When a foreign entity has the U.S.dollar as its functional currency,it uses which exchange rate to translate monetary assets and liabilities?
A) the average exchange rate during the period
B) the end of the period exchange rate
C) the historical exchange rate
D) the exchange rate on the date the asset or liability was obtained

Question

Quizplus · Accepted Answer

When a foreign entity has the U.S. dollar as its functional currency, it should translate monetary assets and liabilities using the end-of-period exchange rate. This is because monetary assets and liabilities are typically short-term in nature and are expected to be settled within a short period of time, which makes the end-of-period exchange rate the most appropriate measure of the fair value of the asset or liability. The historical exchange rate and the exchange rate on the date the asset or liability was obtained could be outdated and not reflect the current fair value of the asset or liability, and the average exchange rate during the period may not accurately represent the fair value at a specific point in time.

When a Foreign Entity Has the U