XYZ Corporation, a U.S.-based multinational entity, has a wholly-owned subsidiary in the Eurozone. The subsidiary's functional currency is the Euro, and XYZ Corporation must consolidate its financial statements to report in U.S. dollars. Given the following financial statement items for the subsidiary: Assets: €10,000,000 Liabilities: €5,000,000 Revenue: €2,000,000 Expenses: €1,500,000 Assume the exchange rates are as follows: at the balance sheet date, the exchange rate is 1 Euro = 1.10 USD, and for the reporting period, the average exchange rate is 1 Euro = 1.05 USD. Using the current rate method, what would be the consolidated net income and total assets in USD to report for the subsidiary?

Exam

CFA Level 2

Section

Difficulty

Financial Reporting and Analysis

Translation of Financial Statements

Very Hard Multinational Operations Translation Methods

XYZ Corporation, a U.S.-based multinational entity, has a wholly-owned subsidiary in the Eurozone. The subsidiary's functional currency is the Euro, and XYZ Corporation must consolidate its financial statements to report in U.S. dollars. Given the following financial statement items for the subsidiary:

Assets: €10,000,000
Liabilities: €5,000,000
Revenue: €2,000,000
Expenses: €1,500,000

Assume the exchange rates are as follows: at the balance sheet date, the exchange rate is 1 Euro = 1.10 USD, and for the reporting period, the average exchange rate is 1 Euro = 1.05 USD. Using the current rate method, what would be the consolidated net income and total assets in USD to report for the subsidiary?

Net Income: $52,500; Total Assets: $11,000,000

Net Income: $52,500; Total Assets: $10,000,000

Net Income: $50,000; Total Assets: $11,000,000

Hint

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