A U.S. parent hedges its exposure to exchange rate changes caused by its investment in its subsidiary in Singapore. The subsidiary's functional currency is the U.S. dollar. Where are gains and losses on the hedge reported in the consolidated financial statements?

Question

Quizplus · Accepted Answer

Since the subsidiary's functional currency is the U.S. dollar, any gains or losses on the hedge of the investment in the subsidiary would be recognized in income. This is because the hedge is directly related to the parent's net investment in a foreign operation, and changes in the value of the hedge reflect in the income statement when the functional currency is the same as the reporting currency.

A US Parent Hedges Its Exposure to Exchange Rate Changes Caused