US Corp has a subsidiary in Germany. The subsidiary's functional currency is the Euro. At year-end, US Corp translates the subsidiary's financial statements into US Dollars. Which exchange rate should be used to translate the Common Stock account?

Answer options:

Current rate at year-end.

Average rate for the year.

Weighted average rate since inception.

Historical rate at the date of issuance.

How to approach this question

Current Rate Method Rules: Assets/Liabilities = Current Rate. Income = Average Rate. Equity = Historical Rate.

Full Answer

D.Historical rate at the date of issuance.✓ Correct

When the functional currency is the foreign currency, the Current Rate Method is used. Assets and liabilities use the current (spot) rate. Revenues and expenses use the average rate. Equity accounts (Common Stock, APIC) use the historical rate at the date of issuance.

Common mistakes

Using current rate for everything.

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