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 2016 when the exchange rate was 1 pound = $1.50.The British subsidiary was acquired by the U.S.firm in 20X0 when the exchange rate was 1 pound = $1.40.The exchange rate on December 31, 2017, the date of the most current balance sheet, is 1 pound = $1.55.The average rate of exchange for 2017 is $1.53.Assuming the dollar is the functional currency of the subsidiary, what exchange rate will be used to re-measure patents for the consolidated statements dated December 31, 2017?
A)$1.40
B)$1.50
C)$1.53
D)$1.55

Question

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 2016 when the exchange rate was 1 pound = $1.50.The British subsidiary was acquired by the U.S.firm in 20X0 when the exchange rate was 1 pound = $1.40.The exchange rate on December 31, 2017, the date of the most current balance sheet, is 1 pound = $1.55.The average rate of exchange for 2017 is $1.53.Assuming the dollar is the functional currency of the subsidiary, what exchange rate will be used to re-measure patents for the consolidated statements dated December 31, 2017?
A)​$1.40
B)​$1.50
C)​$1.53
D)​$1.55

Quizplus · Accepted Answer

When the dollar is the functional currency, non-monetary assets such as patents are re-measured using the historical exchange rate in effect at the date of acquisition. The patents were acquired in 2016 at an exchange rate of 1 pound = $1.50.

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