The Gain or Loss on the Effective Portion of a U.S.parent

question 45

Multiple Choice

The gain or loss on the effective portion of a U.S.parent company's hedge of a net investment in a foreign entity should be treated as:

• A)an adjustment to the retained earnings account in the stockholders' equity section of its balance sheet.
• B)other comprehensive income.
• C)a translation gain or loss in the computation of net income for the reporting period.
• D)an adjustment to a valuation account in the asset section of its balance sheet.

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Definitions:

Spot-Futures Parity

A theoretical pricing model that suggests the relationship between the spot price of an asset and its corresponding futures price, based on the cost of carry.

Relationship

The way in which two or more concepts, objects, or people are connected, or the state of being connected.

Stated

Pertains to information, policies, or conditions that are formally expressed or declared by an authoritative source or document.

Long Hedger

An investor or trader who enters into contracts to purchase a commodity or asset at a future date to protect against price increases.