Chapter 12, Problem 12.20Q

To determine

Introduction:When U.S Company has a foreign affiliate, in this context the entity has to determine its functional currency of a foreign operations, and the relationship between these two organizations need to be considered. Two possible situations may arise, one the overseas operation has a high degree of autonomy, and intercompany transactions are very less. The other situation is where foreign operation is an extension of the parent, and intercompany transactions are frequent, in this case the financial statements of both the parent company and foreign subsidiary has to be consolidated.

The basic problem of eliminating intercompany transactions with foreign affiliates.