Multinational US companies usually have a number of foreign subsidiaries with financial statements expressed in foreign currency. When the consolidated financial statements are prepared, to combine the financial statements of the US parent and all of its subsidiaries, the consolidation process involves multiple steps. Which of the following statements about the combining process and the resultant consolidated financial statements is always true for multinational US companies?

Question

Quizplus · Accepted Answer

Multinational US companies convert the financial statements of their foreign subsidiaries into dollars before they are combined with the parent company's financial statements. This ensures that all financial results are expressed in a common currency, enabling investors to compare the consolidated financial statements more easily. The other statements in the options are incorrect. Foreign subsidiaries are not separated into three categories, and foreign currency translation adjustments do have an effect on cash flows. These adjustments are not included in consolidated income, but rather in a separate line item on the balance sheet called "translation adjustment."

Multinational US Companies Usually Have a Number of Foreign Subsidiaries