A 100 percent–owned foreign subsidiary’s trial balance consists of the accounts listed as follows. Which exchange rate—current, historical, or average—would be used to translate these accounts to parent currency assuming that the foreign currency is the functional currency? Which rates would be used if the parent currency were the functional currency?
Trial Balance Accounts
Cash ............... Common stock
Marketable securities (cost) ...... Premium on common stock
Accounts receivable ......... Retained earnings
Inventory (market) .............. Sales
Equipment ............ Purchases
Accumulated depreciation ...... Cost of sales
Prepaid expenses ........... General and administrative expenses
Goodwill .............. Selling expenses
Accounts payable .......... Depreciation
Due to parent (denominated in dollars) . Amortization of goodwill
Bonds payable ............ Income tax expense
Income taxes payable ........ Intercompany interest expense
Deferred income taxes