The Translation Adjustment That Results from Translating the Financial Statements

question 6

Multiple Choice

The translation adjustment that results from translating the financial statements of a foreign subsidiary using the current rate method should be:

• A) included as a separate item in the stockholders' equity section of the balance sheet.
• B) included in the determination of net income for the period it occurs.
• C) deferred and amortized over a period not to exceed forty years.
• D) deferred until a subsequent year when a loss occurs and offset against that loss.

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Definitions:

Deadweight Losses

Economic inefficiencies that occur when the allocation of resources is not optimal, resulting from distortions in the market such as taxes, subsidies, or monopolies.

Perfect Price Discrimination

A pricing strategy where a seller charges the maximum possible price for each unit consumed that each buyer is willing to pay, thus capturing the entire consumer surplus as profit.

Total Revenue

The total income received by a firm from its sales of goods or services before any costs or expenses are deducted.

Arbitrage

The practice of buying and selling a commodity or financial instrument in different markets to profit from differing prices for the same asset.