A Canadian Subsidiary of a U

question 38

Multiple Choice

A Canadian subsidiary of a U.S. parent firm is instructed to bill an export to the parent in U.S. dollars. The Canadian subsidiary records the accounts receivable in Canadian dollars and notes a profit on the sale of goods. Later, when the U.S. parent pays the subsidiary the contracted U.S. dollar amount, the Canadian dollar has appreciated 10% against the U.S. dollar. In this example, the Canadian subsidiary will record a

• A)10% foreign exchange loss on the U.S. dollar accounts receivable.
• B)10% foreign exchange gain on the U.S. dollar accounts receivable.
• C)since the Canadian firm is a U.S. subsidiary neither a gain nor loss will be recorded.
• D)any gain or loss will be recorded only by the parent firm.

---

Definitions:

Contingency Payment

A payment that is made only if certain specified conditions are met or certain outcomes occur.

Consolidated Land

Land owned by a parent company or a group of companies controlled by a single entity, combined for financial reporting purposes.

Common Stock

Represents ownership shares issued by a corporation, giving holders voting rights and a residual claim on the company's assets and earnings.

Acquisition Transaction

A business event wherein one company purchases a portion or all of another company's shares or assets.