ExpertMedium1 markMultiple Choice
CPA · Question 27 · Area II: Technical Accounting
US Corp has a subsidiary in Japan. The subsidiary's functional currency is the Japanese Yen. At year-end, US Corp translates the subsidiary's financial statements into US Dollars. Which exchange rate should be used to translate the subsidiary's Common Stock account?
US Corp has a subsidiary in Japan. The subsidiary's functional currency is the Japanese Yen. At year-end, US Corp translates the subsidiary's financial statements into US Dollars. Which exchange rate should be used to translate the subsidiary's Common Stock account?
Answer options:
A.
Current Rate at year-end
B.
Average Rate for the year
C.
Weighted Average Rate
D.
Historical Rate
How to approach this question
Identify Method: Functional = Local -> Current Rate Method. Rules: Assets/Liabs = Current Rate. Income = Average Rate. Equity = Historical Rate.
Full Answer
D.Historical Rate✓ Correct
When the functional currency is the local currency (Yen), the Current Rate Method is used. Assets and liabilities use the current rate; Income statement uses the average rate; Equity (Common Stock, APIC) uses the historical rate.
Common mistakes
Using current rate for everything; confusing with Temporal Method (where non-monetary assets also use historical).
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