In general, if a foreign firm translates its financial statements according to the temporal method during a period when the value of the foreign currency is rising against the reporting currency, the firm will recognize a
A) translation gain in the income statement.
B) translation loss in the income statement.
C) translation gain in the accumulated translation adjustment account in owners' equity.
D) translation loss in the accumulated translation adjustment account in owners' equity.

Question

Quizplus · Accepted Answer

When the value of the foreign currency is rising against the reporting currency, a foreign firm translating its financial statements according to the temporal method would experience a translation loss on the income statement. This is because the value of assets and liabilities denominated in the foreign currency will increase when translated into the reporting currency, and this increase will result in a lower net income.

In General, If a Foreign Firm Translates Its Financial Statements