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In: Accounting

A U.S. company has a subsidiary in Mexico. If the company's income statement reports a loss...

A U.S. company has a subsidiary in Mexico. If the company's income statement reports a loss for conversion of subsidiary accounts to U.S. dollars, the most likely explanation is that:

A.

The peso has strengthened against the U.S. dollar and the subsidiary's functional currency is the peso.
B.

The peso has weakened against the U.S. dollar and the subsidiary's functional currency is the U.S. dollar.
C.

The peso has weakened against the U.S. dollar and the subsidiary's functional currency is the peso.
D.

The peso has strengthened against the U.S. dollar and the subsidiary's functional currency is the U.S. dollar.

Solutions

Expert Solution

Ans A. The peso has strengthened against the U.S. dollar and the subsidiary's functional currency is the peso.
Explanation The U.S. company has a subsidiary in Mexico shows that U.S. company is parent company whose reporting currency is U.S. dollar and currency of Maxico (i.e. country of subsidiary's company) is peso. The parent company consolidate the financial statements of its subsidiaries and convert the financial statements of subsidiaries which are in foreign currency to domestic country's currency. In this case the US company's income statement reports a loss for conversion of subsidiary accounts to U.S. dollars. On conversion when the value of U.S. dollars gets down against the peso, then loss on conversion is reported. So, the loss has occurred due to weakening of the US dollar against the peso that means the peso has strengthened against the U.S. dollar and the subsidiary's functional currency is the peso.

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ekkarill92 answered 1 year ago
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