Question

Papco, a U.S. entity, has a subsidiary, Sapco, located in a foreign country. Sapco is essentially a sales unit for Papco. After remeasuring Sapco's financial statements from the foreign currency to Papco's reporting currency, Papco determined that it had a loss on the remeasurement. How should Papco report the loss in its consolidated financial statements?A. As an extraordinary loss.

B. As income from continuing operations.
C. As an item of other comprehensive income.
D. As a deferred item until the subsidiary is sold.

Answer 1

As income from continuing operations.

Step-by-step explanation:

In this scenario Sapco is a sales unit for Papco and when remeasuring Sapco's financial statements from the foreign currency to Papco's reporting currency, Papco determined that it had a loss on the remeasurement.

So it determines a loss that is related to foreign exchange factor.

Since this loss is incurred by Papco's subsidiary in its operations, it will recognise the loss as a part of income from continuing operations in the consolidated financial statements.

Papco can guard against foreign exchange effect by considering it in Sapco's profit projections. This will help the company eventually make profit.