Impact of Currency Appreciation on Consolidated Financial Statements

Medium Multinational Operations Impact On Financial Statements

ABC Corporation is a multinational company headquartered in the United States, with significant operations in Europe and Asia. The company follows U.S. GAAP for its financial reporting. Recently, ABC Corporation's subsidiary in Europe experienced a significant appreciation of the Euro against the U.S. Dollar. As a result, the subsidiary's revenues and expenses, initially recorded in Euros, will need to be translated into U.S. Dollars for consolidation.

When ABC Corporation consolidates its financial statements for the year, it will need to consider the impact of this currency exchange rate change on various elements of its financial statements, including revenues, expenses, and potential gains or losses on foreign currency translation.

Which of the following statements best describes the impact of this currency appreciation on ABC Corporation's financial statements?

The appreciation of the Euro will decrease the translated revenues and expenses, leading to a lower net income for the consolidated financial statements.

The appreciation of the Euro will increase the translated revenues, but will have a negligible effect on the expenses, leading to a higher net income for the consolidated financial statements.

The appreciation of the Euro will increase both the translated revenues and expenses equally, resulting in no effect on the net income for the consolidated financial statements.

Hint

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