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

Answer 1

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.