Dover Company owns 90% of the capital stock of a foreign subsidiary located in Italy.Dover's accountant has just translated the accounts of the foreign subsidiary and determined that a debit translation adjustment of $80,000 exists.If Dover uses the fully adjusted equity method for its investment,what entry should Dover record in order to recognize the translation adjustment?

A)Option A
B)Option B
C)Option C
D)Option D

Question

Dover Company owns 90% of the capital stock of a foreign subsidiary located in Italy.Dover's accountant has just translated the accounts of the foreign subsidiary and determined that a debit translation adjustment of $80,000 exists.If Dover uses the fully adjusted equity method for its investment,what entry should Dover record in order to recognize the translation adjustment?

A)Option A 
B)Option B 
C)Option C 
D)Option D

Quizplus · Accepted Answer

Under the fully adjusted equity method, the translation adjustment is recorded as a separate component of shareholders' equity. Therefore, the journal entry to recognize the translation adjustment is: 
Debit: Translation Adjustment $80,000 
Credit: Accumulated Other Comprehensive Income $80,000 
Option A is incorrect because it improperly recognizes the translation adjustment as a gain or loss on the income statement. Option B is incorrect because it recognizes the translation adjustment in the equity section of Dover's balance sheet, but incorrectly reduces the investment in the subsidiary by the same amount. Option D is incorrect because it recognizes the translation adjustment in the income statement, which is not consistent with the fully adjusted equity method.

Dover Company Owns 90% of the Capital Stock of a Foreign