Foreign currency Transactions

Foreign currency Transactions
Foreign currency Transactions

Get a Custom Essay Paper that meets your expectations by clicking ORDER

Foreign currency Transactions

Complete two exercises in accounting for foreign currency transactions and translating financial statements from a foreign currency into U.S. dollars.

With the expansion of U.S. business interests in foreign countries, the need to use and understand foreign currency transaction actions has become commonplace in accounting.

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

  • Competency 2: Evaluate the influence of global money markets on financial statements.
    • Journalize foreign currency borrowing transactions.
    • Determine the effective cost of borrowing.
    • Prepare financial statements in LCU units.
    • Translate financial statement amounts to U.S. dollars.
    • Compute translation adjustments.

Context

In today’s global economy, many companies transact business in currencies other than their reporting currency. Merchandise may be imported or exported with prices stated in a foreign currency. For reporting purposes, foreign currency balances must be stated in terms of the company’s reporting currency by multiplying it by an exchange rate.

To address this issue, accountants face two questions in restating foreign currency balances:

  • What is the appropriate exchange rate for restating foreign currency balances?
  • And how does one account for changes in the exchange rate?

For this reason, companies often engage in foreign currency hedging activities to avoid the adverse impact of exchange rate changes. Accountants must then determine how to properly account for these hedging activities.

Because many companies have significant financial involvement in foreign countries, the process by which foreign currency financial statements are translated into U.S. dollars has special accounting importance. The two major issues related to the translation process are:

  • Which method to use.
  • Where to report the resulting translation adjustment in the consolidated financial statements.

Translation methods differ on the basis of which accounts are translated at the current exchange rate and which are translated at historical rates. Accounts translated at the current exchange rate are exposed to translation adjustment. Different translation methods give rise to different concepts of balance sheet exposure.

Question to Consider

To deepen your understanding, you are encouraged to consider the questions below concerning foreign currency transactions and discuss them with a fellow learner, a work associate, an interested friend, or a member of the business community.

  • What are the reporting issues when a company transacts business in foreign countries?
  • How does a company become exposed to foreign exchange risk?
  • What is hedge accounting, and how is it applied?
  • Why would a company prefer a foreign currency option over a forward contract in hedging a foreign currency firm commitment?
  • Why would a company prefer a forward contract over an option in hedging a foreign currency asset or liability?
  • What is a translation adjustment, and how is it computed?
  • What role do exchange rates play in the translation process?
  • How does a remeasurement differ from a translation?
  • What methods should be used to translate financial statements?

Resources

Required Resources

The following resources are required to complete the assessment.

Library Resources

Flood, J. M. (2014). Wiley GAAP 2014: Interpretation and application of generally accepted accounting principles (12th ed.). Hoboken, NJ: John Wiley & Sons.

  • Chapter 51, “ASC 830 Foreign Currency Matters.”
Internet Resources

Access the following resources by clicking the links provided. Please note that URLs change frequently. Permissions for the following links have been either granted or deemed appropriate for educational use at the time of course publication.

Hoyle, J. B., Schaefer, T., & Doupnik, T. (2014). Fundamentals of advanced accounting (6th ed.). New York, NY: McGraw-Hill Education.

  • Chapter 7, “Foreign Currency Transactions and Hedging Foreign Exchange Risk.”
  • Chapter 8, “Translation of Foreign Currency Financial Statements.”

Assessment Instructions

Complete Exercises 1 and 2 in the Foreign Currency Excel Workbook, linked in the Required Resources for this assessment. All financial information and applicable instructions are provided on each exercise worksheet.

Exercise 1: Foreign Currency Borrowing

  • Journalize foreign currency borrowing transactions.
  • Determine the effective cost of borrowing.

Exercise 2: Financial Statement Translation

  • Prepare financial statements in LCU units.
  • Translate financial statement amounts to U.S. dollars.
  • Compute translation adjustments.

Get a Custom Essay Paper that meets your expectations by clicking ORDER

Author: admin

This is author biographical info, that can be used to tell more about you, your iterests, background and experience. You can change it on Admin > Users > Your Profile > Biographical Info page."

Unlike most other websites we deliver what we promise;

  • Our Support Staff are online 24/7
  • Our Writers are available 24/7
  • Most Urgent order is delivered with 6 Hrs
  • 100% Original Assignment Plagiarism report can be sent to you upon request.

GET 15 % DISCOUNT TODAY use the discount code PAPER15 at the order form.

Type of paperAcademic levelSubject area
Number of pagesPaper urgencyCost per page:
 Total: