The translation adjustment from translating a foreign subsidiary\'s financial st
ID: 2393284 • Letter: T
Question
The translation adjustment from translating a foreign subsidiary's financial statements should be shown as...
A.) An asset or liability (depending on the balance) on the consolidated balance sheet.
B.) A revenue or expense (depending on the balance) on the consolidated income statement.
C.) A component of stockholders' equity on the consolidated balance sheet.
D.) A component of cash flows from financing activities on the consolidated statement of cash flows.
E.) an element of the notes that accompany the consolidated financial statements.
The answer is = C
Explanation / Answer
The translation Entry is shown as
C.) A component of stockholders' equity on the consolidated balance sheet.
This is because translating a foreign subsidiaries statements do not create any asset or liability.
Asset is a defined as something which leads to future benefits for the company and liability which results in future cash oyutflows. So, trnaslatiob adjustment is neither an asset nor a liability.
Moreover, It is neither revenue nor expense since it wasn't incurred or earmed.
No question of showing it in Cash Flows, since no cash inflow/outflow takes place.
So, the best way to adjust the translation adjustment is through Stockholder's Equity.
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