A foreign subsidiary of Wampoa Ltd. has one asset (inventory) and no liabilities. The subsidiary operates with a significant degree of autonomy from Wampoa and primarily uses the local currency (the won) in carrying out its transactions. Since the date the inventory was acquired, the won has decreased in value in relation to Wampoa’s reporting currency. In translating the foreign subsidiary’s peso financial statements into the parent’s reporting currency, which of the following is true?
a. A translation gain must be reported in net income.
b. A positive translation adjustment must be reported in stockholders’ equity.
c. A negative translation adjustment must be reported in stockholders’ equity.
d. A translation loss must be reported in net income.
