Impact of Foreign Currency Translation on Financial Statements

Hard Multinational Operations Impact On Financial Statements

XYZ Corp is a multinational corporation operating in various countries with different functional currencies. For the upcoming fiscal year, the company plans to invest in its foreign subsidiaries. Recently, management was reviewing the impact of foreign currency fluctuations on its financial statements, particularly focusing on how these fluctuations may affect revenue recognition and the translation of foreign operations.

Which of the following statements best describes the effect of foreign currency translation on the financial statements of XYZ Corp?

Foreign currency translation gains and losses are reported in other comprehensive income (OCI) until realized.

Foreign currency translation adjustments are directly recorded in the income statement impacting the net income for the period.

A strengthening of the functional currency of a subsidiary relative to the parent company's currency will lead to a decrease in the consolidated revenue from that subsidiary.

Hint

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