Delfi Entity (DE), with the functional and presentation currency of the US dollar, established a Canadian subsidiary, Northern Entity (NE), an assembly plant located on the Canadian side of Niagara Falls. Other than paying its employees for labor in the Canadian dollars (local currency), all of NE's transactions are with the parent. NE is financed mainly by the parent. DE provides the subsidiary with any necessary parts and equipment. What is NE's functional currency?
A) the Canadian dollar
B) the US dollar
C) NE can choose any currency it wants
D) more information is needed to determine NE's functional currency

Question

Quizplus · Accepted Answer

The functional currency of Northern Entity (NE) is the US dollar. This is because, despite paying its employees in Canadian dollars, all of NE's transactions are with its parent company, Delfi Entity (DE), which operates in US dollars. Furthermore, NE is primarily financed by DE, which also provides it with necessary parts and equipment. Therefore, the majority of NE's business operations are conducted in US dollars, making it the functional currency.

Delfi Entity (DE), with the Functional and Presentation Currency of the US