Which of the following statements is true regarding the cumulative translation a

Question

Which of the following statements is true regarding the cumulative translation adjustment? Select one:

A: Changes in the cumulative translation adjustment are reported in the income statement at each statement date.

B: The cumulative translation adjustment account affects the amount of gain or loss reported upon the sale of a foreign subsidiary.

C: Changes in the cumulative translation adjustment account are added back in the computation of net cash flow from operating activities since they are non-cash income or expense.

D: The cumulative translation adjustment account is reported in accumulated other comprehensive income and is transferred into reported earnings when the transaction to which it relates affects reported earnings.

Explanation / Answer

B. The cumulative translation adjustment account affects the amount of gain or loss reported upon the sale of a foreign subsidiary.

The current method requires that all asset and liability accounts be translated at the current rate while stockholders’ equity accounts are translated at historical exchange rates. The difference is reflected through the cumulative translation adjustment, so the amount of gain or loss reported upon the sale of a foreign subsidiary to the cumulative translation adjustment.

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