Question

Examine the items below and pay close attention to their balances (whether they are normally supposed...

Examine the items below and pay close attention to their balances (whether they are normally supposed to be debit/credit balances and what they are shown as).

Items: Debit Credit
Unrealized foreign exchange gain on translation of self-sustaining foreign operations 3000
Adjustment to fair value of cash flow hedge derivative instruments 6000
Adjustment for change in accounting policy 1000

Instructions:

Determine whether each item should be reported as a component under Net Income, Other Comprehensive Income, or neither. Explain why for each.

Homework Answers

Answer #1

Unrealized foreign exchange gain on translation of self-sustaining foreign operations is reported as a component of Other Comprehensive Income. So 3000 will be taken as credit to Other Comprehensive Income.

Gains on Fair value of Cash flow Hedge are also treated as component of Other Comprehensive Income. So 6000 will be taken as credit to Other Comprehensive Income.

Adjustments for change in Accounting policy are done for all accounts of the prior periods retrospectively , so all accounts are restated with the values as per the revised accouting policy.

Therefore answer for these changes is neither Net Income nor OCI, the amount of change shall be reflected through all the accounts impacted for each prior period.

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