Note: This Is a Kaplan CPA Review Question

question 61

Multiple Choice

Note: This is a Kaplan CPA Review Question
The functional currency of Nash, Inc.'s subsidiary is the French franc. Nash borrowed French francs as a partial hedge of its investment in the subsidiary. In preparing consolidated financial statements, Nash's translation loss on its investment in the subsidiary exceeded its exchange gain on the borrowing. How should the effects of the loss and gain be reported in Nash's consolidated financial statements?

• A) The translation loss less the exchange gain is reported separately as other comprehensive income.
• B) The translation loss less the exchange gain is reported in the income statement.
• C) The translation loss is reported separately in the stockholders' equity section of the balance sheet and the exchange gain is reported in the income statement.
• D) The translation loss is reported in the income statement and the exchange gain is reported separately in the stockholders' equity section of the balance sheet.

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Definitions:

Depreciation

An accounting method of allocating the cost of a tangible asset over its useful life.

Interest Expense

The cost incurred by an entity for borrowed funds; this can include payments on loans, bonds, or other financial liabilities.

LIFO

Last In, First Out, an inventory valuation method where the most recently produced items are recorded as sold first.

FIFO

An accounting method for asset management and valuation where the first items acquired are the first ones sold or used.