Impact of Currency Translation Adjustments on Income Statement

Hard Multinational Operations Impact On Financial Statements

ABC Corporation is a multinational company headquartered in the United States, with subsidiaries in Europe and Asia. Each subsidiary operates in its local currency, and ABC Corporation reports its consolidated financial statements in U.S. dollars. During the recent quarter, the value of the euro increased relative to the dollar while the value of the yen decreased. ABC Corporation's financial statements will reflect these currency fluctuations, impacting revenue recognition and the valuation of assets and liabilities.

Considering the implications of these currency movements on ABC Corporation's consolidated financial statements, which of the following statements accurately describes the effect of currency translation adjustments on ABC Corporation's income statement?

Currency translation adjustments will be reported as part of revenue in the income statement.

Currency translation adjustments will be reported as a separate component of other comprehensive income.

Currency translation adjustments will affect the cost of goods sold and therefore impact operating income.

Hint

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