods

c. strengthening Australian dollar which makes it more expensive for Americans to buy Australian goods

d weakening Australian dollar which makes it more expensive for Americans to buy Australian goods

Answer 1

1. c .as other comprehensive income typically reported in a statement of stockholder's equity.

Explanation: Reported under other comprehensive income and presented in a separate component of equity foreign currency translation reserve.

2. b. The US company should purchase a call option to buy the currency of the foreign entity's local country.

Explanation: Option is a right recommendation, it does not create an obligation all other recommendations will create an obligation.

3. c. prepaid insurance

Prepayment,(non-refundable) which is non- monetary items measured at historical rates. Other items in the options are not measured at historical rates.

4. d. current rates regardless of the functional currency

Here conversion is required into US $ hence current exchange rate is used.Moreover bad debts is monetary item