Current rate is used when inventory is measured under current rate method. On the other hand, while temporal method is used, average rate will be using for recording inventory. In current method, equipment is recorded in current rate and historical rate is used in temporal method. Depreciation expense in current method uses average rate and in temporal method, historical rate is used. Sales revenue uses average rate in either method.
In translating the financial statements of a foreign subsidiary into the parent’s reporting currency under the current rate method, the translation adjustment is a function of the foreign subsidiary’s net asset.
Because functional currency is local currency, therefore, we should us ...view middle of the document...
Since Functional currency is parent currency, we should use temporal method. The translation adjustment will reflect in net income.
Local currency is the functional currency; hence, current rate method is used. Balance sheet will reflect the translation adjustment.
8. A) Functional currency is foreign currency in this case. Therefore, current rate method. In balance sheet, all items will be measured at current rate, hence, the total amount of the consolidated balance sheet is 670,000
B) While functional currency is parent currency, temporal method is used.
AR 100,000 (C)
Marketable securities 240,000 (H)
Prepaid insurance 130,000 (H)
Goodwill 300,000 (H)
9. A) Current rate method
Ending inventory 150,000*0.38(C)=57,000
Cost of goods sold 450,000*0.42(A)=189,000
B) Temporal method:
Beginning inventory 100,000*0.5(H)= 50,000
Purchases 500,000*0.42(A)= 210,000
Ending inventory 150,000*0.4(H)= 60,000
Cost of goods sold 450,000 200,000
10. A)Equipment 60,000,000,000*0.000007(H) = 420,000
40,000,000,000*0.000002(H) = 80,000
Accum. dep. 4,000,000,000*0.000007(H) = 168,000
Net book value: 500,000-184,000 = 316,000
Accum. Dep. 32,000,000,000*0.0000006(C) = 19,200
Net book value: 60,000-19,200 = 40,800