chapter 7 accounting for foreign currency transactions and derivatives multiple choi 4314355

Chapter 7:Accounting for Foreign Currency Transactions and Derivatives

Multiple Choice

Topic: Accounting for Foreign Currency Transactions

LO: 1

1.Which of the following best describes the effects of foreign currency fluctuations on the financial statements of companies with foreign currency-denominated assets and liabilities?

a.Fluctuations in the $US value of foreign currency-denominated assets and liabilities affect both the balance sheet and the income statement.

b. Fluctuations in the $US value of foreign currency-denominated assets and liabilities affect only the balance sheet and have no effect in net income.

c.Fluctuations in the $US value of foreign currency-denominated assets and liabilities affect only stockholders’ equity and do not affect the income statement directly.

d. None of the above

Topic: Accounting for Derivative Financial Instruments

LO: 2

2.  Companies invest in financial derivatives:

a.To reduce exposure to currency-related risks

b.In order to realize capital gains as their value increases

c.As a means in which to enter desirable markets

d.None of the above

Topic: Accounting for Foreign Currency Transactions

LO: 1

3.If a company reports a receivable denominated in Euros (€) and the $US weakens vis-à-vis the Euro:

a.The company will not report the change in the relative value of the receivable until the receivable is collected.

b.The company will accrue the gain in its financial statements as of the statement date, even before the receivable is collected.

c.The company will accrue the loss in its financial statements as of the statement date, even before the receivable is collected.

d.The company will recognize the increase in the $US value of the receivable on its balance sheet as of the statement date, but the unrealized gain will not be recognized in its income statement until the receivable is collected.

Topic: Accounting for Foreign Currency Transactions

LO: 1

4.In recent years, the $US has:

a.Strengthened with respect to most major world currencies

b.Remain unchanged with respect to most major world currencies

c.Weakened with respect to most major world currencies

d.Weakened with respect to the Euro, but strengthened with respect to most major world currencies

 

Topic: Accounting for Foreign Currency Transactions

LO: 1

5.If a company reports a payable denominated in Euros (€) and the $US weakens vis-à-vis the Euro:

a.The company will not report the change in the relative value of the payable until the payable is paid.

b.The company will accrue the gain in its financial statements as of the statement date, even before the payable is paid.

c.The company will accrue the loss in its financial statements as of the statement date, even before the payable is paid.

d.The company will recognize the increase in the $US value of the payable on its balance sheet as of the statement date, but the unrealized loss will not be recognized in its income statement until the payable is paid.

Topic: Accounting for Foreign Currency Transactions

LO: 1

6.Which of the following best describes current GAAP with respect to the required reporting currency?

a.A currency other than the U.S. dollar may be the reporting currency in financial statements

b.Only the $US may be the reporting currency in financial statements

c.Companies can change their reporting currency as much as they wish

d.Companies can never change their reporting currency

Topic: Accounting for Foreign Currency Transactions

LO: 1

7.An exchange rate of $1.32:€1

a.Means that each $US is worth 1.32€

b.Implies that the $US has strengthened vis-à-vis the €

c.Implies that the € has strengthened vis-à-vis the $US

d.Can also be expressed as $1:€0.76

Topic: Accounting for Foreign Currency Transactions

LO: 1

8.Assume that our US-based company purchases 1,000 units of inventories from a UK supplier at £3/unit. To record the purchase:

a.Our company will debit inventories and credit accounts payable for £3,000.

b.Our company will debit inventories and credit accounts payable for the $US equivalent of £3,000.

c.Our company will not record the purchase of inventory until the payable is paid.

d.Either a orb is current.

Topic: Accounting for Foreign Currency Transactions

LO: 1

9.Assume that the $US has weakened with respect to the Euro and that we have a Euro-denominated payable.

a.Our company will report the loss only on the payment date.

b. Our company will report the gain only on the payment date.

c.  Our company will not report a gain or loss because there has been no cash effect.

d.  Our company will accrue a loss on the statement date.

Topic: Accounting for Foreign Currency Transactions

LO: 1

10.Which of the following best describes the accounting for foreign currency-denominated receivables and payables?

a.No gains or losses are recorded until the receivable is collected or the payable is paid.

b.No gains or losses are recorded because there has been no cash effect.

c.Companies are required to report the foreign-currency denominated receivables and payables at their current market value on the statement date, but no gain or loss is recognized in the income statement.

d.Companies are required to accrue gains and losses on foreign currency-denominated receivables and payments as of the statement date.