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| U.S.?GAAP require the application of the functional currency concept. Before the financial statements of a foreign subsidiary may be translated into the parent company’s currency, the functional currency of the foreign subsidiary must be determined. All of the following factors indicate that a foreign subsidiary’s functional currency is the foreign currency rather than the parent’s currency except when A. Its cash flows are primarily in foreign currency and do not affect the parent’s cash flows. B. Its sales prices are responsive to exchange rate changes and to international competition. C. Its labor, material, and other costs are obtained in the local market of the foreign subsidiary. D. Its financing is primarily obtained from local foreign sources and from the subsidiary’s operations. |