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

Question

Zachary Young

Business

22 November, 03:33

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

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Swanson · Answer 1

10% foreign exchange loss on the U. S. dollar accounts receivable

Explanation:

Based on the information provided within the question it can be said that in this example the Canadian subsidiary will record a 10% foreign exchange loss on the U. S. dollar accounts receivable. That is because as the Canadian dollar has appreciated 10% against the U. S. dollar, it means that it has lost 10% of it's buying power due to its foreign exchange price change, thus resulting in a loss which needs to be recorded.