The eliminations and adjustment entries necessary to consolidate the parent and subsidiary financial statements are translated as follows:
A)all balances, profits, and losses at the current exchange rate on the consolidation date
B)intercompany balances translate at the rates used for other accounts, profits and losses may be translated at an average rate
C)intercompany balances translate at the current rates, profits and losses translate at an average rate
D)none of the above are correct

Question

The eliminations and adjustment entries necessary to consolidate the parent and subsidiary financial statements are translated as follows:
A)​all balances, profits, and losses at the current exchange rate on the consolidation date
B)​intercompany balances translate at the rates used for other accounts, profits and losses may be translated at an average rate
C)​intercompany balances translate at the current rates, profits and losses translate at an average rate
D)​none of the above are correct

Quizplus · Accepted Answer

Intercompany balances should be translated using the exchange rate used for other accounts, while profits and losses may be translated using an average rate to avoid distortions. This method is known as the current rate method. Therefore, choice A and C are incorrect. Choice D is also incorrect, as the correct answer is B.

The Eliminations and Adjustment Entries Necessary to Consolidate the Parent