_____ At 12/31/06, Pivax had a $60,000 dividend receivable from its foreign subsidiary. The dividend of 100,000 LCU is denominated in LCU and was declared on 12/28/06, when the direct exchange rate was $.60. The dividend was remitted to Pivax on 1/8/07, when the direct exchange rate was $.62. The direct exchange rate at 12/31/06 was $.59. Pivax uses the foreign currency unit of measure approach. At 12/31/06, Pivax should
A) Adjust the Dividend Receivable account downward and debit OCI-Translation Adjustment for $1,000.
B) Adjust the Dividend Receivable account downward and debit Foreign Currency Transaction Loss for $1,000.
C) Make no adjustment to the Dividend Receivable account.
D) Adjust the Dividend Receivable account upward by $2,000.
E) None of the above.

Question

Quizplus · Accepted Answer

Under the foreign currency unit of measure approach, changes in exchange rates between the declaration date and the balance sheet date are recognized as foreign currency transaction gains or losses. The dividend was declared at a rate of $.60, but the rate at 12/31/06 was $.59. This means the value of the dividend receivable in USD has decreased from $60,000 (100,000 LCU * $.60) to $59,000 (100,000 LCU * $.59), resulting in a $1,000 loss. This loss is recognized in the income statement, not as an OCI-Translation Adjustment.

_____ at 12/31/06, Pivax Had a $60,000 Dividend Receivable from Its