The functional currency refers to the currency of that country in which entity generates cashflows and spend cash to make purchases. To indicate: The factors that reflects that the domestic currency of the foreign company is not a functional currency.

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Answer 1

Question

Chapter 11, Problem 1UTI

To determine

Concept Introduction:

The functional currency refers to the currency of that country in which entity generates cashflows and spend cash to make purchases.

To indicate:The factors that reflects that the domestic currency of the foreign company is not a functional currency.

Expert Solution & Answer

Explanation of Solution

The entity’s domestic currency is not always considered as functional currency. For instance, if the company in X country borrows funds from the bank of Y country than the currency of Y country is functional currency rather than the currency used in country X.

Some of the major factors which reflects that the currency is not a functional currency are as follows:

Cashflows: If cashflows are generated in other country. For instance, the Country X operates in country Y, then the currency of Country Y will be considered as functional currency.
Financing: Funds procured from other country in their currency.
Sales market: If goods and services are sold in other country at their currency.
Expenses: If goods and services are purchased from other country. For instance, if country X’s domestic currency is dollar and the goods and services bought from country Y is in Yen, then Yen will be the functional currency.

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Students have asked these similar questions

A foreign company maintains its books and records in its domestic currency. Identify several factors that might suggest that the domestic currency is not the entity’s functional currency.

Accounting for Foreign Currency Transactions: Accounting for foreign currency transactions involves recording and reporting financial transactions denominated in a currency other than the entity's functional currency. Here are the key steps involved in handling such transactions: **1. Identifying Foreign Currency Transactions: Definition: Foreign currency transactions occur when a business entity conducts financial transactions, such as sales, purchases, or investments, in a currency different from its functional currency. Examples: Buying goods from a foreign supplier, selling products to overseas customers, or borrowing funds in a foreign currency. **2. Determining the Functional Currency: Primary Currency: Each business entity designates a functional currency, which is the primary currency used in its day-to-day operations and financial reporting. Factors Considered: Factors such as the location of the entity's primary economic activities, the currency in…

What concept underlies the two-transaction perspective in accounting for foreign currency transactions?

Answer 2

Question

Chapter 11, Problem 1UTI

To determine

Concept Introduction:

The functional currency refers to the currency of that country in which entity generates cashflows and spend cash to make purchases.

To indicate:The factors that reflects that the domestic currency of the foreign company is not a functional currency.

Expert Solution & Answer

Explanation of Solution

The entity’s domestic currency is not always considered as functional currency. For instance, if the company in X country borrows funds from the bank of Y country than the currency of Y country is functional currency rather than the currency used in country X.

Some of the major factors which reflects that the currency is not a functional currency are as follows:

Cashflows: If cashflows are generated in other country. For instance, the Country X operates in country Y, then the currency of Country Y will be considered as functional currency.
Financing: Funds procured from other country in their currency.
Sales market: If goods and services are sold in other country at their currency.
Expenses: If goods and services are purchased from other country. For instance, if country X’s domestic currency is dollar and the goods and services bought from country Y is in Yen, then Yen will be the functional currency.

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Answer 3

Question

Chapter 11, Problem 1UTI

To determine

Concept Introduction:

The functional currency refers to the currency of that country in which entity generates cashflows and spend cash to make purchases.

To indicate:The factors that reflects that the domestic currency of the foreign company is not a functional currency.

Expert Solution & Answer

Explanation of Solution

The entity’s domestic currency is not always considered as functional currency. For instance, if the company in X country borrows funds from the bank of Y country than the currency of Y country is functional currency rather than the currency used in country X.

Some of the major factors which reflects that the currency is not a functional currency are as follows:

Cashflows: If cashflows are generated in other country. For instance, the Country X operates in country Y, then the currency of Country Y will be considered as functional currency.
Financing: Funds procured from other country in their currency.
Sales market: If goods and services are sold in other country at their currency.
Expenses: If goods and services are purchased from other country. For instance, if country X’s domestic currency is dollar and the goods and services bought from country Y is in Yen, then Yen will be the functional currency.

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Answer 4

Question

Chapter 11, Problem 1UTI

To determine

Concept Introduction:

The functional currency refers to the currency of that country in which entity generates cashflows and spend cash to make purchases.

To indicate:The factors that reflects that the domestic currency of the foreign company is not a functional currency.

Expert Solution & Answer

Explanation of Solution

The entity’s domestic currency is not always considered as functional currency. For instance, if the company in X country borrows funds from the bank of Y country than the currency of Y country is functional currency rather than the currency used in country X.

Some of the major factors which reflects that the currency is not a functional currency are as follows:

Cashflows: If cashflows are generated in other country. For instance, the Country X operates in country Y, then the currency of Country Y will be considered as functional currency.
Financing: Funds procured from other country in their currency.
Sales market: If goods and services are sold in other country at their currency.
Expenses: If goods and services are purchased from other country. For instance, if country X’s domestic currency is dollar and the goods and services bought from country Y is in Yen, then Yen will be the functional currency.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 11, Problem 1UTI

To determine

Concept Introduction:

The functional currency refers to the currency of that country in which entity generates cashflows and spend cash to make purchases.

To indicate:The factors that reflects that the domestic currency of the foreign company is not a functional currency.

Expert Solution & Answer

Explanation of Solution

The entity’s domestic currency is not always considered as functional currency. For instance, if the company in X country borrows funds from the bank of Y country than the currency of Y country is functional currency rather than the currency used in country X.

Some of the major factors which reflects that the currency is not a functional currency are as follows:

Cashflows: If cashflows are generated in other country. For instance, the Country X operates in country Y, then the currency of Country Y will be considered as functional currency.
Financing: Funds procured from other country in their currency.
Sales market: If goods and services are sold in other country at their currency.
Expenses: If goods and services are purchased from other country. For instance, if country X’s domestic currency is dollar and the goods and services bought from country Y is in Yen, then Yen will be the functional currency.

Answer 6

Chapter 11, Problem 1UTI

To determine

Concept Introduction:

The functional currency refers to the currency of that country in which entity generates cashflows and spend cash to make purchases.

To indicate:The factors that reflects that the domestic currency of the foreign company is not a functional currency.

Expert Solution & Answer

Explanation of Solution

The entity’s domestic currency is not always considered as functional currency. For instance, if the company in X country borrows funds from the bank of Y country than the currency of Y country is functional currency rather than the currency used in country X.

Some of the major factors which reflects that the currency is not a functional currency are as follows:

Cashflows: If cashflows are generated in other country. For instance, the Country X operates in country Y, then the currency of Country Y will be considered as functional currency.
Financing: Funds procured from other country in their currency.
Sales market: If goods and services are sold in other country at their currency.
Expenses: If goods and services are purchased from other country. For instance, if country X’s domestic currency is dollar and the goods and services bought from country Y is in Yen, then Yen will be the functional currency.

Answer 7

Chapter 11, Problem 1UTI

To determine

Concept Introduction:

The functional currency refers to the currency of that country in which entity generates cashflows and spend cash to make purchases.

To indicate:The factors that reflects that the domestic currency of the foreign company is not a functional currency.

Answer 8

Expert Solution & Answer

Explanation of Solution

The entity’s domestic currency is not always considered as functional currency. For instance, if the company in X country borrows funds from the bank of Y country than the currency of Y country is functional currency rather than the currency used in country X.

Some of the major factors which reflects that the currency is not a functional currency are as follows:

Cashflows: If cashflows are generated in other country. For instance, the Country X operates in country Y, then the currency of Country Y will be considered as functional currency.
Financing: Funds procured from other country in their currency.
Sales market: If goods and services are sold in other country at their currency.
Expenses: If goods and services are purchased from other country. For instance, if country X’s domestic currency is dollar and the goods and services bought from country Y is in Yen, then Yen will be the functional currency.