In cases of operations located in highly inflationary economies:
A) The reporting currency of the U.S. parent-the U.S. dollar-should be used as the foreign entity's functional currency.
B) The foreign currency should be used as the functional currency with a footnote to the financials displaying what the earnings would have been using the U.S. dollar as the functional currency.
C) The foreign currency should be used as the functional currency with a single line item-foreign translation-reporting the adjustment using the U.S. dollar as the functional currency.
D) None of these.

Question

Quizplus · Accepted Answer

In highly inflationary economies, the U.S. dollar should be used as the functional currency for the foreign entity to provide more stable financial reporting.

In Cases of Operations Located in Highly Inflationary Economies