ADVANCED ACCOUNTING - CHAPTER
12 EXAM QUESTIONS AND ANSWERS
GRADED A+ 2025/2026
Identify factors that can influence the development of accounting principles in a country. (Select
all that apply.) - ANS The information needs of the taxing authorities
The country's economic, legal, educational, and political systems
The needs of the central government economic planners
Which of the following statements is true of a local currency unit? - ANS It is the currency in
the country or jurisdiction where an affiliated subsidiary is located.
Plafix Chemicals Inc. is a U.S.-based parent company which has a subsidiary, Alpha Chemicals,
located in Ireland. Which of the following statements are true about Plafix's financial reporting?
- ANS Because the subsidiary is located in Ireland, the local currency of Alpha is the euro.
Because the parent company is located in the U.S., the reporting currency of Plafix is the U.S.
dollar.
On December 31, 20X1, Omega Solutions Inc. deposited 10,000 British pounds sterling (£) in a
London Bank when the exchange rate was $1.80 per pound. The exchange rate on December
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,31, 20X2 is $1.75. Calculate the amount of translation adjustment on December 31, 20X2 to
report the deposit of 10,000 British pounds sterling. - ANS $500
The historical exchange rate is the - ANS exchange rate that existed on the date the initial
transaction took place.
The different factors that influence the development of accounting standards have led to
significant _____ in accounting standards from one nation to another. - ANS diversity
When is the weighted average method used in financial statement conversion? - ANS When
there are seasonal fluctuations in the income statements
When there are rapid changes in the exchange rates
Identify the statement that defines "recording currency". - ANS The currency in which a
company records its transactions in the financial statements
Identify features the FASB has adopted as indicating a functional currency. - ANS The
functional currency is the currency of the primary economic environment in which the entity
operates.
The functional currency is the currency of the environment in which an entity primarily
generates and receives cash.
Which of the following statements is true about consolidated financial statement reporting of a
U.S.-based parent company which has a Belgium-based subsidiary? - ANS The subsidiary's
financial statements should be restated in the parent company's recording currency.
A deposit in foreign currency is reported in a balance sheet stated in foreign currency, and the
translation is done at the rate on the date of the _____. - ANS balance sheet
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, Which of the following statements is true about the current exchange rate? - ANS It is the
exchange rate at the end of the trading day on the balance sheet date.
Interosis Equipments Inc. is a US-based company with a subsidiary (Emipia Solutions) in Sweden.
The U.S. dollar will be considered the functional currency when - ANS Interosis primarily
provides financing to Emipia.
The _____ rate for a period is usually the exchange rate used to measure revenues and
expenses. - ANS average
ASC 830 provides guidelines for the - ANS translation of foreign currency into U.S. dollars in
the preparation of consolidated financial statements.
Which of the following factors indicate that the foreign currency is the functional currency? -
ANS Labor, materials, and other costs are primarily local costs for the subsidiary.
Few intercompany transactions occur with the parent company.
The local currency of a foreign affiliate becomes the functional currency when - ANS it does
not regularly remit the cash generated to the parent company in the US.
its transactions are mostly in the local currency.
it obtains financing from local sources.
Identify a reason to use a parent company's currency as the functional currency. - ANS Most
of the subsidiary's cash transactions are in the parent company's currency.
The foreign transactions in an entity's records are adjusted to their equivalent functional
currency when the entity - ANS enters into transactions denominated in other currencies.
3 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
12 EXAM QUESTIONS AND ANSWERS
GRADED A+ 2025/2026
Identify factors that can influence the development of accounting principles in a country. (Select
all that apply.) - ANS The information needs of the taxing authorities
The country's economic, legal, educational, and political systems
The needs of the central government economic planners
Which of the following statements is true of a local currency unit? - ANS It is the currency in
the country or jurisdiction where an affiliated subsidiary is located.
Plafix Chemicals Inc. is a U.S.-based parent company which has a subsidiary, Alpha Chemicals,
located in Ireland. Which of the following statements are true about Plafix's financial reporting?
- ANS Because the subsidiary is located in Ireland, the local currency of Alpha is the euro.
Because the parent company is located in the U.S., the reporting currency of Plafix is the U.S.
dollar.
On December 31, 20X1, Omega Solutions Inc. deposited 10,000 British pounds sterling (£) in a
London Bank when the exchange rate was $1.80 per pound. The exchange rate on December
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,31, 20X2 is $1.75. Calculate the amount of translation adjustment on December 31, 20X2 to
report the deposit of 10,000 British pounds sterling. - ANS $500
The historical exchange rate is the - ANS exchange rate that existed on the date the initial
transaction took place.
The different factors that influence the development of accounting standards have led to
significant _____ in accounting standards from one nation to another. - ANS diversity
When is the weighted average method used in financial statement conversion? - ANS When
there are seasonal fluctuations in the income statements
When there are rapid changes in the exchange rates
Identify the statement that defines "recording currency". - ANS The currency in which a
company records its transactions in the financial statements
Identify features the FASB has adopted as indicating a functional currency. - ANS The
functional currency is the currency of the primary economic environment in which the entity
operates.
The functional currency is the currency of the environment in which an entity primarily
generates and receives cash.
Which of the following statements is true about consolidated financial statement reporting of a
U.S.-based parent company which has a Belgium-based subsidiary? - ANS The subsidiary's
financial statements should be restated in the parent company's recording currency.
A deposit in foreign currency is reported in a balance sheet stated in foreign currency, and the
translation is done at the rate on the date of the _____. - ANS balance sheet
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, Which of the following statements is true about the current exchange rate? - ANS It is the
exchange rate at the end of the trading day on the balance sheet date.
Interosis Equipments Inc. is a US-based company with a subsidiary (Emipia Solutions) in Sweden.
The U.S. dollar will be considered the functional currency when - ANS Interosis primarily
provides financing to Emipia.
The _____ rate for a period is usually the exchange rate used to measure revenues and
expenses. - ANS average
ASC 830 provides guidelines for the - ANS translation of foreign currency into U.S. dollars in
the preparation of consolidated financial statements.
Which of the following factors indicate that the foreign currency is the functional currency? -
ANS Labor, materials, and other costs are primarily local costs for the subsidiary.
Few intercompany transactions occur with the parent company.
The local currency of a foreign affiliate becomes the functional currency when - ANS it does
not regularly remit the cash generated to the parent company in the US.
its transactions are mostly in the local currency.
it obtains financing from local sources.
Identify a reason to use a parent company's currency as the functional currency. - ANS Most
of the subsidiary's cash transactions are in the parent company's currency.
The foreign transactions in an entity's records are adjusted to their equivalent functional
currency when the entity - ANS enters into transactions denominated in other currencies.
3 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
