A company's foreign subsidiary operation maintains its financial statements in the local currency. The foreign operation's capital accounts would be translated to the functional currency of the reporting entity using which of the following rates?
a. Current exchange rate at the balance sheet date.
b. Weighted average exchange rate.
c. Functional exchange rate.
d. Historical exchange rate.
Explanation
Choice "d" is correct. Capital accounts are translated into the functional currency using the historical exchange rates.
Choice "c" is incorrect. The foreign currency is normally referred to as the functional currency. The functional exchange rate is not the rate used to translate capital accounts, which would include common stock and APIC accounts.
Choice "b" is incorrect. The weighted average rate is used for all income statement items.
Choice "a" is incorrect. The current exchange rate at the balance sheet date is used to translate assets and liabilities.
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