Pelmer has a foreign subsidiary,Sapp Corporation of Germany,whose functional currency is the euro.Sapp's books are maintained in euros.On December 31,2011,Sapp has an account receivable denominated in British pounds.Which one of the following statements is true?
A)Because all accounts of the subsidiary are translated into U.S.dollars at the current rate,the Account Receivable is not adjusted on the subsidiary's books before translation.
B)The Account Receivable is remeasured into the functional currency,thus eliminating the need for translation.
C)The Account Receivable is first adjusted to reflect the current exchange rate in euros and then translated at the current exchange rate into dollars.
D)The Account Receivable is adjusted to euros at the current exchange rate,and any resulting gain or loss is included as a translation adjustment in the stockholders' equity section of the subsidiary's separate balance sheet.

Question

Quizplus · Accepted Answer

The account receivable denominated in British pounds needs to be adjusted to reflect the current exchange rate in euros because the functional currency of the subsidiary is the euro. After the adjustment, the account receivable can be translated at the current exchange rate into dollars. This process ensures that the financial statements of the subsidiary are presented in the reporting currency (dollars) and comply with the principles of accounting for foreign operations.

Pelmer Has a Foreign Subsidiary,Sapp Corporation of Germany,whose Functional Currency