Current Rate Method Translation Impacts

Medium Multinational Operations Translation Methods

ABC Corporation is a multinational company with operations in several countries. Its financial reports must include the results of its foreign subsidiaries. In preparing these reports, ABC Corporation must choose an appropriate translation method for the financial statements of each subsidiary operating in different currencies. One of the options available to ABC is the current rate method which translates assets and liabilities at the current exchange rate on the balance sheet date.

Which of the following statements best describes the effect of using the current rate method on ABC Corporation's financial statements?

Assets and liabilities are translated using the historical exchange rates, while income statement items are translated at the average exchange rate over the reporting period.

All assets and liabilities are translated at the current exchange rate, and all income statement items are translated at the average exchange rate during the reporting period.

Assets and liabilities are translated at the historical rates, and all income statement items are translated at the closing rate.

Hint

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