Advanced Accounting，11e (Beams/Anthony/Bettinghaus/Smith)Chapter 14 Foreign Currency Financial StatementsMultiple Choice Questions1) A U.S. firm has a Belgian subsidiary that uses the British pound as its functional currency. According to GAAP，the U.S. dollar from Belgian units point of view will beA) its only foreign currency.B) its local currency.C) its current rate method currency.D) its reporting currency.Answer： DObjective： LO1Difficulty： Easy2) Selvey Inc. is a wholly-owned subsidiary of Parsfield Incorporated，a U.S. firm. The country where Selvey operates is determined to have a highly inflationary economy according to GAAP definitions. Therefore，for purposes of preparing consolidated financial statements，the functional currency isA) its reporting currency.B) its current rate method currency.C) the US dollar.D) its local currency.Answer： CExplanation： C) Selvey must use the functional currency of the reporting entity.Objective： LO3Difficulty： Easy3) All of the following factors would be used to define a foreign entitys functional currency，exceptA) high volume of intercompany transactions.B) expenses for foreign entity primarily driven by local factors.C) financing for foreign entity denominated in local currency.D) foreign entitys status as a local tax haven for transfer pricing purposes.Answer： DObjective： LO1Difficulty： Easy4) The primary goal behind consolidating financial statements of a controlled subsidiary isA) assuring that the subsidiary financial statements are the same under the temporal method or the current rate method.B) assuring that the individual nature of the subsidiary entity is not lost in the consolidation.C) representing the conversion of statements at the historical exchange rate.D) representing the companys underlying economic condition.Answer： DObjective： LO2Difficulty： Easy5) Pelmer has a foreign subsidiary，Sapp Corporation of Germany，whose functional currency is the euro. Sapps books are maintained in euros. On December 31，Sapp has an account receivable denominated in British pounds. Which one of the following statements is true?A) Because all accounts of the subsidiary are translated into U.S. dollars at the current rate，the Account Receivable is not adjusted on the subsidiarys books before translation.B) The Account Receivable is remeasured into the functional currency，thus eliminating the need for translation.C) The Account Receivable is first adjusted to reflect the current exchange rate in euros and then translated at the current exchange rate into dollars.D) The Account Receivable is adjusted to euros at the current exchange rate，and any resulting gain or loss is included as a translation adjustment in the stockholders equity section of the subsidiarys separate balance sheet.Answer： CObjective： LO2Difficulty： Moderate6) Paskin Corporations wholly-owned Canadian subsidiary has a Canadian dollar functional currency. In translating the subsidiarys account balances into U.S. dollars for reporting purposes，which one of the following accounts would be translated at historical exchange rates?A) Accounts ReceivableB) Notes PayableC) Capital StockD) Retained EarningsAnswer： CObjective： LO2Difficulty： Easy7) A foreign entity is a subsidiary of a U.S. parent company and has always used the current rate method to translate its foreign financial statements on behalf of its parent company. Which one of the following statements is false?A) The U.S. dollar is the functional currency of this company.B) Changes in exchange rates between the subsidiarys country and the parents country are not expected to affect the foreign entitys cash flows.C) Translation adjustments are shown in stockholders equity as increases or decreases in other comprehensive income.D) Translation adjustments are not shown on the income statement.Answer： AObjective： LO2Difficulty： Easy8) Assume the functional currency of a foreign entity is the U.S. dollar，but the books are kept in euros. The objective of remeasurement of a foreign entitys accounts is toA) produce the same results as if the foreign entitys books were maintained in the currency of the largest customer.B) produce the same results as if the foreign entitys books were maintained solely in the local currency.C) produce the same results as if the foreign entitys books were maintained solely in the U.S. dollar.D) produce the results reflective of the foreign entitys economics in the local currency.Answer： CObjective： LO2Difficulty： Easy9) Which of the following assets and/or liabilities are considered monetary?A) Intangible Assets and Plant，Property，and EquipmentB) Bonds Payable and Common StockC) Cash and Accounts PayableD) Notes Receivable and Inventories carried at costAnswer： CObjective： LO2Difficulty： Easy10) Which of the following statements about the Current