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.

Question

Quizplus · Accepted Answer

The effects of the translation loss and exchange gain should be reported separately in other comprehensive income since the subsidiary's functional currency is different from the parent company's functional currency. This follows the guidance of ASC 830-30-45-1, which requires that translation gains and losses for a foreign subsidiary be reported in other comprehensive income, net of any related tax effects.

The Functional Currency of Nash,Inc