Question

olin ltd. is a foreign subsidiary of rainier ltd., a canadian corporation. rainier translated olin's financial statements to canadian dollars using the fct method, which resulted in a cumulative translation gain of $15,500. how should the $15,500 be treated on rainier's consolidated financial statements?

Answer 1

The $15,500 cumulative translation gain from the functional currency translation method used by Rainier Ltd. for its subsidiary, Olin Ltd., should be included in Rainier's consolidated financial statements as part of accumulated other comprehensive income (AOCI).

Step-by-step explanation:

When Rainier Ltd., a Canadian corporation, uses the functional currency translation (FCT) method for translating the financial statements of its foreign subsidiary, Olin Ltd., the resulting cumulative translation gain or loss is not recognized in the income statement. Instead, these gains or losses are reported in other comprehensive income (OCI) and accumulated in a separate component of equity known as the accumulated other comprehensive income (AOCI).

Therefore, the cumulative translation gain of $15,500 should be reported in Rainier's consolidated financial statements as part of AOCI within the equity section. The gain reflects the effects of translating Olin's financial results from its functional currency to Rainier's reporting currency (Canadian dollars).