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Answer: gain on the consolidated income statement.
## Explanation Under the **temporal method**: - When a foreign subsidiary has a **net monetary liability position** (monetary liabilities > monetary assets) - And the **foreign currency depreciates** against the parent's currency - This creates a **foreign exchange gain** that is reported on the consolidated income statement **Reasoning:** - Net monetary liability exposure means the subsidiary owes more in foreign currency than it holds - When foreign currency depreciates, the value of those liabilities in parent's currency decreases - This creates a gain that flows through the income statement under temporal method - The cumulative translation adjustment account is used under the current rate method, not temporal method Option A is correct because the gain is reported on the income statement under temporal method.
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Acme Manufacturing forms a foreign subsidiary and translates its results using the temporal method. The subsidiary operates with a net monetary liability and the foreign currency has depreciated against Acme's currency during the most recent accounting period. As a result of the subsidiary's balance sheet exposure, Acme will report a:
A
gain on the consolidated income statement.
B
positive adjustment included in its cumulative translation adjustment account.
C
negative adjustment included in its cumulative translation adjustment account.
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