Under FAS 52, the effect of an exchange rate change is referred to as a translation adjustment only if the foreign currency is the functional currency.

Question

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Under FAS 52 (now codified as ASC 830 by the FASB), the effect of an exchange rate change on the financial statements of a company's foreign operation is referred to as a translation adjustment when the foreign entity's functional currency is not the U.S. dollar. This adjustment is necessary to convert the financial statements of the foreign entity into the reporting currency of the parent company.

Under FAS 52, the Effect of an Exchange Rate Change