_____ Patonics has a long-term intercompany receivable on its books resulting from a loan made to a foreign subsidiary several years ago. No due date is specified inasmuch as settlement is not planned in the foreseeable future. The receivable is denominated in U.S. dollars. During 2006, the U.S. dollar strengthened. Patonics uses the foreign currency unit of measure approach. At 12/31/06, Patonics should
A) Adjust the intercompany receivable downward and debit OCI-Translation Adjustment.
B) Adjust the intercompany receivable downward and debit FX Transaction Loss.
C) Adjust the intercompany receivable downward and debit Investment in Subsidiary.
D) Make no adjustment to the Intercompany Receivable account.
E) None of the above.

Question

Quizplus · Accepted Answer

Since the receivable is denominated in U.S. dollars and Patonics uses the foreign currency unit of measure approach, there is no need to adjust the intercompany receivable for changes in exchange rates. The value of the receivable in U.S. dollars remains constant regardless of fluctuations in currency exchange rates.

_____ Patonics Has a Long-Term Intercompany Receivable on Its Books