Question 1

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?

Accepted Answer

Identify Method: Functional = Local -> Current Rate Method. Rules: Assets/Liabs = Current Rate. Income = Average Rate. Equity = Historical Rate.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Using current rate for everything; confusing with Temporal Method (where non-monetary assets also use historical).

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?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA BAR Practice Exam 3

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