Question

You are a U.S. parent and you have a subsidiary in Italy. The subsidiary’s functional currency is the euro. When you consolidate the subsidiary you will:

A. Remeasure the subsidiary’s trial balance into U.S. dollars and then do the consolidation eliminating entries B. Translate the subsidiary’s trial balance into U.S. dollars and then do the consolidation eliminating entries C. Put the subsidiary’s trial balance, in euros, on the working paper and add the euro balances to the parent’s U.S. dollar balances D. Translate the subsidiary’s trial balance into euros, then remeasure it into U.S. dollars, and then do the consolidation eliminating entries

Answer 1

The correct answer will be option (B) Translate the subsidiary’s trial balance into U.S. dollars and then do the consolidation eliminating entries. It is because the subsidiary’s functional currency is the euro and so it is considered that it will also maintain it's account in euro only. And so when the subsidiary is consolidated then the subsidiary’s trial balance is first converted to U.S. Dollars and then the consolidation elimination entries are made. The other options (A), (C) and (D) are not correct because of the above reason.

answered by: anonymous