Patents are on the books of a British subsidiary of a U.S. firm at a value of 50,000 pounds. The patents were acquired in 20X0 when the exchange rate was 1 pound = $1.50. The British subsidiary was acquired by the U.S. firm in 20X3 when the exchange rate was 1 pound = $1.40. The exchange rate on December 31, 20X4, the date of the most current balance sheet, is 1 pound = $1.55. The average rate of exchange for 20X4 is $1.53. Assuming the dollar is the functional currency of the subsidiary, what exchange rate will be used to remeasure patents for the consolidated statements dated December 31, 20X4?
A)$1.40
B)$1.50
C)$1.53
D)$1.55

Question

Quizplus · Accepted Answer

If the dollar is the functional currency, the financial statements should be translated using the remeasurement method. Under this method, patents are translated using the historical rate at the date they were acquired, or the rate at the date the subsidiary was acquired if the patents were owned by the subsidiary at that date.

Patents Are on the Books of a British Subsidiary of a U.S