D is corrent. Per ASC Topic 830, translation adjustments result from translating an entity’s financial statements into the reporting currency. Such adjustments, which result when the entity’s functional currency is the foreign currency, should not be included in the determination of net income. Rather, such adjustments should be reported as components of "other comprehensive income" and stockholders’ equity. Note that if the functional currency was the reporting currency, a remeasurement process would have been used, with the resulting gain (loss) reported on the income statement. Conversely, gains and losses which result from foreign exchange transactions are reported on the income statement. At 12/31/Y1, the receivable was translated at $110,000 (representing 200,000 LCU). When the 200,000 LCU were collected, they were worth $120,000. Therefore, a foreign exchange transaction gain of $10,000 ($120,000 – $110,000) should be reported on the year 2 income statement.
A is incorrect. Per ASC Topic 830, translation adjustments result from translating an entity’s financial statements into the reporting currency. Such adjustments, which result when the entity’s functional currency is the foreign currency, should not be included in the determination of net income. Rather, such adjustments should be reported as components of "other comprehensive income" and stockholders’ equity. Note that if the functional currency was the reporting currency, a remeasurement process would have been used, with the resulting gain (loss) reported on the income statement. Conversely, gains and losses which result from foreign exchange transactions are reported on the income statement. At 12/31/Y1, the receivable was translated at $110,000 (representing 200,000 LCU). When the 200,000 LCU were collected, they were worth $120,000. Therefore, a foreign exchange transaction gain of $10,000 ($120,000 – $110,000) should be reported on the year 2 income statement.
A is incorrect. Per ASC Topic 830, translation adjustments result from translating an entity’s financial statements into the reporting currency. Such adjustments, which result when the entity’s functional currency is the foreign currency, should not be included in the determination of net income. Rather, such adjustments should be reported as components of "other comprehensive income" and stockholders’ equity. Note that if the functional currency was the reporting currency, a remeasurement process would have been used, with the resulting gain (loss) reported on the income statement. Conversely, gains and losses which result from foreign exchange transactions are reported on the income statement. At 12/31/Y1, the receivable was translated at $110,000 (representing 200,000 LCU). When the 200,000 LCU were collected, they were worth $120,000. Therefore, a foreign exchange transaction gain of $10,000 ($120,000 – $110,000) should be reported on the year 2 income statement.
A is incorrect. Per ASC Topic 830, translation adjustments result from translating an entity’s financial statements into the reporting currency. Such adjustments, which result when the entity’s functional currency is the foreign currency, should not be included in the determination of net income. Rather, such adjustments should be reported as components of "other comprehensive income" and stockholders’ equity. Note that if the functional currency was the reporting currency, a remeasurement process would have been used, with the resulting gain (loss) reported on the income statement. Conversely, gains and losses which result from foreign exchange transactions are reported on the income statement. At 12/31/Y1, the receivable was translated at $110,000 (representing 200,000 LCU). When the 200,000 LCU were collected, they were worth $120,000. Therefore, a foreign exchange transaction gain of $10,000 ($120,000 – $110,000) should be reported on the year 2 income statement.
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