When Determining the Functional Currency

question 28

Multiple Choice

When determining the functional currency,

• A)if the sales prices for the foreign entity's products are generally not responsive on a short-term basis to exchange rate changes, but are determined more by local competition and government regulation, the local currency should be the functional currency.
• B)if there is an active local market for the foreign entity's products the local currency should be the functional currency.
• C)if factor of production costs for the foreign entity are primarily, and on a continuing basis, costs for components obtained from the parent's country the function currency should be the home currency.
• D)all of the above

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Definitions:

Investment Portfolio

A collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, including mutual funds and ETFs.

Recognize

In tax terminology, to report and include a transaction in taxable income for the period it was realized, regardless of whether or not payment was received.

Gain

An increase in the value of an investment or asset.

Donor's Adjusted Basis

The value used for tax purposes to determine the gain or loss when property is given as a gift, generally the cost basis of the donor at the time of the gift.