If a subsidiary's functional currency is not the local currency in which it operates, but the parent's reporting currency:
A)the foreign subsidiary's translated financial statements are identical to the statements that would have resulted if the transactions had been recorded in dollars.
B)the translation adjustment is recorded as a component of other comprehensive income.
C)there is no indication that exchange rate changes will impact the subsidiary's or the parent's cash flows or equity.
D)None of the above is correct.

Question

If a subsidiary's functional currency is not the local currency in which it operates, but the parent's reporting currency:
A)​the foreign subsidiary's translated financial statements are identical to the statements that would have resulted if the transactions had been recorded in dollars.
B)​the translation adjustment is recorded as a component of other comprehensive income.
C)​there is no indication that exchange rate changes will impact the subsidiary's or the parent's cash flows or equity.
D)​None of the above is correct.

Quizplus · Accepted Answer

When a subsidiary's functional currency is the same as the parent's reporting currency, the financial statements are translated as if the transactions were originally recorded in the parent's currency, making them identical.

If a Subsidiary's Functional Currency Is Not the Local Currency