A Canadian Subsidiary of a U

question 41

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:

Accounts Receivable

Funds that customers owe a company for products or services that have been provided but remain unpaid.

Sales

The total amount of goods or services sold or provided to customers, generating revenue for a business.

Long-Term Debt To Assets

A ratio indicating the proportion of a company's assets that are financed through long-term debt, showing financial leverage.

Total Assets

The sum of all owned resources with economic value that are expected to provide future benefits to a company.