The gain or loss on the effective portion of a U.S.parent company's hedge of a net investment in a foreign entity should be treated as:
A)an adjustment to the retained earnings account in the stockholders' equity section of its balance sheet.
B)other comprehensive income.
C)a translation gain or loss in the computation of net income for the reporting period.
D)an adjustment to a valuation account in the asset section of its balance sheet.

Question

Quizplus · Accepted Answer

The gain or loss on the effective portion of a U.S. parent company's hedge of a net investment in a foreign entity should be recorded in other comprehensive income in the stockholders' equity section of its balance sheet. This treatment reflects that the gain or loss is not realized until the foreign entity is sold, so it is not included in the computation of net income for the reporting period.

The Gain or Loss on the Effective Portion of a U.S.parent