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Topic
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Anyone could help this? I think this question should use current rate method since the functional currency is the foreign currency.
Under this method, all assets and liability should use current rate. so I don’t understand why the other two use historical rate instead.Thank you in advance!!
Question
Certain balance sheet accounts in a foreign subsidiary of Rose Company at December 31, 1980, have been translated into United States dollars as follows:
Translated at
Current Rates Translated at
Historical Rates
Accounts receivable, current $200,000 $220,000
Accounts receivable, long-term $100,000 $110,000
Prepaid insurance $50,000 $55,000
Goodwill $80,000 $85,000The subsidiary’s functional currency is a foreign currency. What total should be included in Rose’s balance sheet at December 31, 1980, for the above items?
you chose A. $430,000
B. $435,000
C. $440,000
D. $450,000Explanation
The correct answer is C. FASB Statement No. 8 provides for the rates to be used in translating various asset and liability accounts. It provides that the “current” rate is always to be used in translating accounts receivable, regardless of whether or not such receivables are considered to be current or long-term. Further, it states that the “historical” rate is to be used to translate both prepaid insurance and goodwill. Thus, we have as follows:
Item Rate Used Amount
Accounts receivable, current Current $200,000
Accounts receivable, long-term Current $100,000
Prepaid insurance Historical $55,000
Goodwill Historical $85,000
Total
$440,000
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