_____ Parrco 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 Swiss francs. During 2006, the U.S. dollar strengthened. Parrco uses the foreign currency unit of measure approach. At 12/31/06, Parrco 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

The receivable is denominated in Swiss francs, and the U.S. dollar strengthened during 2006. This means that the value of the receivable in U.S. dollars has decreased. Parrco uses the foreign currency unit of measure approach, which means that the receivable is recorded in U.S. dollars. Therefore, Parrco should adjust the intercompany receivable downward and debit OCI-Translation Adjustment.

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