Question

For each of the items listed below, state whether they increase or decrease the balance in cumulative translation adjustments (assuming a credit balance at the beginning of the year) when the foreign currency strengthened relative to the U.S. dollar during the year.
Net Income Dividends Declared
A. Decrease Increase
B. Increase Decrease
C. Decrease Decrease
D. Increase Increase

Answer 1

Answer:

Option B. Increase in Net Income and decrease in Dividends

Explanation:

The weakening position of the US dollar will make US products cheaper in the international market and thus would increase the exports of the product of the company. This will increase the net income of the company. Thus after cumulative translation adjustment what we have is increased net income.

Similarly as dividend declared would be in US dollars, when preparing a translated financial statement, the dividend declared would decrease its value as the foreign currency has strengthening position.