8.4-7A U.S. Company sells to a Mexican company. The Mexican company will pay in pesos. If the peso
weakens before the U.S. company collects, the U.S. company will have a foreign-currency transaction loss.
8.4-8 By agreeing to denominate the transaction in a foreign currency and by selling on account, a
company exposes itself to a foreign-currency exchange risk.
8.4-9 On the financial statements, the foreign-currency gains and losses are netted and reported as one amount
on the income statement.
8.4-10 In international trade, a hedge can be used to mitigate expected exchange losses.
8.4-11If a U.S. company has a foreign subsidiary, the financial statements of the subsidiary must be consolidated
with the parent company’s financial statements.
8.4-12U.S. GAAP and IFRS accounting principles are always the same.
8.4-13IFRS has been universally accepted for use as an international accounting standard.
8.4-14 For multinational companies, shareholders’ equity in the foreign subsidiaries’ financial statements is
in U.S. dollars at the historical exchange rate on the date of the financial statements.
8.4-15When a company owns a foreign subsidiary, a foreign-currency translation adjustment is made after
consolidation entries are prepared.
8.4-16 The exchange rate for USD to Euro was $1.30 on April 3 and $1.35 on April 12. These facts indicate
that the USD is:
A) falling and getting stronger.
B) falling and getting weaker.
C) rising and getting stronger.
D) rising and getting weaker.
8.4-17 The two main factors affecting the exchange rate of a particular currency are the:
A) ratio of the country’s imports to its exports and the economics of the country.
B) ratio of the country’s imports to its exports and the stability of the country.
C) rate of return available in the country’s capital markets and the ratio of the country’s imports to
its exports
. D) rate of return available in the country’s capital markets and the stability of the country.
8.4-18 If a country’s exports exceed its imports, the strong demand will:
A) drive up the price of the country’s currency.
B) drive down the price of the country’s currency.
C) have no affect on the country’s currency.
D) do none of the above.
8.4-19 If the exchange rate is rising relative to other nations’ currencies, the currency is described as:
A) fluctuating.
B) strong.
C) weak.
. D) translated.
8.4-20 A foreign-currency transaction gain/loss is:
A) reported on the income statement as an extraordinary item.
B) reported on the balance sheet as an equity account.
C) reported on the income statement as other income/expense.
D) not reported on the income statement, but is adjusted by debiting or crediting Retained Earnings.
8.4-21 When a company holds a receivable denominated in a foreign currency:
A) it wants the foreign currency to weaken.
B) it wants the foreign currency to strengthen.
C) it wants the foreign currency to remain the same.
D) it does not matter if the foreign currency strengthens or weakens.
8.4-22 When a company holds a payable denominated in a foreign currency:
A) it wants the foreign currency to weaken.
B) it wants the foreign currency to strengthen.
C) it wants the foreign currency to remain the same.
D) it does not matter if the foreign currency strengthens or weakens.
8.4-23 When a company holds a receivable denominated in a foreign currency and the foreign currency
strengthens from the date of sale to the date of payment, the company will record:
A) a foreign-currency transaction gain.
B) a foreign-currency transaction loss.
C) no foreign-currency transaction gain or loss.
D) none of the above.
8.4-24 In international trade, companies use hedging to protect themselves from the effects of fluctuations in
the:
A) demand for the company’s products.
B) foreign-currency exchange rates.
C) invoice prices.
D) interest rates.
8.4-25 When referring to foreign-currency transactions, hedging is a process in which:
A) a company protects itself from losing money in one transaction by engaging in a
counterbalancing transaction.
B) companies wager that the currency of one country will rise relative to their own.
C) companies sell the same product in various countries at similar prices to minimize the currency
risks associated with any one particular country.
D) a company wagers that the currency of one country will fall relative to its own.
8.4-26A Singapore company sold merchandise on account to a Greek company for 500,000 euros. The relevant
exchange rates for the Euro were as follows:
Date of sale
$ 1.47
Date of cash receipt
$ 1.49
Date of delivery
$ 1.51
The exchange rate gain or loss for the Singapore company on this transaction was a:
A) $20,000 loss.
B) $20,000 gain.
C) $10,000 gain.
D) $10,000 loss.
8.4-27A Canadian company sold merchandise on account to a Greek company, and the transaction will be settled
in euros. The relevant exchange rates for the Euro were as follows:
Date of sale
$ 1.47
Date of cash receipt
$ 1.49
Date of delivery
$ 1.51
The exchange rate that is used to record the sale is:
A) $1.47.
B) $1.49.
C) $1.51.
D) an average of the above rates.
8.4-28A U.S. company purchased merchandise on account from a Spanish firm for 200,000 euros. Assume the
exchange rates for the Euro were as follows:
Date of sale
$ 1.47
Date of cash receipt
$ 1.49
Date of delivery
$ 1.51
The exchange rate gain or loss for the U.S. company on this transaction was a:
A) $1,500 gain.
B) $4,000 loss.
C) $4,500 loss.
D) $4,500 gain.
8.4-29An Australian company purchased merchandise on account from a Canadian firm for $900,000 Canadian.
Assume the exchange rates for the Canadian dollar were as follows:
Date of purchase
$ 0.70
Date of delivery
$ 0.75
Date of cash payment
$ 0.80
The purchase cost of the merchandise was:
A) $630,000.
B) $675,000.
C) $720,000.
D) $900,000.
8.4-30 Before a foreign subsidiary’s financial statements can be consolidated with those of its parent’s:
A) the subsidiary’s financial statements must be translated into the parent’s currency.
B) the parent’s financial statements must be translated into the foreign currency.
C) no translation adjustment is needed.
D) none of the above need to occur.
8.4-31 The balancing figure that brings the dollar amount of the total liabilities and shareholders’ equity of
the foreign subsidiary into agreement with the dollar amount of its total assets is the:
A) hedging adjustment.
B) foreign-currency exchange rate.
C) foreign-currency translation adjustment.
D) non-controlling interest adjustment.
8.4-32 A negative translation adjustment is:
A) like a loss.
B) reported as a contra item in the shareholders’ equity section of the balance sheet.
C) part of other comprehensive income.
D) all of the above.
8.4-33 Assets and liabilities of a foreign subsidiary are translated into dollars on a consolidated balance sheet
at the:
A) exchange rate in effect on the date of the financial statements.
B) anticipated exchange rate in effect over the next 5 years.
C) average exchange rate in effect over the past 5 years.
D) older, historical exchange rates on the date of the purchase of the subsidiary’s shares.
8.4-34 Shareholders’ equity of a foreign subsidiary is translated into dollars on a consolidated balance sheet
at the:
A) exchange rate in effect on the date of the financial statements.
B) anticipated exchange rate in effect over the next 5 years.
C) average exchange rate in effect over the past 5 years.
D) older, historical exchange rates.
8.4-35 Which of the following brings the dollar amount of the total liabilities and shareholders’ equity of a
foreign subsidiary into agreement with the dollar amount of its total assets?
A) The foreign-currency translation adjustment
B) The foreign-currency rate of return adjustment
C) The foreign-currency amortization adjustment
D) The foreign-currency hedging adjustment
8.4-36 The foreign-currency translation adjustment appears on the:
A) balance sheet as part of shareholders’ equity.
B) balance sheet as a contra-asset account.
C) income statement as other income/expense.
D) income statement as separate revenue account.
8.4-37 The foreign-currency translation adjustment appears on:
A) the balance sheet as part of shareholders’ equity.
B) the income statement as part of other comprehensive income.
C) the statement of cash flows as a financing activity.
D) both A and B.
8.4-38 A foreign-currency translation adjustment is most closely associated with:
A) purchases on account.
B) consolidations.
C) sales on account.
D) all of the above.
8.4-39 A foreign-currency transaction gain or loss on a credit purchase is calculated as the difference
between the exchange rates on the date:
A) the merchandise is ordered and the date it arrives.
B) the merchandise is purchased and the date it is sold.
C) of the purchase and the date of cash payment for the purchase.
D) the merchandise is ordered and the date payment is made for the merchandise.
8.4-40 Which of the following terms represents a decrease in foreign currency value relative to the local
dollar between the dates of purchase and payment?
A) Exchange gain
B) Exchange loss
C) Exchange decrease
D) Exchange translation
8.4-41 Which of the following terms represents an increase in foreign currency value relative to the local
dollar between the dates of purchase and payment?
A) Exchange gain
B) Exchange loss
C) Exchange decrease
D) Exchange translation
8.4-42 Which of the following terms represents the measure of one country’s currency against another
country’s currency?
A) Foreign market value
B) Dollar value exchange rate
C) Foreign currency translation
D) Foreign currency exchange rate
8.4-43 Which of the following terms represents converting the cost of an item given in one currency to its
cost in a different currency?
A) Foreign market value
B) Dollar value exchange rate
C) Foreign currency translation
D) Foreign currency exchange rate
8.5-1 Purchases and sales of held-to-maturity investments are reported as financing activities on the
statement of cash flows.
8.5-2 The purchase of held-to-maturity investments would appear on a statement of cash flows in:
A) the investing activities section.
B) the operating activities section.
C) the financing activities section.
D) none of the above. The purchase would not appear on a statement of cash flows.
8.5-3 The sale of a held-to-maturity investment would appear on a statement of cash flows as a:
A) cash inflow in the investing activities section.
B) cash outflow in the investing activities section.
C) cash inflow in the financing activities section.
D) cash inflow in the operating activities section.
8.5-4 On the statement of cash flows, the cash paid to acquire another company is reported as a(n):
A) investing outflow.
B) financing inflow.
C) financing outflow.
D) investing inflow.
8.5-5 On the statement of cash flows, the cash paid to purchase available-for-sale investments is shown as
a(n):
A) decrease in investing activities.
B) increase in financing activities.
C) decrease in financing activities.
D) increase in investing activities.
8.5-6 On the statement of cash flows, the cash received from selling available-for-sale securities is shown
as a(n):
A) decrease in investing activities.
B) increase in financing activities.
C) decrease in financing activities.
D) increase in investing activities.
8.5-7 On the statement of cash flows, the cash paid to purchase held-to–maturity investments is shown as a(n):
A) decrease in investing activities.
B) increase in financing activities.
C) decrease in financing activities.
D) increase in investing activities.
8.5-8 On the statement of cash flows, the cash paid for 30% of a corporation to be accounted for under the equity
method is shown as a(n):
A) decrease in investing activities.
B) increase in financing activities.
C) decrease in financing activities.
D) increase in investing activities.
8.5-9 Purchases and sales of held-to-maturity investments are shown on the statement of cash flows as:
A) operating activities.
B) investing activities.
C) financing activities.
D) none of the above. They are not shown on the statement of cash flows.
8.5-10 Issuing bonds are shown on the statement of cash flows as:
A) operating activities.
B) investing activities.
C) financing activities.
D) none of the above. It is not shown on the statement of cash flows.