Pauly Co. reports a foreign currency translation gain of $5 million in its statement of shareholders' equity. From this, you can infer that:

Question

Quizplus · Accepted Answer

A foreign currency translation gain refers to the positive impact of fluctuations in foreign currency exchange rates on the value of assets and liabilities denominated in a foreign currency. This gain is reported in the statement of shareholders' equity for companies with foreign operations where the local currency is the functional currency. Therefore, the best choice is B. Option A is incorrect because if the U.S. dollar was the functional currency, there would be no need for foreign currency translation. Option C is incorrect because a foreign currency transaction gain or loss is reported in the income statement, not the statement of shareholders' equity. Option D is incorrect because there is evidence of foreign operations and foreign currency translation gain.

Pauly Co Reports a Foreign Currency Translation Gain of $5 Million