A foreign entity is a subsidiary of a U.S.parent company and has always used the current rate method to translate its foreign financial statements on behalf of its parent company.Which one of the following statements is false?
A)The U.S.dollar is the functional currency of this company.
B)Changes in exchange rates between the subsidiary's country and the parent's country are not expected to affect the foreign entity's cash flows.
C)Translation adjustments are shown in stockholders' equity as increases or decreases in other comprehensive income.
D)Translation adjustments are not shown on the income statement.

Question

Quizplus · Accepted Answer

The fact that the foreign entity has always used the current rate method to translate its financial statements does not necessarily mean that the U.S. dollar is the functional currency of the foreign entity. Functional currency is determined based on the primary economic environment in which the entity operates.

A Foreign Entity Is a Subsidiary of a U