A U.S. parent owns a subsidiary in France, and the subsidiary's accounts are maintained in euros, its functional currency. During the year, the euro has weakened against the U.S. dollar (U.S.$/€ rate has declined). Which one of the subsidiary's transactions below increases the amount of translation losses reported when the subsidiary's accounts are translated to U.S. dollars?

Question

Quizplus · Accepted Answer

When the euro weakens against the U.S. dollar, revenues earned in euros will translate into fewer U.S. dollars, increasing translation losses. Expenses or losses in euros would translate into fewer dollars as well, but this would not increase translation losses; it would actually mitigate them.

A US Parent Owns a Subsidiary in France, and the Subsidiary's