Discuss the accounting treatment for foreign currency transactions. How do changes in exchange rates affect a company's financial statements?
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- what are implications for analysis of financial statements that result from the accounting for foreign currency translation?How should we recognize the difference in the value of a receivable in a foreign currency at the time it was recorded and the time the cash was received? Multiple Choice O O As an adjustment to stockholders' equity As an extraordinary capital expenditure As a prior period adjustment As an adjustment to purchasesOne of the issues that companies need to address when dealing with foreign currencies is how fluctuations in that currency are handled. What is the dual transaction approach, accrual perspective? How might a company account for exchange rate fluctuations using this approach?
- Which of the following items will result to foreign currency transaction gain/loss due to settlement or remeasurement? Foreign currency denominated non-monetary liabilities such as unearned revenue, warranty liability, premium liability and deferred tax liability. Foreign currency denominated non-monetary assets such as inventory, PPE, intangible asset or prepaid asset. Foreign currency denominated monetary items such as accounts payable, accounts receivable, notes payable, loans receivable or interest payable. Foreign currency denominated income statement accounts such as revenue, income, expense or loss.Accounting for Foreign Currency Transactions: Accounting for foreign currency transactions involves recording and reporting financial transactions denominated in a currency other than the entity's functional currency. Here are the key steps involved in handling such transactions: **1. Identifying Foreign Currency Transactions: Definition: Foreign currency transactions occur when a business entity conducts financial transactions, such as sales, purchases, or investments, in a currency different from its functional currency. Examples: Buying goods from a foreign supplier, selling products to overseas customers, or borrowing funds in a foreign currency. **2. Determining the Functional Currency: Primary Currency: Each business entity designates a functional currency, which is the primary currency used in its day-to-day operations and financial reporting. Factors Considered: Factors such as the location of the entity's primary economic activities, the currency in…What concept underlies the two-transaction perspective in accounting for foreign currency transactions? a. treats imports and exports as two separate transactions. b. Foreign Exchange Gains and Losses. c. The Effects of Changes in the world Economy. d. Treats the export sale and the subsequent collection of cash as two separate transactions.
- Why is it important that foreign currency financial statements are translated at the appropriate currency exchange rates? What would happen if companies can translate their foreign subsidiary's financial statements at whatever exchange rate they like? Can the integrity of consolidated financial statements be maintained in such situation?Describe guidelines for determining when foreign currency financial statements are to be translated using the current rate method and when they are to be remeasured using the temporal method.Explain the following: Liquidity management currency issue lender of last resort financial supervision Management of foreign currency reserves Determination of exchange rate policy
