Temporal method: different local currency, functional currency and reporting currency of a subsidiary

[Question]

(1) the operating, financing, and investing decisions related to a foreign subsidiary's operations are typically made by the foreign subsidiary's local management located in the foreign country; and
(2) some of the foreign subsidiary's accounts receivable are denominated in a different foreign currency(DFC).

Which method is the best to use to translate the DFC receivables into the foreign currency (FC), according to U.S. GAAP?

The U.S. dollar is the reporting currency of a parent company.

A. The all-current method.
B. The temporal method.
C. The method will depend on inflation.

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Answer: B

In this example, the DFC is the local currency, the FC is the functional currency (because the foreign subsidiary is an independent subsidiary), and the U.S. dollar is the reporting currency.

The appropriate application of U.S. GAAP is to first remeasure the DFC receivables from DFC to FC using the temporal method.