Chang Import/Export has numerous international subsidiaries throughout Asia that rely upon both the U.S. dollar and local currencies to sustain their operations. For the year ended December 31, Chang experienced a remeasurement loss of $40,000 and a translation gain of $25,000. As a result of these conversions, accumulated other comprehensive income would display:
a. $15,000 loss.
b. $40,000 loss.
c. $25,000 gain
d. $0.
Explanation
Choice "c" is correct. Conversion adjustments associated with translation of financial statements are displayed in accumulated other comprehensive income. The $25,000 translation gain is included in accumulated other comprehensive income.
Choice "d" is incorrect. Conversion adjustments associated with translation of financial statements are displayed in accumulated other comprehensive income. The $25,000 translation gain is included in accumulated other comprehensive income. Accumulated other comprehensive income would not reflect $0 in activity.
Choice "a" is incorrect. Conversion adjustments associated with remeasurement of financial statements is displayed in income. The $40,000 remeasurement loss would be displayed in income, and not netted against the translation gain for display in accumulated other comprehensive income.
Choice "b" is incorrect. Conversion adjustments associated with remeasurement of financial statements is displayed in income. The $40,000 remeasurement loss would be displayed in income, not in accumulated other comprehensive income.
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