A US parent has a subsidiary in Europe. The subsidiary's functional currency is the Euro. The reporting currency is the US Dollar. Which exchange rate should be used to translate the subsidiary's Common Stock account?

Answer options:

Current Rate at year-end.

Average Rate for the year.

Weighted Average Rate.

Historical Rate.

How to approach this question

Translation Method (Functional = Local): Assets/Liabs = Current. Income = Average. Equity = Historical. Plug = OCI.

Full Answer

D.Historical Rate.✓ Correct

When the functional currency is the foreign currency, the Translation Method is used. Assets/Liabilities use the Current Rate. Revenues/Expenses use the Average Rate. Equity (Stock/APIC) uses Historical Rates.

Common mistakes

Using the Current Rate for everything.

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