Which of the following statement is most correct?
A) A self-sustaining foreign entity is required to use the temporal method for translating its statements into the reporting currency and gains and losses flow through the income statement.
B) An integrated foreign entity is required to use the current rate method for translating its statements into the reporting currency and gains and losses flow through the income statement.
C) A self-sustaining foreign entity is required to use the current rate method for translating its statements into the reporting currency and gains and losses are recorded in the cumulative translation adjustment (CTA) account without flowing through the income statement.
D) An integrated foreign entity is required to use the temporal method for translating its statements into the reporting currency and gains and losses are recorded in the cumulative translation adjustment (CTA) account without flowing through the income statement.
E) None of the statements above is correct.

Question

Quizplus · Accepted Answer

A self-sustaining foreign entity typically uses the current rate method for translating its financial statements into the reporting currency. Under this method, assets and liabilities are translated at the current exchange rate at the balance sheet date, while income statement items are translated at the average rate for the period. Gains and losses from translation are recorded in the cumulative translation adjustment (CTA) account within equity, not flowing through the income statement.

Which of the Following Statement Is Most Correct