The FASB adopted the concept of the functional currency , which is defined as, the currency of the primary economic environment in which the entity operates; normally that is the currency of the environment in which an entity primarily generates and receives cash. The functional currency is used to differentiate between two types of foreign operations, those that are self-contained and integrated with the parent, for example, a U.S. company may have foreign affiliates in many countries. Each affiliate must be analyzed to determine its individual functional currency. The methodology for translating the subsidiary’s financial statements into the parent’s reporting currency, for a U.S. company’s foreign sales branch located in Spain, when subsidiary Spanish branch selected U.S. dollar as its functional currency.

Question

Want to see the full answer?

Answer 1

Question

Chapter 12, Problem 12.11Q

To determine

Introduction:The FASB adopted the concept of the functional currency , which is defined as, the currency of the primary economic environment in which the entity operates; normally that is the currency of the environment in which an entity primarily generates and receives cash. The functional currency is used to differentiate between two types of foreign operations, those that are self-contained and integrated with the parent, for example, a U.S. company may have foreign affiliates in many countries. Each affiliate must be analyzed to determine its individual functional currency.

The methodology for translating the subsidiary’s financial statements into the parent’s reporting currency, for a U.S. company’s foreign sales branch located in Spain, when subsidiary Spanish branch selected U.S. dollar as its functional currency.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Accounting for Foreign Currency Transactions: Accounting for foreign currency transactions involves recording and reporting financial transactions denominated in a currency other than the entity's functional currency. Here are the key steps involved in handling such transactions: **1. Identifying Foreign Currency Transactions: Definition: Foreign currency transactions occur when a business entity conducts financial transactions, such as sales, purchases, or investments, in a currency different from its functional currency. Examples: Buying goods from a foreign supplier, selling products to overseas customers, or borrowing funds in a foreign currency. **2. Determining the Functional Currency: Primary Currency: Each business entity designates a functional currency, which is the primary currency used in its day-to-day operations and financial reporting. Factors Considered: Factors such as the location of the entity's primary economic activities, the currency in…

Companies conducting business outside their country's borders are required to translate the results of its foreign subsidiaries into their home currency so those results can be combined into their financial reporting domestically. What are three general steps to the foreign translation process

Companies such as Sime Darby, Maxis and Nestle carry out many transactions in foreign currencies and have foreign operations. The entities are required to apply MFRS 121 The Effects of Changes in Foreign Exchange Rates in translating the financial statements of foreign operations to include in the consolidated financial statements. Discuss the THREE (3) primary indicators/factors in determining the functional currency of a company in order to records its transactions and prepare the financial statements.