02 Jan extraordinary item.

Question 1

4 / 4 pts

(TCO 4) A U.S. company sells merchandise to a foreign company, denominated in U.S. dollars. Which of the following statements is true?

If the foreign currency appreciates, a foreign exchange gain will result.

If the foreign currency depreciates, a foreign exchange gain will result.

No foreign exchange gain or loss will result.

If the foreign currency appreciates, a foreign exchange loss will result.

If the foreign currency depreciates, a foreign exchange loss will result.

Question 2

4 / 4 pts

(TCO 4) Which of the following translation methods was originally mandated by SFAS No. 8?

Current/noncurrent method

Monetary/nonmonetary method

Current rate method

Temporal method

Indirect method

Question 3

4 / 4 pts

(TCO 4) Which is a company’s functional currency?

The currency of the primary economic environment in which it operates

The currency of the country where it has its headquarters

The currency in which it prepares its financial statements

The reporting currency of its parent for a subsidiary

The currency it chooses to designate as such

Question 4

4 / 4 pts

(TCO 4) According to SFAS 52, which method is usually required for translating a foreign subsidiary’s financial statements into the parent’s reporting currency?

The temporal method

The current rate method

The current/noncurrent method

The monetary/nonmonetary method

The noncurrent rate method

Question 5

4 / 4 pts

(TCO 4) Freddy Co., a U.S. company, contracted to purchase foreign goods. Payment in foreign currency was due 1 month after the goods were received at Freddy’s warehouse. Between the receipt of goods and the time of payment, the exchange rates changed in Freddy’s favor. The resulting gain should be included in Freddy’s financial statements as a(n)

component of income from continuing operations.

extraordinary item.

deferred credit.

separate component of other comprehensive income.