Global Tech, a U.S. company, has a subsidiary in Japan. The subsidiary's functional currency is the Japanese Yen (JPY). At year-end, Global Tech translates the subsidiary's financial statements into U.S. Dollars. Which exchange rate should be used to translate the subsidiary's Common Stock and Retained Earnings?

Answer options:

Current Rate for both

Average Rate for both

Historical Rate for Common Stock; Current Rate for Retained Earnings

Historical Rate for Common Stock; Rolled-forward amount for Retained Earnings

How to approach this question

Identify the method: Functional = Local Currency -> Current Rate Method. Assets/Liabilities = Current Rate. Income = Average Rate. Equity (Stock) = Historical Rate. RE = Roll forward.

Full Answer

D.Historical Rate for Common Stock; Rolled-forward amount for Retained Earnings✓ Correct

ASC 830 requires that when the functional currency is the local currency, the Current Rate Method is used. Assets and liabilities use the spot rate at the balance sheet date. Equity items like Common Stock use historical rates. Retained Earnings is not translated at a single rate but is a roll-forward calculation.

Common mistakes

Using the current rate for all balance sheet items including equity.

Question 09 All questions Question 11

Practice the full CPA BAR Practice Exam 5

50 questions · hints · full answers · grading

More questions from this exam

Q01Orion Manufacturing is analyzing its working capital efficiency. For the current year, Orion repo...Hard Q02Vanguard Corp. uses a standard costing system. For the month of June, the following data is avail...Hard Q03Titan Industries is evaluating a new project with the following projected cash flows:<br/>- Initi...Medium Q04Under ASC 606, which of the following scenarios BEST describes a performance obligation that is s...Medium Q05Blue City's General Fund reported the following for the fiscal year:<br/>- Property taxes levied:...Hard

View all 50 questions →