8 One of the first steps in translating the financial statements of a foreign su

Question

8 One of the first steps in translating the financial statements of a foreign subsidiary is the identification of the functional currency of that entity. Which of the following indicates that the functional currency is the US Dollar of the foreign entity? a. There is a high volume of intercompany transactions b. Financing is primarily denominated in the local currency c. Sales are mostly in the United States, or sales contracts are denominated in dollars. d. Sales prices are primarily responsive in the short term to exchange rate changes. Use the following information to answer Questions 9 and 10 On November 1,2015, American Company sold inventory to a foreign customer. The account will be settled on March 1 with the receipt of $500,000 foreign currency units (FCU). On November I, American also entered into a forward contract to hedge the exposed asset. The forward rate is $.80 per unit of foreign currency. American has a December 31 fiscal year-end Spot rates on relevant dates were: Per Unit of Date November 1 December 31 March I $.83 81 .84 The entry to record the forward contract is a. FCU Receivable 400,000 15,000 Premium on Forward Contract Dollars Payable b. Dollars Receivable 415,000 415.000 c Fcu Recl ayable eward Con d Dollars Receivable 15,000 400,000 FCU Payable c. FCU Receivable 415,000 Discount on Forward Contract Dollars Payable 15,000 400,000 400,000 15,000 Discount on Forward Contract FCU Payable 415,000 10. What will be the adjusted balance in the Accounts Receivable account on December 31, and how much gain or loss was recorded as a result of the adjustment? Gain/Loss Resorded a. $425,000 b. $405,000 c. $420,000 d $410,000 $10,000 gain $10,000 loss $5,000 $5,000 loss gairn

Explanation / Answer

As per chegg's policy, I am allowed to answer only the first question so please don't mind and ask other questions separately.

The correct answer should be B. When the financing is in local currency, us dollars in this case; then it signifies that us dollars is the functional currency of foreign entity, since an would like to get financed in its functional currency to avoid any other unnecessary cost like exchange rate cost and all.

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