Huggins Co. was formed on January 1, 2017 at Mars Kingdom as a wholly owned fore

Question

Huggins Co. was formed on January 1, 2017 at Mars Kingdom as a wholly owned foreign subsidiary of a U.S. corporation. Huggins' functional currency was the currency at Mars (FCU). The following transactions and events occurred during 2017:

      Jan 1 Huggins issued common stock for 1,000,000 FCU.

        June 30  Huggins paid dividends of 20,000 FCU.

        Dec 31 Huggins reported net income of 80,000 FCU for the year

        Exchange rates for 2017 were:

Jan 1 $1 = .46 FCU

June 30 $1 = .44 FCU

Dec 31 $1 = .40 FCU

           Weighted average rate for the year   $1 = .42 FCU

What exchange rate should have been used in translating Huggins' dividends for 2017?

A. $1 = .46 FCU.

B. $1 = .42 FCU.

C. $1 = .44 FCU.

D. $1 = .40 FCU.

E. $1 = .43 FCU.

Explanation / Answer

Exchange rate prevailing on the day of declaration of divided if available then it should be used for conversion. In this case, exchange rate is $1=.44FCU on June 30. Hence, it should be used for conversion.

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