Question

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?

Your Answer:

a. Historical exchange rate.
b. Functional exchange rate.
c. Weighted-average exchange rate.
d. Current exchange rate at the balance sheet date.

Answer 1

Answer: A - The historical exchange rate.

Explanation:

When translating a subsidary's capital account to the functional currency, it is translated at the historical exchange rate.

Historical exchange rate is the exchange rate that existed when the asset or liability was acquired.