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.

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Definitions:

Total Revenue

The total amount of income generated by the sale of goods or services before any expenses are subtracted.

COGS

Cost of Goods Sold, which refers to the direct costs attributable to the production of the goods sold by a company.

Economic Value Added

A measure of a company's financial performance based on the premise that true profit occurs when additional wealth is created for shareholders, beyond the cost of capital invested.