Question #67
Reading: Reading 10 Multinational Operations
PDF File: Reading 10 Multinational Operations.pdf
Page: 38
Status: Unattempted
Question
Which of the following statements is NOT a characteristic of the current rate method of accounting for foreign currency translation?
Answer Choices:
A. All asset accounts are translated at the current rate of exchange as of the balance sheet date
B. The common stock account is translated at the rate of exchange that applied when the equity was issued
C. Nonmonetary liabilities are translated at the historical rate of exchange. Della Air Lines has recently acquired Australian Puddle Jumpers, Inc. (APJ), a small airline located in Sydney. The Australian dollar has been chosen by Della as the functional currency for APJ. The balance sheet of APJ is given below as of Dec. 31, 2011 in U.S. dollars
Explanation
Under the current rate method, all liabilities are translated at the current rate of
exchange.
(Module 10.4, LOS 10.e)
Della Air Lines has recently acquired Australian Puddle Jumpers, Inc. (APJ), a small airline
located in Sydney. The Australian dollar has been chosen by Della as the functional currency
for APJ. The balance sheet of APJ is given below as of Dec. 31, 2011 in U.S. dollars.
Assets
Liabilities and Equity
Cash
$100
Accounts Payable (A/P)
$90
Accounts Receivable (A/R)
120
Common Stock
360
Maintenance Supplies
90
Fixed Assets
140
Total Assets
$450
Total Liabilities & Equity
$450
APJ's income statement for the year ending Dec. 31, 2012 is expressed in Australian dollars
as:
Sales
3,500
Total Costs
2,900
Net Income
600
The Australian dollar has steadily depreciated against the U.S. dollar. At Dec. 31, 2011, the
exchange rate was A$/US$ 2.50, the average rate during the year was A$/US$ 2.75 and
A$/US$ 3.0 on Dec. 31, 2012.
The Dec. 31, 2012 Balance Sheet for APJ is given in Australian dollars as follows:
Assets
Liabilities and Equity
Cash
441
A/P
210
A/R
330
Common Stock
720
Supplies
291
Retained Earnings
600
Fixed Assets
468
Total Assets
1,530
Total Liabilities & Equity
1,530