Homeko, Inc. is located in the U.S., but it has subsidiaries in Germany. When the euro appreciates relative to the U.S. dollar, what is the direction of the translation adjustment to consolidate Homeko's financial statements?
A) When there is net asset exposure, the translation adjustment will be positive.
B) When there is net liability exposure, the translation adjustment will be positive.
C) The direction of the adjustment is indeterminate.
D) There will be no adjustment necessary unless the difference is realized.

Question

Quizplus · Accepted Answer

When the euro appreciates relative to the U.S. dollar, Homeko's subsidiaries in Germany will have a higher value. Therefore, there is net asset exposure, and the translation adjustment will be positive.