Question

Certain balance sheet accounts of a foreign subsidiary of Rowan, Inc., at December 31, year 1, have been translated into US dollars as follows:Translated at Current Rates:Note Receivable, long term: $240,000Prepaid rent: $85,000Patent: $150,000Total: $475,000Translated at Historical Rates:Note Receivable, long term: $200,000Prepaid rent: $80,000Patent: $170,000Total: $450,000The subsidiary's functional currency is the currency of country in which it is located. What total amount should be included in Rowan's December 31, year 1 consolidated balance sheet for the above accounts?a) $450,000 b) $455,000 c) $475,000 d) $495,000

Answer 1

Answer:

c) $475,000

Explanation:

All the assets and liabilities of foreign subsidiary are translated to the presentation currency of the parent company at the foreign exchange rate which exist on the last date of the year end. In this case Rowan, Inc., will be translating the balance sheet items of its foreign subsidiary at the current rates on December 31, Year 1 and based on this as mentioned in  question  the balance sheets amount to be included  in Rowan Inc. will be amounting to $475,000

So the answer shall be c) $475,000