IQ Has a Wholly Owned Subsidiary in China

question 32

Multiple Choice

IQ has a wholly owned subsidiary in China. This subsidiary is dependent on IQ for financing and sales. How should foreign exchange gains on translation of the subsidiary's statements to Canadian dollars be reported on IQ's consolidated financial statements?

• A)Gains should be credited directly to shareholders' equity.
• B)Gains should be reported on the balance sheet as deferred credits and amortized in a systematic and rational manner.
• C)Gains from current monetary assets should be credited to income, and any gains from long-term nonmonetary assets should be deferred and amortized.
• D)Gains from current monetary assets and any gains from long-term monetary assets should be credited to income.

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Definitions:

Stock Investments

Shares of ownership in a company or a financial asset, representing a claim on its earnings and assets.

Insignificant Influence

A financial accounting term used to describe an investor's inability to exert control or significant influence over the operating and financial policies of another company.

Stock Investment

The purchase of shares in a company with the expectation of earning a return through dividends, share price growth, or both.

Available-for-Sale Debt Securities

Debt investments not classified as held-to-maturity or trading securities, recorded at fair value on the balance sheet with unrealized gains or losses reported in other comprehensive income.